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Exclusive: How Abbott Labs Allegedly Got Medicaid to Pay $3.3M for Popsicles

Abbott Labs (ABT) persuaded Medicaid to pay $3.3 million for freezer pops by pretending they were drugs approved by the FDA, according to a whistleblower lawsuit that illustrates how stricter government oversight could prevent drug companies from defrauding taxpayers.

The suit was filed against 26 pharmaceutical companies and led to Forest Labs (FRX)'s $313 million settlement with the Department of Justice. In that case, Forest admitted selling a thyroid drug, Levothroid, that had never been approved by the FDA (as well as giving improper incentives to doctors to prescribe antidepressants for children). Most of the other defendants have not settled.

The Forest settlement -- and a similar settlement with Schwarz Pharma -- came after the DOJ intervened in the suit because it believed it may have some merit. The DOJ does not always intervene in such suits, and there's currently no indication it has any interest in the allegations against Abbott. Abbott did not respond to multiple requests for comment.

The complaint accuses the companies of generating fake Medicaid reimbursement codes to gain payment for products that weren't actually drugs, or for generic drugs that were never approved by the FDA. The suit says:

... hundreds of millions of dollars of federal Medicaid funds have been used to pay for ineligible vitamins, minerals and other dietary supplements as a result of false claims caused by Defendants' actions.
In Abbott's case, the suit alleges that the company made up a "National Drug Code" number -- a string of digits that Medicaid needs to process reimbursement claims -- and a fake FDA approval date for some of its non-drug nutritional products, and Medicaid paid the claim without checking whether the code and date were legit. The implication is that if Medicaid claims processors were more vigilant about auditing NDC numbers and FDA approval dates, then bad actors would mend their ways.

Between 1996 and 2003, Abbott allegedly received $3.3 million in reimbursement for Pedialyte Freezer Pops, a non-prescription product that Abbott makes for babies who might be dehydrated from diarrhea, the suit claims. An FDA spokesperson told BNET that Pedialyte is not medicinal: "Pedialyte is not an OTC drug. It is not a dietary supplement (it is not labeled as such). It is a conventional food." The FDA published a Federal Register notice making that clear in 2003 (see page 6).

The complaint alleges that Abbott gave the pops the fictitious NDC number "00074 0245" and claimed the FDA approved them as a drug on June 1, 1996. The freezer pops were among almost $50 million in alleged wrongful payments for popsicles, Pedialyte, and vitamins that Abbott booked from Medicaid, per the suit:

The suit was brought by Constance A. Conrad, who is described in the legal papers only as:

... a resident of the state of Pennsylvania. Ms. Conrad has over 30 years experience in the federal healthcare programs field.
Among the other companies named as defendants are Actavis, Biovail, Duramed, Mylan, Sciele, Shire, Teva, Warner Chilcott, and Watson, which noted the suit in a recent quarterly filing with the SEC. The suit alleges that the companies together reaped more than $500 million in false claims for non-drugs and unapproved drugs.

Image by Flickr user Kelly Sue, CC.