UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA et al. ex rel.
DAVID KESTER,
Plaintiffs,
- v -
NOVARTIS PHARMACEUTICALS CORPORATION,
et al.,
Defendants.
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11 Civ. 8196 (CM)(JMF)
ECF Case
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MEMORANDUM OF LAW OF THE UNITED STATES IN OPPOSITION TO
NOVARTIS’S MOTION TO COMPEL
PREET BHARARA
United States Attorney for the
Southern District of New York
86 Chambers Street, 3rd Floor
New York, New York, 10007
Telephone: (212) 637-2734/2714/2722
Of Counsel:
LI YU
REBECCA C. MARTIN
ROBERT WILLIAM YALEN
Assistant United States Attorneys
Case 1:11-cv-08196-CM-JCF Document 280 Filed 09/29/14 Page 1 of 24
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT ................................................................................................. 1
RELEVANT BACKGROUND ................................................................................................... 3
A. Contrary to Novartis’s Suggestion, It Had Ample Notice That the
Anti-Kickback Statute Proscribes Using Kickbacks to Improperly
Influence Pharmacy Staff ..................................................................................... 3
B. Novartis’s Selective Summary Leaves Out Basic Features of the
Exjade Kickback Scheme That Undercut Novartis’s “Adherence”
Requests .............................................................................................................. 5
C. The Court’s Prior Decisions on Motions to Dismiss ............................................. 7
D. The Government’s Document Production and Novartis’ Motion to
Compel ................................................................................................................ 8
ARGUMENT ............................................................................................................................ 10
POINT I. AS THE PARTY DEMANDING DISCOVERY, NOVARTIS HAS
THE BURDEN TO SHOW “THE NECESSARY CONNECTION”
BETWEENS ITS REQUESTS AND THE CLAIMS AND DEFENSES
AT ISSUE ........................................................................................................... 10
POINT II. NOVARTIS HAS FAILED TO EXPLAIN HOW ITS “ADHERENCE
RELATED” REQUESTS ARE RELEVANT ..................................................... 11
A. Federal Programs Relating to Adherence Are Not Relevant Just Because Novartis
Believes That the Government Conduct Is Similar to the Exjade Scheme ........... 11
B. Having Admitted That It Did Not “Model[]” the Exjade Scheme on Any “U.S.
Programs,” Novartis Cannot Claim That Such Programs Are Relevant to Its
Knowledge or Willfulness .................................................................................. 14
POINT III. NOVARTIS HAS FAILED TO EXPLAIN HOW ITS REQUESTS FOR
CLINICAL PROTOCOLS AND RELATED DOCUMENTS FROM
FEDERAL HEALTH PROGRAMS AND FACILITIES ARE RELEVANT ...... 16
POINT IV. IN LIGHT OF THE LACK OF RELEVANCE OF NOVARTIS’S
REQUESTS, NOVARTIS IS NOT ENTITLED TO IMPOSE ON THE
GOVERNMENT THE SUBSTANTIAL BURDEN TO RESPOND .................. 18
CONCLUSION ......................................................................................................................... 20
Case 1:11-cv-08196-CM-JCF Document 280 Filed 09/29/14 Page 2 of 24
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TABLE OF AUTHORITIES
Cases Page
Collens v. City of New York,
222 F.R.D. 249 (S.D.N.Y. 2004) .................................................................................... 10
Contemporary Mission, Inc. v. U.S. Postal Svc.,
648 F.2d 97 (2d Cir. 1981) ............................................................................................. 16
Franklin Avenue Residents' Association v. Meisels,
2012 WL 1899222 (E.D.N.Y. May 24, 2012) ............................................................... 11
Freedman v. Weatherford Intern.,
2014 WL 3767034 (S.D.N.Y. July 25, 2014) ....................................................... 1, 11, 18
Fort Worth Employees' Retirement Fund v. J.P. Morgan Chase & Co.,
297 F.R.D. 99 (S.D.N.Y. 2013)...................................................................................... 19
Macmillan, Inc. v. Federal Insurance Corp.,
141 F.R.D. 241 (S.D.N.Y. 1992) .................................................................................... 20
SEC v. Bankatlantic Bancorp, Inc.,
285 F.R.D. 661 (S.D. Fla. 2012) .................................................................................... 15
Scott v. Chipotle Mexican Grill, Inc.,
300 F.R.D. 188 (S.D.N.Y. 2014) .................................................................................... 19
Spina v. Our Lady of Mercy Medical Ctr.,
2001 WL 630481 (S.D.N.Y. June 7, 2001) .................................................................... 12
Surles v. Air France,
2001 WL (S.D.N.Y. Sept. 27, 2011) ............................................................................. 10
Tottenham v. Trans World Gaming Corp.,
2002 WL 1967023 (S.D.N.Y. June 21, 2002) ................................................................. 10
U.S. ex rel. Finney v. Nextwave Telecom, Inc.,
337 B.R. 479 (S.D.N.Y. 2006) ....................................................................................... 15
U.S. ex rel. Stephens v. Prabhu,
163 F.R.D. 340 (D. Nev. 1995) ..................................................................................... 15
United States ex rel. Oliver v. The Parsons Co.,
195 F.3d 457 (9th Cir. 1999) .......................................................................................... 15
United States v. Bidloff ,
82 F. Supp. 2d 86 (W.D.N.Y. 2000) ............................................................................... 12
Case 1:11-cv-08196-CM-JCF Document 280 Filed 09/29/14 Page 3 of 24
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United States v. Elsass,
2011 WL 3900846 (S.D. Ohio Sept. 6, 2011) ................................................................. 15
United States v. Raymond & Whitcomb Co.,
53 F. Supp. 2d 436 (S.D.N.Y. 1999) .............................................................................. 14
United States v. Ruttenberg,
625 F.2d 173 (7th Cir. 1980) ............................................................................................ 4
United States v. United Mine Workers of America,
330 U.S. 258 (1947) ...................................................................................................... 12
United States v. Vernon,
723 F.3d 1234 (11th Cir. 2013) ........................................................................................ 4
Viacom International Inc. v. Youtube Inc.,
253 F.R.D. 256 (S.D.N.Y. 2008) .................................................................................... 20
Visiting Nurse Association of Brooklyn v. Thompson,
378 F. Supp. 2d 75 (E.D.N.Y. 2004) .............................................................................. 16
Zanowic v. Reno,
2000 WL 1376251 (S.D.N.Y. Sept. 25, 2000) ................................................................ 14
Statutory and Regulatory Materials
1 U.S.C. § 1 ............................................................................................................................. 12
31 U.S.C. § 3729 ........................................................................................................................ 1
42 U.S.C. § 1320a-7b ........................................................................................................ passim
42 U.S.C. § 1320-d.................................................................................................................... 13
42 C.F.R. § 423.153 ............................................................................................................ 10, 13
59 Fed. Reg. 65,372 (Dec. 19, 1994) ........................................................................................... 5
75 Fed. Reg. 40,868 (July 14, 2010) .................................................................................... 13, 14
78 Fed. Reg. 5,566 (Jan. 25, 2013) ............................................................................................ 13
Other Sources
Medicare Part D Medication Therapy Management Programs 2009 Fact Sheet ............. 9, 10, 13
Case 1:11-cv-08196-CM-JCF Document 280 Filed 09/29/14 Page 4 of 24
Plaintiff the United States (“Government”), by its attorney, Preet Bharara, United States
Attorney for the Southern District of New York, respectfully submits this memorandum of law in
opposition to defendant Novartis Pharmaceutical Corporation’s (“Novartis”) motion to compel
dated September 10, 2014 (“NPC Br.”). [Dkt. 246]. For the reasons set forth below, Novartis’s
motion to compel should be denied insofar as it pertains to the Government.
PRELIMINARY STATEMENT
The Government intervened in this action because investigation showed that, in an effort
to increase drug sales, Novartis gave specialty pharmacies kickbacks to induce the pharmacies to
recommend two of its brand-name drugs, Myfortic and Exjade. Specifically, Novartis paid
rebates to numerous pharmacies in return for making recommendations to switch patients to
Myfortic from competitor drugs, and it also gave BioScrip, Inc., another specialty pharmacy,
patient referrals and rebates in exchange for recommending refills to Exjade patients under the
guise of “patient education” and “counseling.”1 By giving pharmacies remuneration in return for
recommendations, Novartis violated the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b (“AKS”),
and caused the pharmacies to submit false claims to Medicare and Medicaid in violation of the
False Claims Act, 31 U.S.C. § 3729 et seq. (“FCA”).
In accordance with its discovery obligations, the Government has produced several
hundred thousand pages of documents and large collections of claims data. On the other hand,
insofar as Novartis has sought improbably broad discovery from many federal agencies without
explaining their relevance, the Government has objected to such requests because there is no
basis for believing they are relevant to this case. If anything, Novartis’s motion underscores why
the Government need not respond to those overbroad requests.
“[T]he burden of demonstrating relevance is on the party seeking discovery.” Freedman
1 In January 2014, BioScrip settled with the Government and the States, giving extensive
factual stipulations and paying, based on its financial condition, $15 million over time. [Dkt. 41].
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v. Weatherford Intern., 2014 WL 3767034, at *3 (S.D.N.Y. July 25, 2014) (Francis, J.). Here,
Novartis has failed to make this showing. Its motion starts with a false premise — instead of
justifying its requests in terms of the legal standards from Judge McMahon’s prior decisions and
the Government’s allegations, Novartis’s selective summary of the “relevant legal and factual
background,” offers a distorted version of both. See NPC Br. at 4-8. It fails to mention, let alone
discuss, prior decisions that bear directly on this motion. See infra at 3-4, 7-8. Further, contrary
to Novartis’s suggestion, the Government is not alleging that the Exjade scheme violated the
AKS and FCA because it did not meet some “industry standard” for adherence, but because
Novartis gave BioScrip kickbacks to recommend Exjade refills. See infra at 5-6.
Under the relevant legal standards and the actual allegations, Novartis cannot show any
“necessary connection” between its requests and the claims and defenses in this case. First,
while Novartis seek discovery into a wide range of federal programs or policies relating in any
way to medication adherence, it fails to show the relevance of these “adherence-related”
requests. Specifically, Novartis does not, and cannot, point to any authority to support its legal
theory that how federal programs deal with medication adherence sheds light on whether
relationships between drug-makers and pharmacies comply with the AKS. See infra Pt. II.A.
Novartis also fails to identify any meaningful similarity between the federal programs and its
Exjade scheme. In fact, as public information shows, the only program referenced in its brief
(the Medication Therapy Management program under Medicare Part D) is fundamentally
different. See id. Novartis’s back-up argument for the “adherence” requests – that the internal
workings of federal programs somehow shed light on Novartis’s knowledge or intent – is equally
meritless. Whether a FCA defendant acted knowingly is about that defendant’s own knowledge.
Thus, a defendant like Novartis is not entitled to discovery about matters that did not factor into
its decision-making just to create post hoc justifications. See infra Pt. II.B.
Second, Novartis also cannot justify the relevance of its demand for clinical protocols
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from federal health facilities. It claims that such information is relevant because it can show that
recommendations to physicians and patients from pharmacies receiving kickbacks were
clinically acceptable or did not in fact influence anyone. See NPC Br. at 16-20. This is an ill-
disguised attempt by Novartis to resurrect an argument – FCA liability depends on whether the
pharmacies getting kickbacks succeeded in “convinc[ing] a physician to … prescribe a drug that
he would not have otherwise prescribed, or convinc[ing] a patient … to order a refill he would
not have otherwise ordered” – that Judge McMahon already rejected. Instead, the Court held
that “it is the kickback arrangement itself that constitutes the AKS violation,” and that the
“illegal recommendations [] do not have to actually convince someone to purchase the drugs who
would not have otherwise done so.” Novartis I at 34. Allowing discovery into the clinical
protocols of federal health facilities, thus, would be an exercise in irrelevance. See infra Pt. III.2
Finally, the discovery sought by Novartis not only has no relevance, responding to its
requests will be highly burdensome. Because Novartis cannot articulate a plausible standard for
relevance, it would put a heavy burden on numerous federal agencies and facilities to sift through
reams of information in an effort to divine what might be deemed relevant. There is simply no
basis to impose such a burden on the Government, and the Court also should deny Novartis’s
motion pursuant to Rule 26(b)(2)(C) because the burden associated with responding to those
requests outweighs their likely benefit to the adjudication of this case. See infra Pt. IV.
RELEVANT BACKGROUND
Contrary to Novartis’s Suggestion, It Had Ample Notice That the Anti-Kickback A.
Statute Proscribes Using Kickbacks to Improperly Influence Pharmacy Staff
Congress enacted the AKS out of concern about the harms to Medicare, Medicaid, and
other federal healthcare programs from the payment of kickbacks, in whatever form, to those
2 Insofar as Novartis’s motion pertains to its demand for communication between BioScrip
and the Government regarding certain factual stipulations, NPC Br. at 21-24, the Government has
produced those and, as Novartis acknowledged, that aspect of the motion is moot. [Dkt. 269].
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who can influence health care decisions. See United States v. Ruttenberg, 625 F.2d 173, 177 (7th
Cir. 1980). The AKS makes it illegal for (i) “whoever knowingly and willfully solicit[] or
receive[] any remuneration in return” for either “referring an individual … for the furnishing ...
of any item or service” or “purchasing, leasing, ordering, or arranging for or recommending” the
purchase or order of “any good, facility, service, or item” covered by the Government; and (ii)
any entity or individual to “knowingly and willfully offer[] or pay[] any remuneration (including
any kickback, bribe, or rebate) . . . to any person to induce such person . . . to purchase, . . .
order, . . . or recommend purchasing … or ordering any good . . . or item” that is covered by the
Government. 42 U.S.C. § 1320a-7b(b)(1)-(2) (emphasis added).
In its opening brief, Novartis suggests that it lacked notice of the fact that the AKS
proscribes the use of kickbacks to improperly influence pharmacy employees; it suggests,
instead, that the AKS is solely concerned with improper influence on “a physician’s medical
judgment.” See NPC Br. at 4. This assertion, which Novartis has repeated throughout the
litigation, is simply disingenuous — cannot be squared with the AKS’s text or on-point
regulatory guidance issued by the Office of Inspector General for the Department of Health and
Human Services (“HHS-OIG”).3
First, the text of the AKS shows it is not limited to improper influence on “physicians.”
Instead, it applies to “whoever” solicits or receives kickbacks in return for referrals or
recommendations and to the offer or payment of kickbacks to “any person” to induce
recommendations. 42 U.S.C. § 1320a-7b(b)(1)-(2); see also United States v. Vernon, 723 F.3d
1234, 1254 (11th Cir. 2013) (the “plain language” of the AKS shows that its application “is not
limited to payments to physicians who prescribe medication”).
3 For example, Novartis made this argument a key aspect of both in its initial motion to
dismiss the Government’s claims and its renewed motion to dismiss. [Dkt. 138, 203].
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Moreover, as Judge McMahon explained in her May 29 decision, a 1994 Special Fraud
Alert issued by HHS-OIG gave notice that the AKS prohibited using kickbacks to improperly
influence pharmacy staff. See Memorandum Decision and Order dated May 29, 2014 (“Novartis
I”) at 33 [Dkt. 192]. That Alert, which was addressed to “prescription drug companies” like
Novartis, highlighted kickback concerns raised by “marketing activities” directed at pharmacy
staff that could interfere with their obligation to “recommend products in the best interest of the
patient.” 59 Fed. Reg. 65,372, at 65,376 (Dec. 19, 1994). Indeed, as Judge McMahon noted, the
Alert “notified the public that it is illegal for a pharmaceutical company to offer pharmacies
remuneration … in exchange for performing ‘marketing tasks,’ such as ‘sales-oriented
educational or ‘counseling’ contacts … or physician and/or patient outreach’ when such acts
occur in the course of pharmacy practice related to Medicare and Medicaid.” Novartis I at 33
(citing 59 Fed. Reg. at 65,376) (emphasis added).
Novartis’s Selective Summary Leaves Out Basic Features of the Exjade B.
Kickback Scheme That Undercut Novartis’s “Adherence” Requests
Novartis’s brief purports to summarize the Government’s allegations regarding the
Exjade kickback scheme. See NPC Br. at 5, 7-8. It asserts that the Government deems the
Exjade scheme to be in violation of the AKS because Novartis gave remuneration to BioScrip to
“engage[] in ‘intensive’ adherence efforts.” Id. at 7. Novartis also suggests that getting Exjade
patients to order refills is always appropriate.4 See id. at 5.
This is an inaccurate, self-serving depiction of how the Exjade scheme actually worked,
leaving out basic features of the scheme that undercut the asserted relevance of Novartis’s
“adherence related” requests. As an initial matter, internal documents show that Novartis started
the Exjade kickback scheme, which began in early 2007, not due to concerns about patient
4 The article by John Porter that Novartis cites in support of this claim is one for which
Novartis provided funding.
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health, but in response to a “performance gap” between “actual” vs. “budgeted” Exjade sales.
See Second Amended Complaint of the United States (“US SAC”) at ¶¶ 253-256 [Dkt. 231]. In
early 2007, Novartis saw that actual Exjade sales in January 2007 were significantly below its
internal sales target. Id. at ¶ 253. To increase sales, Novartis sought to leverage BioScrip’s
ability to influence patients’ decisions about whether to order Exjade refills. Id. at ¶¶ 255-256.
Novartis did so by directly linking the number of patient referrals BioScrip received (having
more patients resulted in higher revenue and more dispensing fees for BioScrip) to the level of
refill orders BioScrip generated.5 See id. at ¶¶ 256-271. Novartis also structured its rebate
arrangement with BioScrip so that the rebate level was based on whether BioScrip generated
enough Exjade orders to help Novartis meet its “National Exjade Sales Target ($).” Id. at ¶ 271.
Second, Novartis’s brief also omits the fact Novartis and BioScrip both understood that
their relationship was designed to have BioScrip promote Exjade refills in support of Novartis’s
marketing goals. See id. at ¶ 273. Thus, Novartis shared its internal marketing plans for Exjade
with BioScrip, and BioScrip viewed its own “strategic plan” as “mirror[ing] and support[ing]
Novartis priorities.” Id. Indeed, the incentive system set up by Novartis achieved its desired
effect — as a former BioScrip supervisor explained, BioScrip became “focused exclusively on
the number of [Exjade] orders and refills, rather than on patient care.” Id. at ¶¶ 284-288.
Third, Novartis’s brief fails to acknowledge that it implemented this scheme even though
it knew that Exjade patients did not always need refills. As internal Novartis documents show,
by the time the Exjade scheme began in early 2007, Novartis already was aware that there were a
number of appropriate reasons for patients to stop ordering refills — doctors frequently ordered
discontinuation of treatment after patients experienced Exjade’s side effects, and, as a Novartis
5 As Novartis acknowledged, see NPC Br. at 6, and as detailed in the Government’s
complaint, Novartis controlled the distribution of Exjade patient referrals to BioScrip because it
created an exclusive distribution system for Exjade called EPASS. See US SAC at ¶¶ 241-246.
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executive acknowledged in an email, some patients stopped ordering refills “after several
months” because they had “almost normalized iron values.” Id. at ¶¶ 248-250. Further, as the
scheme continued, more and more safety concerns were recognized, culminating in January 2010
with the requirement that the Exjade label feature a “black box warning.” Id. at ¶ 238-239.
Finally, Novartis’s brief leaves out the fact that those safety concerns did not affect how
Novartis used kickbacks to induce BioScrip to recommend refills to Exjade patients. Instead,
Novartis advised BioScrip to implement a refill program in which BioScrip employees were
instructed to tell patients to keep on ordering refills without regard to whether the patients were
experiencing side effects. See id. at ¶¶ 273, 284-292. Indeed, Novartis measured BioScrip’s
“performance” based exclusively on how long BioScrip was able to get Exjade patients to keep
ordering refills. Id. at ¶ 286.
The Court’s Prior Decisions on Motions to Dismiss C.
Novartis’s brief fails to mention that Judge McMahon has issued two decisions denying
Novartis’s motions to dismiss the Government’s claims and the holdings from those decisions
are directly applicable to Novartis’s current application. See Novartis I at 13-15, 41-43; see also
Memorandum Decision and Order dated August 7, 2014 (“Novartis IV”) at 12-13[Dkt. 227].
First, Novartis does not explain that the Court recognized that the 1994 HHS-OIG Special Fraud
Alert gave drug-makers clear notice to the kickback issues raised by giving inducements to
pharmacies to promote their drugs. See supra at 5.
Second, Novartis also fails to acknowledge that Judge McMahon’s August 7 decision
rejected an argument that Novartis is trying to resurrect as part of this motion. In its motion to
dismiss, Novartis argued that it is liable only if “[its kickback] scheme succeeded in achieving its
goal — i.e., where a pharmacy convinced a physician (in the case of Myfortic) to prescribe a
drug that he would not have otherwise prescribed, or convinced a patient (in the case of Exjade)
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to order a refill that he would not have otherwise ordered.” Novartis IV at 13. Judge McMahon
squarely rejected this contention, concluding that, under Second Circuit law, Novartis has
liability for the Myfortic and Exjade claims submitted by pharmacies that took kickbacks for
promoting those drugs, irrespective of whether the kickback-tainted recommendations were the
“but for” cause for patient being switched to Myfortic or ordering an Exjade refill. See id. at 13-
19. As explained below, see infra at 17-18, this holding directly refutes Novartis’s argument
here that discovery about treatment protocols and other clinical information from federal health
programs and facilities liability is relevant to whether the kickback-tainted recommendations
made by pharmacies were the “but for” cause of the drug shipments. See NPC Br. at 16-20.
The Government’s Document Productions and Novartis’s Motion to Compel D.
To date, the Government has produced over 900,000 pages of documents to Novartis.
Those include non-privileged records from the pre-suit investigation, such as transcripts and
third-party document productions, administrative records from HHS-OIG relating to regulatory
guidance on the AKS, and drug label information from the Food and Drug Administration
(“FDA”). The Government also has provided Novartis with Medicare and Medicaid claims data
for Exjade, Myfortic, and Myfortic’s competitor drugs.
Moreover, even with regard to the overbroad requests at issue here, the Government did
not reflexively refuse to respond. Instead, during meet-and-confer calls, the Government sought
to better understand the basis for those requests and find potential compromises by asking
Novartis to explain how its broad requests related to the factual or legal issues at stake in this
case. However, those efforts did not result in more specific explanations.6
6 For example, the Government asked Novartis to explain the relevance of Requests 71-73,
80-82, and 89-92, which broadly seek documents concerning HHS programs relating in any way
to “adherence.” See Exhibit A to Sheth Declaration at 1-4, 8-10 [Dkt. 248-1]. Novartis did not
offer a specific explanation, and instead asserted conclusorily that those requests are relevant to
its “knowledge, willfulness, and intent,” its “defenses such as lack of notice,” and the
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In its motion to compel, Novartis also does not offer any detail regarding how the federal
programs are likely to be relevant to this case. While Novartis’s brief mentions, in a footnote,
one federal program, the Medication Therapy Management (“MTM”) programs that Medicare
regulations require Part D plan sponsors to have as part of their plans, see NPC Br. at 9 n.3, it
fails to explain that the MTM program requirements are set forth in Medicare Part D regulations,
see 42 C.F.R. § 423.153(d), or that the Centers for Medicare and Medicaid Services (“CMS”),
the HHS component that contracts with Part D plan sponsors, offers a significant amount of
publicly available information about this program on its public website.7
Indeed, even a cursory review of the governing regulations and the public information
from CMS shows how attenuated the purported connection is between the MTM programs and
the refill promotion program that Novartis induced BioScrip to implement using kickbacks. The
basic differences include, for example:
• MTM programs are not designed and implemented by drug-makers like Novartis.
Instead, Part D plan sponsors are responsible for submitting these programs to CMS
for annual review and approval. See 42 C.F.R. § 423.153(d)(1), (3), (6); CMS,
Medicare Part D Medication Therapy Management Program 2009 Fact Sheet at 1
(July 1, 2009) (the “2009 MTM Fact Sheet”).8
• All MTM programs are required to include a group of services, such as an annual
Government’s understanding of adherence. See 3/21/14 Letter from Manisha Sheth at 3; 7/16/14
Letter from Ben O’Neil at 3 (Ex. Y and Ex. Z to Sheth Decl.). [Dkt. 248-25, -26]. Similarly, the
Government also asked Novartis to explain what made a program like the “Script Your Future”
campaign (referred to in Novartis’s Request 96) – a non-condition-specific program sponsored
by hundreds of corporate, non-profit, and governmental entities or causes – similar to the Exjade
scheme. Novartis did not provide any explanation.
7 Under Part D, CMS contracts with a number of plan sponsors to administer prescription
drug plans. Each plan sponsor, in turn, subcontracts with pharmacies to dispense drugs to
Medicare beneficiaries enrolled in the Part D plan sponsors’ plans. See US SAC at ¶¶ 26-32.
8 Available at http://www.cms.gov/Medicare/Prescription-Drug-Coverage/
PrescriptionDrugCovContra/MTM.html (last visited September 29, 2014).
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comprehensive medication review and quarterly targeted reviews, that pharmacists or
other qualified persons provide to participating beneficiaries. See 42 C.F.R.
§ 423.153(d)(1)(v)-(viii). “Adherence” related activities, by contrast, are not a
required element of these programs. Instead, a plan sponsor may design its MTM
program to provide such services. Id.; see also 2009 MTM Fact Sheet at 7 (“[a]
program may be designed to include any type or combination of MTM interventions,”
with “[r]efill reminders” as one permissible type).
• The MTM programs do not involve any type of compensation, whether in the form of
rebates or patient referrals, from drug-makers to pharmacies. See 42 C.F.R.
§ 423.153(d)(5). Rather, CMS directs the Part D plan sponsors to pay the
pharmacists and other qualified providers based on the time and resources necessary
to implement the services. Id.; see also 2009 MTM Fact Sheet at 7-9.
ARGUMENT
POINT I
AS THE PARTY DEMANDING DISCOVERY, NOVARTIS HAS THE BURDEN TO SHOW “THE
NECESSARY CONNECTION” BETWEEN ITS REQUESTS AND THE CLAIMS AND DEFENSES AT ISSUE
Under Rule 26, a party “may obtain discovery into regarding any non-privileged matter
that is relevant to any party's claim or defense.” FED. R. CIV. R. 26(b)(1). However, while the
scope of discovery is broad, it does not encompass “requests based on pure speculation that
amount to nothing more than a ‘fishing expedition’ into actions … not related to the alleged
claims or defenses.” Collens v. City of New York, 222 F.R.D. 249, 253 (S.D.N.Y. 2004); see also
Tottenham v. Trans World Gaming Corp., 2002 WL 1967023, at *2 (S.D.N.Y. June 21, 2002)
(discovery “is not intended to be a fishing expedition, but rather is meant to allow the parties to
flesh out allegations for which they initially have at least a modicum of objective support”);
Surles v. Air France, 2001 WL 1142231at *2 (S.D.N.Y. Sept. 27, 2001) (“the information sought
by Defendant does not become relevant merely because Defendant speculates that it might reveal
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useful material”). Further, having brought “a motion to compel,” Novartis must “provide the
necessary connection between the discovery sought and the claims or defenses asserted in the
case.” 287 Franklin Ave. Residents’ Ass’n v. Meisels, 2012 WL 1899222, at *4 (E.D.N.Y. May
24, 2012); accord Freedman., 2014 WL 3767034, at *3 (the “burden of demonstrating relevance
is on the party seeking discovery”).
POINT II
NOVARTIS HAS FAILED TO EXPLAIN HOW ITS “ADHERENCE RELATED” REQUESTS ARE
RELEVANT TO THIS CASE
Novartis’s “adherence related” requests purport to require the Government to produce
discovery about (i) “federal health-related programs and grants[] and other federal [] policies,
activities, programs, plans, or initiatives” that Novartis characterizes as being “similar” to the
Exjade scheme;” (ii) rulemakings by HHS pursuant to two health information privacy statutes
that excluded prescription refill reminders from the definition of “marketing activities” under the
information privacy laws; and (iii) the “budgetary impact of medication adherence,” including a
report issued by the Congressional Budgetary Office (“CBO”). See NPC Br. at 10-11.
At the outset, Novartis does not, and cannot, claim that federal programs relating to
adherence is relevant because Novartis relied on information about those federal programs.
Indeed, as Novartis concedes in its brief, it did not “model[]” its conduct in the Exjade scheme
on any federal programs or initiatives. See NPC Br. at 10 n.5 (if Novartis had done so, then it
would, itself, already have the information sought). Instead, Novartis offers two tortured
theories as to the relevance of its “adherence related” requests.
Federal Programs Relating to Adherence Are Not Relevant Just Because Novartis A.
Believes That the Government Conduct Is Similar to the Exjade Scheme
Novartis first asserts that these requests are relevant because whether the Government
engages in “similar conduct” is “unquestionable relevant” to the legality of the Exjade scheme
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and because it is Novartis’s “belie[f]” that “the Government promotes conduct that is
substantially same as the [Exjade scheme].” Id. at 9-11. Both of these premises are faulty.
First, Novartis does not, and cannot, offer any authority in support of its assertion that the
operations of federal programs are “unquestionable relevant” to the legality of Novartis’s
conduct in the Exjade scheme. There is no “similar government conduct” exception in the text
of the AKS, and it is axiomatic that the AKS does not apply to the Government. See 1 U.S.C.
§ 1 (unless otherwise specified, “the words ‘person’ and ‘whoever’ [in federal statutes] include
corporations, companies, associations, firms, partnerships, societies, and joint stock companies,
as well as individuals”); United States v. United Mine Workers of America, 330 U.S. 258, 275
(1947) (recognizing that “statutes employing [the term person] will not ordinarily be construed”
as referring to the United States); United States v. Bidloff , 82 F. Supp. 2d 86, 94 (W.D.N.Y.
2000) (“it is well established when the personal pronoun whoever appears in a federal statute it
should not be understood to refer to the [United States] unless the statute expressly so provides”).
Thus, how federal programs deal with adherence says nothing about whether the Exjade scheme
was illegal under the AKS or the FCA.
Nor, of course, has Novartis shown any federal program that is at all similar to the Exjade
scheme orchestrated by Novartis. Beyond a subjective “belie[f],” Novartis fails to offer any
specific details to explain what makes any federal program “similar” to the Exjade scheme. See
NPC Br. at 9-11. A discovery request “does not become relevant merely because Defendant
speculates that it might reveal useful material,” Surles, 2001 WL 1142231 at, *2; and Novartis
must “produce [some] specific facts [] to support” its unfounded belief. Spina v. Our Lady of
Mercy Med. Ctr., 2001 WL 630481, at *2 (S.D.N.Y. June 7, 2001) (quoting Contemporary
Mission, Inc. v. U.S. Postal Svc., 648 F.2d 97, 107 (2d Cir. 1981)).
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Here, Novartis’s inability to explain – with any modicum of specificity – the relevance of
its “adherence related” requests is especially telling. As Novartis acknowledges, it has been
aware of the Government’s investigation of the Exjade scheme for some time. See NPC Br. at 6
(discussing the pre-suit investigation after the qui tam relator filed this action in November
2011). Since January 2014, Novartis has had the Government’s amended complaint and known
exactly what features of the Exjade scheme are alleged to be in violation of the AKS and FCA.
Id. at 7. In addition, during the parties’ meet-and-confer sessions, the Government repeatedly
asked Novartis for more specific explanations of what makes those federal programs relevant.
Indeed, insofar Novartis’s brief mentions a particular federal program that it deems
“adherence-related,” see NPC Br. at 9 n. 3 (referring to the MTM program under Medicare Part
D), publicly available information readily shows that there is no meaningful similarity between
the MTM program and the Exjade scheme. As discussed above, the MTM programs are
administered by Part D plan sponsors, not drug makers. Those programs are not required to have
an “adherence” component. Lastly, the pharmacists providing services under MTM programs
are not compensated by drug makers based on refill levels, but instead are paid by plan sponsors
according to the time and resources they put into those services. See supra at 9-10 (citing 42
C.F.R. §. § 423.153(d) and the 2009 MTM Fact Sheet).
With regard to the two rulemakings by HHS under the Health Insurance Portability and
Accountability Act of 1996, 42 U.S.C. § 1320-d et seq. (“HIPAA”), and the Health Information
Technology for Economic and Clinical Health Act of 2009, Novartis has offered no argument or
factual support as to any similarity between those rulemakings and the Exjade scheme. In fact,
neither rulemaking has anything to do with the AKS; rather, both rules were promulgated to
clarify the patient privacy requirements under HIPPA. See 75 Fed. Reg. 40,868 (July 14, 2010);
78 Fed. Reg. 5,566 (Jan. 25, 2013). Thus, nothing about those rulemakings suggests that they in
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any way permitted a drug-maker like Novartis to give a pharmacy patient referrals and rebates in
exchange for recommending refills.9
Finally, Novartis’s brief offers absolutely nothing to support why there is any similarity
between the Exjade scheme and the subject matter of its requests for documents concerning the
“budgetary impact” of medication adherence programs. There is no connection between the
Exjade scheme and any such “budgetary impact” analysis. For Novartis to demand the
budgetary analysis, thus, is a classic example of a discovery “fishing expedition.”
In sum, Novartis has wholly failed to support its assertion regarding the Government
engaging in “similar conduct” as the Exjade scheme. That failure “is fatal to [Novartis’s] motion
to compel.” Zanowic v. Reno, 2000 WL 1376251, at *6 (S.D.N.Y. Sept. 25, 2000).
Having Admitted That It Did Not “Model[]” the Exjade Scheme on Any “U.S. B.
Programs,” Novartis Cannot Claim That Such Programs Are Relevant to Its
Knowledge or Willfulness
Novartis concedes that it did not “model” its conduct in the Exjade scheme on any federal
programs or initiatives. See NPC Br. at 10 n.5. Nonetheless, it asserts that discovery into such
programs would be relevant to whether it committed “knowing and willful violation of the AKS
and the FCA.” Id. at 11. This is simply wrong.
Novartis’s scienter turns on the extent to which it either had actual knowledge that the
Exjade scheme violated the AKS or, even without actual knowledge, it deliberately ignored or
recklessly disregarded the likelihood that the scheme was in violation of the AKS. See 31 U.S.C.
§ 3729(b)(1)(A) (defining “knowingly” for purposes of the FCA to include actual knowledge,
deliberate ignorance, and reckless disregard); see also United States v. Raymond & Whitcomb
Co., 53 F. Supp. 2d 436, 447 (S.D.N.Y. 1999) (recognizing that the FCA’s knowledge standard
9 The HITECH rulemaking specifies that any payment to a “covered entity” for providing a
refill reminder to a patient must be “reasonably related to the [] entity’s cost of making the
communication.” 75 Fed. Reg. at 40, 886.
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is intended to apply to those who try to avoid liability by acting “like the proverbial ostrich who
buried its head in the sand”). Thus, for purposes of determining scienter, a factfinder must
assess evidence of what Novartis knew at the time that it engaged in the Exjade scheme and what
steps Novartis took at that time to investigate any “red flag” raised by this scheme.
On the other hand, as numerous courts have held, evidence regarding the internal
operations and views of federal agencies is not relevant to a defendant’s scienter unless the
defendant knew and relied on such information. See U.S. ex rel. Stephens v. Prabhu, 163 F.R.D.
340, 343 (D. Nev. 1995) (rejecting FCA defendants’ demand for discovery into government
operations that was unknown to them at the time of the fraud because they “are seeking the
records to create a knowledge defense that is three years too late”); SEC v. Bankatlantic
Bancorp, Inc., 285 F.R.D. 661, 668 (S.D. Fla. 2012) (documents in SEC’s files “cannot provide
probative information” about the securities fraud defendants’ intent); United States v. Elsass,
2011 WL 3900846, at *5 (S.D. Ohio Sept. 6, 2011) (“Even assuming that actions or positions
taken by IRS employees are relevant to the defenses of reasonable cause and willfulness, it is
only those actions or those positions of which Defendants had actual knowledge that would be
relevant”). Thus, Novartis – having disclaimed that it knew or relied on how federal programs
operated when it orchestrated the Exjade scheme – cannot then claim its discovery requests
regarding those programs are relevant to its knowledge or willfulness.10
In this regard, U.S. ex rel. Finney v. Nextwave Telecom, Inc., 337 B.R. 479 (S.D.N.Y.
2006), the only authority cited by Novartis, simply does not support Novartis’s contention. In
Finney, the crux of the relator’s alleged fraud was that “defendants violated the FCA by failing
to bring a federal statute to the attention of the federal government in the course of a litigation to
10 Indeed, as the Ninth Circuit recognized, to hold otherwise would create the problem of
giving carte blanche to FCA defendants to create post hoc rationalizations to avoid liability. See
United States ex rel. Oliver v. The Parsons Co., 195 F.3d 457, 463 n.3 (9th Cir. 1999).
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which the [G]overment was a party.” Id. at 487. As Judge McMahon noted, this theory was
“patently absurd.” Id.
Here, the Government’s Exjade claims do not allege any failure by Novartis to disclose a
weakness of a legal theory in litigation, but that Novartis used patient referrals and rebates to
induce a pharmacy to recommend Exjade refills. As Judge McMahon noted in Novartis I, HHS-
OIG’s regulatory guidance made clear that such conduct is illegal under the AKS. Id. at 33.
Thus, unlike in Finney, Novartis cannot point to any “unresolved disputes about the proper
interpretation of a statute or regulation.” 337 B.R. at 488. Instead, this case is much closer to
Visiting Nurse Ass’n of Brooklyn v. Thompson, 378 F. Supp. 2d 75 (E.D.N.Y. 2004), which
Novartis mentions but fails to analyze, let alone distinguish. See NPC Br. at 11. As the court
held in that case, a defendant cannot act contrary to what regulatory guidance indicates is
required by a federal statute, certify its compliance with the statute, and then expect to escape
FCA liability by disputing, after the fact, the validity of the regulatory guidance. See Visiting
Nurse Ass’n, 378 F. Supp. 2d at 95-96. Accordingly, Novartis has failed to show that its
“adherence related” requests are relevant to its scienter.11
POINT III
NOVARTIS HAS FAILED TO SHOW THAT ITS REQUESTS FOR CLINICAL PROTOCOLS AND
RELATED DOCUMENTS FROM FEDERAL HEALTH PROGRAMS AND FACILITIES ARE RELEVANT
Through several exceptionally broad requests, Novartis also demands production of
clinical protocols from practically all federal health programs and facilities relating to the
treatment of kidney transplant patients and the administration of Exjade. See, e.g., Request 19
(seeking “[a]ll documents reflecting or relating to any Treatment Protocol for kidney transplants
11 In a footnote, Novartis also makes a half-hearted attempt to assert that these requests are
relevant to whether its conduct was “consistent with industry standard.” NPC Br. at 10 n.5. This
argument is similarly unavailing. Indeed, Novartis’s own compliance policies recognized that
“[t]he fact that a particular arrangement is common in the health care industry is not a defense.”
See First Amended Complaint in Intervention of the Intervening States at ¶ 73 [Dkt. 257].
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performed at any hospital operated by the United States”); Request 95 (seeking “[d]ocuments
relating to the administration of Exjade … created or developed by … (i) the Department of
Veteran Affairs (“VA”), including … any [] hospital or other healthcare facilities operated by the
VA; (ii) the Department of Defense (“DOD”); (iii) the Office of Personnel Management
(“OPM”); and/or (iv) HHS”) (Ex. A to Sheth Decl. at 1, 15) [Dkt. 248-1]. Novartis claims that
such discovery – which has no connection to the kickback schemes at issue or Novartis’s
scienter – are somehow relevant for two reasons.
First, it asserts that protocols from federal programs and facilities can show that the
purported justifications offered by pharmacies like BioScrip or Transcript for their kickback-
tainted recommendations were clinically acceptable. See NPC Br. at 16-18. According to
Novartis, the clinical acceptability of the purported justification “bear[s] directly” on whether
pharmacies made kickback-tainted recommendations to doctors to switch patients to Myfortic or
to patients to order Exjade refills. Id. at 18.
Novartis’s reasoning seems to be that if the federal agencies’ documents show there is
some clinical validity to the purported “justifications” for the pharmacies’ recommendations,
then such recommendations could not have been tainted by kickbacks. This argument defies
logic. A pharmacy receiving kickbacks for recommending a drug has no incentive to disclose
that its recommendations are part of a kickback scheme — such disclosure would undermine the
efficacy of the scheme. Instead, the pharmacy has every incentive to provide purported
justifications that sound clinically acceptable and seem legitimate. But the use of a clinically
acceptable justification does not remove the taint of the kickback from a recommendation
pursuant to a kickback scheme. Thus, the Court should reject this deeply illogical theory as to
why clinical protocols at federal facilities are relevant.
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Novartis also argues that discovery into those clinical protocols is relevant, claiming that
this could allow it to “substantially undermine the U.S.’s contention that alleged ‘switches’ to
Myfortic were the result of the efforts of financially incentivized pharmacists rather than the
independent medical judgment” of the physicians.” NPC Br. at 19. However, as discussed
above, see supra at 7-8, Novartis argued and lost this very point in its motion to dismiss. See
Novartis IV at 13 (rejecting Novartis’s argument that an AKS violation requires that “a pharmacy
convinced a physician [] to prescribe a drug that he would not have otherwise prescribed”). In
denying that motion, Judge McMahon rejected Novartis’s argument. See id. at 13-19; see also
Novartis I at 33-34.
It is telling that Novartis’ brief nowhere mentions this aspect of these prior decisions. See
supra at 7-8. Novartis is trying to re-litigate an issue that Judge McMahon has considered and
rejected. The Court should reject this entreaty and deny Novartis’s motion insofar as it seeks
discovery into treatment protocols used by federal health programs and facilities.12
POINT IV
IN LIGHT OF THE LACK OF RELEVANCE OF NOVARTIS’S REQUESTS, NOVARTIS IS NOT
ENTITLED TO IMPOSE ON THE GOVERNMENT THE SUBSTANTIAL BURDEN TO RESPOND
Finally, while Novartis’s failure to meet its “burden of demonstrating relevance” alone
supports denial of its motion to dismiss, Freedman, 2014 WL 3767034, at *3, its motion also
should be denied because the discovery burden that Novartis seeks to impose on the Government
through its overbroad requests significantly outweighs any relevance to the claims and defenses
12 As part of this argument, Novartis also seriously mischaracterizes what the Government
said in court about the Exjade scheme. See NPC Br. at 19-20. As the transcript of the March 14,
2014 conference shows, the Government explained that “Novartis itself was aware” doctors were
frequently directing patients to discontinue Exjade therapy due to side effects. See Ex. B to
Sheth Decl. at 29:19-30:4 (emphasis added). Novartis’s own awareness was critical because it
shows why it gave kickbacks to BioScrip to recommend Exjade refills. How federal health
program or facilities administered Exjade will not shed light on this issue. Similarly, Novartis
fails to demonstrate the relevance of documents concerning any federal health program’s
relationship with BioScrip would shed any light on the claims or defenses in this case.
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at issue in this case. See FED. R. CIV. P. 26(b)(2)(C)(iii). Under Rule 26(b)(2)(C), this Court
“has broad discretion to limit discovery” if “the burden or expense outweighs the benefits of the
discovery.” Scott v. Chipotle Mexican Grill, Inc. 300 F.R.D. 188 (S.D.N.Y. 2014). Indeed,
“even if the sought-after documents are relevant, the court may limit discovery” where “the
burden … of the proposed discovery outweighs its likely benefit considering the needs of the
case and importance of the documents.” Fort Worth Employees' Retirement Fund v. J.P.
Morgan Chase & Co., 297 F.R.D. 99, 102 (S.D.N.Y. 2013) (Francis, J.).
Here, Novartis’s overbroad requests, by their own terms, purport to require a wide range
of federal agencies and healthcare facilities to devote substantial time, personnel, and other
resources to conduct searches based on nebulous concepts. See, e.g., Request No. 19 (seeking
“[a]ll documents reflecting or relating to any Treatment Protocol for kidney transplants
performed at any hospital operated by the United States”); Request No. 80 (seeking
“[d]ocuments relating to policies, activities, programs, plans, or initiatives developed by HHS …
that relate to adherence”) (emphasis added); (Ex. A to Sheth Decl. at 1, 8) [Dkt. 248-1].
Yet, as explained above, the relevance of the discovery sought by Novartis is dubious in
light of the governing legal standards enunciated in Judge McMahon’s prior decisions and the
relevant allegations. Moreover, Novartis has offered no basis – except for its subjective beliefs
and speculations – to conclude that its requests are likely to lead to discovery of relevant and
admissible evidence. See, e.g., NPC Br. at 9 (Novartis “believes the Government promotes
conduct that is substantially the same as the conduct it seeks to penalize here.”).
The burden of responding to Novartis’s unduly expansive requests “outweigh[s]” the
“likely benefits” of such discovery.” FED. R. CIV. P. 26(b)(2)(C)(iii). Accordingly, the Court
should deny Novartis’s motion to compel on this ground as well. See Chipotle Mexican Grill,
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300 F.R.D. at 188; Viacom Int’l Inc. v. Youtube Inc., 253 F.R.D. 256, 262-63 (S.D.N.Y. 2008);
Macmillan, Inc. v. Fed. Ins. Corp., 141 F.R.D. 241, 242-43 (S.D.N.Y. 1992).
CONCLUSION
For the reasons set forth above, the Court should deny Novartis’s motion to compel in its
entirety.
Dated: September 29, 2014
New York, New York
Respectfully submitted,
PREET BHAHARA
United States Attorney
Southern District of New York
By: /s/
.
LI YU
REBECCA C. MARTIN
ROBERT WILLIAM YALEN
Assistant United States Attorneys
86 Chambers Street, 3rd Floor
New York, NY, 10007
Tel.: (212) 637-2734/2714/2722
Fax: (212) 637-2686/2702
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