Novartis Pharmaceuticals Settles $390MM FCA Allegations

Drugmaker Novartis Pharmaceuticals has agreed in principle to pay $390MM (including $20MM in civil forfeitures) to the Department of Justice. This payment, in addition to modification and an extension of Novartis’s existing Corporate Integrity Agreement (“CIA”), settles claims that the company paid illegal kickbacks to specialty pharmacy companies in order to induce the pharmacies to recommend two drugs—Exjade and Myfortic—to their patients. The Government sought damages of over $3.3B.

Exjade is a medicine manufactured and sold by Novartis that reduces excess iron in patients who are in need of blood transfusions. Myfortic is a transplant drug, designed to prevent organ rejection by transplant recipients. Novartis induced specialty pharmacies, the Government says, to overprescribe both.

Of particular note, the settlement agreement approved by the Southern District of New York, includes factual admissions by Novartis; the company admitted that it provided kickbacks to specialty pharmacies to encourage them to prescribe its drugs. Specifically, Novartis agreed that it assigned greater percentages of undesignated referrals and rebates to the pharmacies that produced high refill rates. In order to take advantage of this benefit, pharmacies instructed nurses to call patients and recommend continued use of Novartis’s drugs—without mention of side effects like renal failure, stunted growth, and infertility. This, according to DHS Inspector General Chief Counsel Gregory E. Demske, was an example of healthcare providers serving as a “biased salesforce for the drug-maker.”

The settlement comes after significant litigation in the Southern District of New York, which is gaining notoriety as a district focused on healthcare enforcement. The Department of Justice intervened in the case in 2013. Novartis filed its motion to dismiss in February 2014, and in August of that year, the district court denied the motion, finding that the Government had indeed pleaded an implied certification theory of FCA liability. Upon settling the matter, Novartis issued a press release, stating that it believes the “resolution and the new CIA obligations will provide greater clarity” as the Company strives to “work with independent specialty pharmacies in support of patient care.” It remains unclear, given the new post-Yates Memorandum landscape, whether the Government will seek to hold any individual executives at Novartis responsible for the actions giving rise to the claims.

One thing is clear, however, and that is that the relationship between drugmakers and pharmacies will remain an area of scrutiny on the part of the Government in the years to come—and particularly on the part of the DOJ’s Health Care Fraud Prevention and Enforcement Action Team, or “HEAT.” Novartis itself settled similar claims involving kickbacks to healthcare professionals in 2010, for $422.5MM.