WILMINGTON, Del. (Legal Newsline) – Pending litigation in Delaware between
Abbott Laboratories and Alere may set new precedents in the state if the court
agrees to let Abbott back out of the proposed merger.
According to legal filings, the company that Abbott was interested in merging
with no longer actually exists. That is to say, that it has been allegedly so horribly
managed and operated that it no longer holds the value that it did when the
merger was in its initial stages.
Not least among Abbott’s complaints are that a subsidiary of Alere was found to
have incorrectly billed the federal Centers for Medicare and Medicaid Services program for services to
hundreds of deceased people over a five-year span. According to Alere, CMS' decision to revoke its subsidiary Arriva Medical’s Medicare billing
privileges was “driven by a desire to reduce its longstanding backlog of
administrative claim-reimbursement appeals.”
for dead patients can be innocent errors (if they involve rentals, or monthly
capitation or other routine fees), where the provider not knowing the patient
died leads to an automatic continuation of the routine billing,” Harvard
Kennedy School Professor Malcolm Sparrow, who declined to comment on the
specific litigation for the case, told Legal Newsline.
“But the more common problem is ‘billing for services not
provided,’ where fraudulent billings are based on lists of patients, and the
user of the list doesn't know that some names on the list are now dead (or in
prison, or deported, etc.).
“In such instances, even a small number of
claims that are totally implausible due to prior death are a strong indication
of systematic billing fraud.”
Alere has filed an objection to the CMS sanctions with an administrative law judge, as well as an attempt to stay the sanctions while the issue is sorted out. Alere needs
to win out in the objection, where failure to do so could be catastrophic for
“Being excluded from Medicare is a very serious sanction,” Sparrow said. “Normally referred to within the industry as ‘the kiss of death’
as it so severely restricts future business opportunities.”
Even if Alere
successfully reverses the sanctions that prevent its subsidiary from Medicare
billing, there are still a number of factors at play in the merger lawsuit
filed by Abbott.
Alere is currently under investigation by the Department of Justice for alleged
violations of the Foreign Corrupt Practices Act (FCPA). The FCPA investigators
at the Department of Justice have been aggressively pursuing companies that
violate this act by bribing officials to increase profit margins.
cites subpoenas from the other government entities, including the Securities and
Exchange Commission, as cause for the breach of contract suit. Add to the list
that Alere has had to pull at least one product off the market, and the hard hit that the company’s stock has taken
in light of all the turmoil and the reasons for Abbott to pull out of the deal
become more clear.
The public valuation of Alere, whose stock price has plummeted
during the last year, is no longer worth the $56 per stock share that it was
when Chicago-based Abbott Laboratories had originally signed the merger in
January 2016. The stock has lost roughly one-third of its value since the merger
was agreed to, currently at $40.39 on Feb. 16.
Alere previously filed suit against Abbott Laboratories for what it called,
“dragging its feet,” in seeking approval for the merger. A merger between the
two would first have to be approved under antitrust laws in the United States.
The approval for the merger was already granted by the European Commission.
Alere announced the approval for the merger to move forward by that government
entity near the end of last month.
For now, the two health care companies and the market will have to wait to see
if the Delaware court sides with Abbott and determines there has been a
material change in the merger that is significant enough to release Abbott from
its previous agreement, or if Abbott Laboratories is still bound by the
original merger agreement in spite of the problems at Alere.