By Anne Steele

Alere Inc. said Friday its diabetes unit's Medicare enrollment was revoked by the government, which claims the unit submitted claims for deceased patients, with the announcement coming a day after a new lawsuit further threatened Alere's merger with reluctant buyer Abbott Laboratories.

Shares of Alere tumbled 13% Friday to $36.60, a sharp discount to the agreed-upon merger price of $56 a share, as the company also posted disappointing financial results for its latest quarter.

Alere said in a filing that its subsidiary Arriva Medical LLC's Medicare enrollment was revoked by the Centers for Medicare and Medicaid Services. The CMS letter, dated Oct. 5, identifies 47 of the 211 claims it alleges Alere made for deceased patients over a five-year period.

Alere said its initial appeal was denied by CMS on Wednesday, and therefore Arriva's Medicare enrollment would be revoked effective Friday, pending the outcome of further appeals. In the filing, Alere said it doesn't believe Arriva received or retained improper reimbursement for medical equipment it furnished.

Alere added on Friday it believes the matter is owing to the lag in timing between when Arriva processes reimbursement requests and when the CMS system updates patient status, and pointed out that Arriva processed nearly 5.8 million total claims during the five-year period.

It said it is continuing to work through the appeals process toward a goal of Arriva's enrollment status being reactivated retroactively to Friday.

For the first three quarters of the year, Arriva contributed about $88 million in revenue to Alere.

Abbott agreed to buy Alere in February for nearly $5 billion. Since then, Alere disclosed it has received a subpoena regarding a foreign corruption investigation over payments in Africa, Asia and Latin America. It also said separately that federal investigators are seeking information about government-billing practices. The company was also late in filing its 2015 annual report.

Since agreeing to the deal, Abbott has signaled it may not want to ultimately go through with it. In late August, Alere escalated its fight with Abbott by filing a lawsuit against its potential acquirer to push it to move forward with the deal.

On Thursday, Abbott filed suit under seal against Alere, alleging breach of contract and seeking documents and information required by contract, according to a court document. Abbott said the suit is to obtain important information before the transaction is completed, and doesn't ask the court to break the deal. Alere declined to comment on the suit.

Abbott said it filed suit "to get Alere to honor the agreement and provide information about business practices that are the focus of criminal and civil investigations that came to light after the merger agreement around federal anticorruption, anti-kickback and U.S. health-care laws," the company said in a statement. "Abbott would be responsible for the company upon close and has the right to understand these issues so that it can prepare to address them immediately."

Alere's third-quarter report came as a disappointment to investors. In all, for the September quarter, Alere earned $21.8 million, or 19 cents a share, compared with a loss of $2.3 million, or a dime a share, a year earlier. Analysts polled by Thomson Reuters were looking for earnings of 54 centsa share. The company blamed the decline on $41 million in merger and legal-related expenses, $12 million of investments in infrastructure and performance improvement initiatives, and $5 million in acquisition costs.

Revenue fell, unexpectedly, by 3.5% to $582.4 million. Analysts had anticipated an increase to $605.5 million. Foreign currency dented the top line $4 million and the company said organic revenue slipped 0.7% during the quarter.

Gross margin was unchanged at 46%.

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

November 04, 2016 15:39 ET (19:39 GMT)

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