Biotech Values

[DewDiligence]

ABT, B-I, Braun Settle ‘Whistleblower’ Claims With US DoJ

[ABT had already set aside a reserve for this liability, so the settlement will not affect EPS guidance for 2010 or 2011.]

http://www.bloomberg.com/news/2010-12-07/abbott-among-drugmakers-agreeing-to-421-million-settlement-in-u-s-case.html

›By Justin Blum and David Voreacos - Dec 7, 2010

Abbott Laboratories and two other drugmakers agreed to pay $421.2 million to settle claims they overcharged the U.S. for medicines, the Justice Department said.

Boehringer Ingelheim GmbH’s Roxane Inc. will pay $280 million, Abbott will pay $126.5 million and B. Braun Melsungen AG will pay $14.7 million. Boehringer and B. Braun are closely held. The settlements resolve civil claims that the companies inflated the average wholesale prices for drugs reported to the federal health programs Medicare and Medicaid.

The government reimbursed doctors and pharmacists at those higher prices, and the companies actually sold the drugs at a fraction of those stated prices, U.S. officials said. The scheme let doctors and pharmacists pocket more profits, and the drugmakers kept them as customers, U.S. officials said.

“This practice was widespread in the pharmaceutical industry -- so widespread in fact that average wholesale price, AWP, it was jokingly said, really stood for ‘Ain’t What’s Paid,’” Tony West, assistant attorney general for the Justice Department’s civil division, said today at a news conference in Washington. “Indeed, the only purchasers who paid the full inflated reported drug price were you, the American taxpayers.”

The settlement resolves lawsuits under the False Claims Act, which lets private citizens sue on behalf of the government and share in any recovery. A Florida company that administers drugs at patients’ homes, Ven-A-Care Inc., will get $88.4 million as whistleblowers.

‘The Spread’

The difference between the inflated government payments and the price paid by health-care providers for a drug was known as “the spread,” and profits for doctors or pharmacists increased as the spread widened, U.S. officials said [duh].

“The government alleges that Abbott, Roxane and Braun created artificially inflated spreads to market, promote and sell the drugs to existing and potential customers,” according to a Justice Department statement.

Roxane, a generic drugmaker based in Columbus, Ohio, said it settled the “expensive and disruptive litigation” and “at all times” complied with U.S. laws and regulations.

“The expense of protracted litigation adds to the cost of producing Roxane medicines and therefore impacts the competitiveness of our business,” Roxane said in a statement.

Abbott spokeswoman Adelle Infante said in a telephone interview: “We continue to believe that we have complied with all laws and regulations and have entered into this agreement to eliminate the uncertainty associated with continued litigation.”

The settlement won’t affect fourth-quarter financial results and will be covered by reserves set aside earlier this year, Infante said. She declined to say whether Abbott had changed its pricing policies as a result of the case.

Representatives of Ingelheim, Germany-based Boehringer didn’t immediately return voice-mail messages left after regular business hours.

A person who answered the phone at B. Braun’s headquarters in Melsungen, Germany, said no one was available to comment until tomorrow and hung up.

The U.S. intervened in a False Claims case against Roxane and filed a lawsuit on Jan. 18, 2007. The U.S. sued Abbott in May 2006, according to the Justice Department.‹