In what would be one of the largest health-care fraud settlements in U.S. history, Abbott Laboratories will pay more than $600 million to resolve allegations that it worked with medical-care providers to bilk government health insurance programs for the poor and elderly.
The medical products giant disclosed late yesterday that it would take a one-time second-quarter charge of $622 million, or 34 cents a share, as a result of an anticipated settlement of civil and criminal allegations against its Ross Products nutrition business.
The settlement, which must be approved by a federal court, was disclosed after markets closed.
At issue is an industrywide investigation into whether Abbott and other medical product manufacturers encouraged hospitals, nursing homes or home-care providers to buy pumps and related supplies used to feed seriously ill people - known as enteral-nutrition therapy - by giving products away or selling them at a discount, sources said.
Some providers then allegedly billed the products at a higher price to Medicare, the federal health insurance program for the elderly, or Medicaid, the federal-state program for the poor, these sources said. For Abbott, the practice helped it build market share, sources said.
The investigation was reported by the Chicago Tribune in 2001.
Abbott would not disclose specifics of the settlement. Spokeswoman Melissa Brotz said the "matter still has to be addressed by federal court." The U.S. attorney's office for the Southern District of Illinois, which is handling the nationwide probe, would not comment.
However, sources say Abbott has negotiated a plea agreement that would allow the company to continue to do business with federal and state health insurance programs.
Abbott wouldn't comment on whether there would be a guilty plea but said Ross' business would not be affected.
"The anticipated settlement resolves all matters related to the investigation against the company including all federal and state government issues," Brotz said.
Abbott said patient safety is not an issue in the matter. The government investigation of the industry, which has focused on sales and marketing practices, dates to the mid-1990s, it added.
Novartis AG; Tyco International's health-care unit; and Zevex International Inc. previously disclosed they, too, were under investigation. But Abbott is the first company to announce a potential settlement and is the biggest player in the business.
Abbott's Ross Products division dominates the enteral nutrition therapy business, serving about 50 percent of the market, according to industry analysts.
While most consumers pay out-of-pocket for nutritional supplements, federal and state governments are big purchasers of such supplies for the elderly and disabled who are unable to feed themselves.
The equipment, which involves pumps and sets of tubes, provides nourishment directly to the digestive tracts of patients who can't feed themselves or ingest enough nutrients. Abbott's Ross division, which makes the popular Similac baby formula, also sells the widely used nutritional supplement Ensure as well as pumps and related equipment.
Medicare spends more than $600 million on enteral pumps and related supplies, according to statistics from the Centers for Medicare and Medicaid Services in Washington.
Bruce Japsen is a reporter for the Chicago Tribune, a Tribune Publishing newspaper.