Bloomberg News

Novartis Sued by U.S. for Fraud Over Payments to Pharmaci

April 24, 2013

Novartis AG (NOVN) was sued by the U.S. for alleged health-care fraud, saying the company paid kickbacks to pharmacies for switching transplant patients to its drug Myfortic.

The U.S. sued Basel, Switzerland-based Novartis in federal court in Manhattan yesterday, claiming it violated the False Claims Act by paying kickbacks, disguised as rebates and discounts, to at least 20 pharmacies for switching patients to Myfortic from drugs sold by other companies. The scheme caused the Medicare and Medicaid programs to pay tens of millions of dollars in false claims, according to the government’s complaint.

“Hundreds, possibly thousands, of transplant patients have undergone switches in their medication as a result of recommendations from pharmacies that were based on undisclosed financial, rather than independent clinical, considerations,” lawyers from the office of Manhattan U.S. Attorney Preet Bharara said in the complaint.

The U.S. is seeking triple damages, restitution and civil penalties. In a statement yesterday, Bharara called Novartis “a repeat offender,” saying the company had settled kickback claims less than three years ago.

2010 Settlement

In September 2010, Novartis agreed to pay $422.5 million to resolve criminal and civil charges that it paid kickbacks and illegally promoted drugs for off-label uses. As part of the settlement, the company signed a five-year corporate integrity agreement with the Department of Health and Human Services, which required reforms including a compliance program relating to promotional activities. The 80-page agreement provided that Novartis may be excluded from participation in federal health care programs, including Medicare and Medicaid, for a “material breach.”

Donald White, an HHS spokesman, didn’t immediately respond to a voice-mail message yesterday after regular business hours asking whether the department plans to pursue exclusion against Novartis.

Novartis said in a statement yesterday that it disputes the government’s allegations and will defend itself in the case. Julie Masow, a Novartis spokeswoman, declined to comment on the agreement with HHS.

By filing the complaint, the U.S. joined in a suit filed under seal against Novartis in 2011. The identity of the private plaintiff who filed the original lawsuit and documents filed before yesterday in the case remain under seal.

Kickback Claims

Myfortic is an immunosuppressant drug used to help prevent organ rejection in kidney transplant patients. The U.S. claims that, from 2005 until the present, Novartis offered kickbacks to pharmacies that agreed to convince doctors to switch patients to Myfortic. The drug’s main competitors are Roche Holding AG (ROG)’s CellCept and, since 2009, generic versions of CellCept, according to the government.

In 2011, the Medicare Part B reimbursement for Myfortic was more than twice that for generic CellCept, according to the government.

The U.S. said it told Novartis and other drug companies in 1994 that offering financial benefits to pharmacies for influencing doctors to switch patients from one prescription drug to another could violate the federal anti-kickback statute.

The complaint named five pharmacies that participated in the alleged scheme, including the outpatient pharmacy at Baylor Hospital in Dallas. Prosecutors said Novartis also negotiated with Walgreen Co. (WAG:US) in 2011 to switch patients using on-site Walgreen pharmacies at transplant centers and Walgreen’s mail- order division to Myfortic from CellCept and generic CellCept in exchange for payments. The complaint didn’t include whether any deal was reached.

Jim Graham, a Walgreen spokesman, declined to comment on the allegations in the lawsuit. Julie Smith, a Baylor Hospital spokeswoman, had no immediate comment.

The case is U.S. v. Novartis Pharmaceuticals Corp., 11- cv-08196, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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