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NEW YORK (MainStreet) — The United States Department of Justice (DOJ) announced December 27 that Abbott Laboratories will pay the United States $5.475 million to resolve allegations that it violated the False Claims Act by paying kickbacks to doctors to "induce" them to use a line of the pharmaceutical giant's products. The company, which is based in Abbott Park, Ill. issued a statement that it settled to avoid the uncertainty and cost of lengthy litigation.

"Abbott believes its actions were appropriate at all times," said Abbott spokeswoman Angela Duff, according to Reuters.

But the DOJ takes a different perspective.

"Patients have a right to treatment decisions that are based on their own medical needs, not the personal financial interests of their health care providers," said Assistant Attorney General Stuart F. Delery, of the DOJ's Civil Division. "Kickbacks undermine the ability of health care providers to objectively evaluate and treat their patients, and will continue to be a primary focus of the Department's health care enforcement efforts."

According to the DOJ, the settlement is warranted because Abbott "knowingly paid prominent physicians for teaching assignments, speaking engagements and conferences with the expectation that these physicians would arrange for the hospitals with which they were affiliated to purchase Abbott's carotid, biliary and peripheral vascular products." As a result of this, the United States alleged that Abbott violated the Anti-Kickback Act and caused false claims to be submitted to Medicare for the procedures in which Abbott products were used.

The allegations were originally contained in a qui tam lawsuit filed by Steven Peters and Douglas Gray, two former Abbott employees. The action is authorized by a provision of the False Claims Act. This law permits whistleblowers to file suit on behalf of the United States for false claims and share in any recovery. Peters and Gray will receive a total payment of more than $1 million.

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This settlement is also part of the the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, begun in May 2009 by Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius. The two departments focus on Medicare and Medicaid - using the False Claims Act as one of its major weapons. According to DOJ, since January 2009 more than $17 billion have been recouped through False Claims Act cases. More than $12.2 billion of this involved fraud against federal health care programs.

But not everyone praises these actions.

Walter Olson, a senior fellow at the Cato Institute, is a lawyer who writes about tort reform. He says that many of these qui tam lawsuits are the equivalent of ambulance chasing in the sense that lawyers are incentivized to file lawsuits.

"Without commenting on the merits of the Abbott Labs case...we know that there is a bounty hunting philosophy," he said. "It would be one thing if there were very bright lines to tell one if the cases were legitimate or not. But when we give lawyers and qui tam relators — the technical term for the whistleblower — massive amounts of money they will bring cases where the damages are high."

Olson noted that the amounts are so large there is a tendency to get rid of a legal risk. So companies will settle just to eliminate the legal liability, which is what Abbott said in its statement.

—Written by Michael P. Tremoglie for MainStreet