Watch CBSN Live

How Pharma Bilked the Feds by Selling Vitamins as Prescription Drugs

Twenty-three drug companies -- including Abbott Labs (ABT) and Teva (TEVA) -- are accused of making up approval codes for unapproved drugs, vitamins and popsicles in order to obtain millions of dollars in fraudulent reimbursements from Medicare and Medicaid.

The case is an old one but was unsealed for the first time today. BNET first reported the existence of the litigation -- and the fact that Abbott had allegedly rooked the government for $3.3 million by pretending that its Pedialyte popsicles were prescription drugs -- three months ago. The case demonstrates just how badly the federal government polices drug companies that claim reimbursement for their products.

The scam was a simple one, the whistlebower plaintiff claims. In order to get Medicare or Medicaid reimbursement, a drug must have a National Drug Code (NDC) number and an FDA approval date, otherwise it is expressly excluded from coverage. So Abbott and others simply made up NDC numbers and dates. The government failed to check the data and paid the claims. Abbott received nearly $50 million by pretending that vitamins and popsicles were prescription drugs, the suit claims:

Teva received another $2.3 million for multivitamins, the suit alleges.

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."

An earlier version of the suit has already led to a $313 million settlement with Forest Labs (FRX) over its sale of thyroid drug Levothroid that had never been approved by the FDA; and a $22 million settlement with Schwarz Pharma for similar acts.

It wasn't just harmless products like vitamins and Pedialyte. Some of the unapproved drugs allegedly being sold were dangerous. Qualitest and Watson sold $3.1 million and $1.8 million of unapproved versions of the highly addictive painkiller OxyContin, the suit claims. (Watson has listed its potential liability in the suit in a previous 10-Q disclosure with the SEC.

Among the larger companies named as defendants are: Abbott Labs (ABT), Actavis Mid-Atlantic (formerly Alpharma), Mylan (MYL), Sciele Pharma, Shire (SHPGY), Teva (TEVA), Warner Chilcott, and Watson Labs.