Texas attorney general settles with Abbott Labs

Texas Attorney General Greg Abbott has reached a $28 million civil settlement with Chicago-based Abbott Laboratories Inc. The settlement resolves the state’s May 2004 enforcement action, which charged the drug manufacturer with falsely reporting drug prices to the state and federal Medicaid programs. Under the agreement, the state of Texas will receive approximately $28 million in damages, attorneys’ fees and costs. The legal theories in the Texas case are identical to those in Alabama and other states where litigation is pending. The state of Alabama’s case against Abbott is set for trial on February 2, 2009.

State and federal law requires that drug manufacturers report the prices at which they sell their products to various providers, including pharmacies, wholesalers and distributors. The Medicaid programs use this pricing information to estimate the costs Medicaid providers pay to acquire the drug manufacturers’ products. Medicaid providers bill the state-run programs for these costs, plus prescription dispensing fees, and Medicaid reimburses the providers. When a manufacturer reports inflated prices to the Medicaid program, as happened in the Texas case, the taxpayer-funded program greatly overpays providers for their products. As we have reported, the difference between what a provider actually pays to purchase a drug and what is reimbursed by Medicaid is called the “spread.” The Attorney General’s office says that as a result of the illegal spreads created by Abbott Laboratories, Texas Medicaid over-reimbursed providers for Abbott’s drugs. The windfall profits from these inflated reimbursements, which date back to the early 1990s, induced providers to favor Abbott Laboratories over other manufacturers, according to the Attorney General. The result was a long-term, but unlawful, market niche for the company in Texas.

In May 2004, at about the time the Texas Attorney General announced his filing of the lawsuit against Abbott Laboratories, the Defendant spun off its generic pharmaceuticals business unit and created Hospira Inc. The agreement with Hospira will govern its price-reporting practices in the future. The Abbott Labs enforcement action reflects Attorney General Abbott’s continuing crackdown on waste, fraud and abuse in the Medicaid system. In 2006 alone, the Texas Medicaid program cost more than $17 billion. To save taxpayer dollars, the Attorney General has dramatically expanded both the Civil Medicaid Fraud Section and the Medicaid Fraud Control Unit. Since he took office, the civil and criminal Medicaid fraud sections have recovered more than $200 million.

With the passage of amendments to the Texas Medicaid Fraud Prevention Act in 1997, the Texas Legislature paved the way for whistleblower lawsuits involving industry insiders. Under the law, whistleblowers may be eligible for a percentage of damages recovered. To obtain more information about the Texas Attorney General’s efforts to fight Medicaid fraud, access the agency’s Web site at www.texasattorneygeneral.gov. The Alabama Legislature should take a look at what Texas lawmakers have done to strengthen that state’s laws.

Source: Texas Attorney General Press Release