Abbott to pay $600 million re illegal marketing

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Published Jul 25, 2003

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Abbott firm guilty plea to obstruction

Chicago Tribune, July 24, 2003

http://www.chicagotribune.com/business/chi-0307240284jul24,1,7304107.story?coll=chi-business-hed

A subsidiary of Abbott Laboratories has pleaded guilty to obstructing a criminal investigation, and the subsidiary and Abbott agreed to pay $600 million in penalties in connection with an industrywide probe of marketing practices used to defraud Medicare and Medicaid.

CG Nutritionals Inc. became ensnared in a rare undercover investigation operated for three years in the southern Illinois town of Swansea. There, FBI agents posed as customers for the company's tubes, pumps and devices used to deliver liquid nutrition to seriously ill patients.

As part of the settlement reached with the U.S. attorney's office for the Southern District of Illinois, Abbott admitted that one of its divisions counseled nursing homes and medical equipment suppliers, including an FBI-operated undercover company, to submit claims to Medicare for pumps and plastic tubing without mentioning discounts they received.

To gain market share, Abbott's Ross Products division, which includes CG Nutritionals, sold "bundled" sets of pumps and plastic tubing as one product, at a deeply discounted price--an arrangement that made it difficult for government insurers to discern the true charges associated with the equipment, prosecutors said.

With the actual prices obscured, medical providers were able to file for, and get, inflated government reimbursement, prosecutors said.

In an April 2001 letter, Ross Products informed Southern Medical Distributors, a fake company the government set up for the sting operation, that the letter could be used in the event of an audit to establish a per-pump cost for the nutrition products, prosecutors said.

The letter "misstated" the customer's costs of acquiring the feeding pumps, prosecutors said, and failed to disclose that sometimes they were supplied at no charge.

Although Abbott did not admit to committing health-care fraud, the company said in a statement that its violation is the result of "certain customer communications that were misleading with respect to the actual contractual arrangement for providing pumps and sets."

Abbott said its Ross division fully cooperated with the government in the probe.

"Although the industrywide practices were long-standing, Ross began voluntarily changing its sales and marketing practices earlier this year to address government concerns," Abbott said in a statement.

Abbott's plea to a lesser charge allows Abbott to continue to do business with government health insurers. But the deal requires Abbott to operate under a corporate integrity agreement and CG to be on probation for five years.

The proposed settlement has to be approved by Chief Judge G. Patrick Murphy in the U.S. District Court for the Southern District of Illinois.

Abbott's is the first criminal conviction since the government set up its "Operation Headwaters" task force in a small Swansea office building as a phony medical supply company. The bogus Southern Medical Distributors bought an array of medical devices, drugs and other products.

The investigation is continuing, and several sources close to Abbott say they expect that some employees who were caught on videotape during the probe will be charged.

Neither Abbott nor attorneys representing current and former employees who have been informed that they are targets would comment.

Abbott agreed to a $200 million criminal fine and a $400 million civil settlement that will be divided among the federal government and 50 states that signed off on the deal. Illinois will get nearly $1 million.

"This prosecution and civil settlement demonstrates the strong commitment of the United States to uncover corporate obstruction and related fraud in the Medicare and Medicaid programs," said Deputy U.S. Atty. Richard Byrne. "We will continue to prosecute corporations and individuals that violate federal laws and defraud the Medicare and Medicaid programs. As state and federal budgets tighten, we must protect the limited financial resources of the programs and preserve their ability to care for the elderly and poor."

The products, made for "enteral nutrition therapy," are used to provide nourishment directly to the digestive tracts of patients who either cannot feed themselves or cannot ingest enough nutrients.

Abbott's Ross Products dominates the U.S. market for enteral nutrition pumps and tubing, with a share of more than 50 percent, industry analysts say.

Health-care fraud experts say Abbott's plea should send a message to the industry about how far the government will go to uncover potential wrongdoing.

"It's relatively rare for the government to invest the time and resources into an undercover operation into a major laboratory or pharmaceutical company," said Robert Mintz, a New Jersey health-care lawyer and former federal prosecutor of health-care fraud and white-collar crime.

"This suggests that the government already believed that this type of Medicare overbilling was fairly pervasive and they were relatively confident that by posing as purchasers of medical devices they would gather incriminating evidence against Abbott Laboratories."