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Abbott Pleads Guilty, Is Fined

The medical products maker agrees to pay $600 million to settle obstruction charges.

July 24, 2003|From Reuters

Medical products maker Abbott Laboratories Inc. pleaded guilty to obstructing a federal probe into whether it encouraged a distributor to cheat the Medicare program, and agreed to pay $600 million in fines, prosecutors said Wednesday.

Abbott, based near Chicago, agreed to pay a $400-million civil settlement and a $200-million criminal fine, the U.S. attorney for the Southern District of Illinois said. The firm was charged with misleading Medicare about the cost of liquid food, plastic tubes and an electronic pump used to get nutrition into the stomachs of patients unable to ingest meals.

The settlement will permanently bar Abbott's CG Nutritionals unit from participating in the Medicare and Medicaid federal insurance programs for the elderly and poor, prosecutors said. They said Medicare might have been charged more for the products bundled together than they were worth separately.

Abbott said it already had taken a $622-million charge to cover the anticipated costs of the settlement. It said the probe would not have an ongoing financial effect. Its shares slid 64 cents to $40.80 on the New York Stock Exchange.

The hefty fine follows recent payouts from other big drug makers in marketing investigations, including $355 million in fines levied against AstraZeneca this year for the way it sold a cancer drug.

The Abbott investigation began in the mid- to late 1990s. Prosecutors said the company's Ross nutritional products division, along with CG Nutritionals, sold customers pumps and plastic tubing bundled together as one product at one price, making it difficult for Medicare to know how much each product was worth separately.

The guilty plea follows an undercover sting operation by the FBI, postal inspectors and the Department of Health and Human Services. Federal agents created a bogus distribution firm known as Southern Medical Distributors, which supposedly distributed medical supplies.

The shell entity was approached by several manufacturers, including the Ross unit, which offered inducements to undercover personnel to purchase Ross products.

In addition, Ross sent a letter to the shell entity misstating the costs of the equipment, prosecutors said.

Ross employees, not aware they were dealing with government authorities, told undercover agents the letter could be used in the event of a government audit of the sales, according to prosecutors.

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