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Tuesday, March 31, 2020

Abbott's attempt to exit Alere merger could set precedent

By Tabitha Fleming | Feb 16, 2017

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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.”

Billings 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 the company.

“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. 

Abbott also 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.

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Organizations in this Story

U.S. Department of JusticeAbbott Laboratories