Novartis To Pay $390 Million to Settle False Claims Charge

Swiss drug manufacturer Novartis will pay $390 million to settle federal and state False Claims Act charges brought by whistleblower David M. Kester.


Kester was represented by a whistleblower Shelley Slade of Vogel, Slade & Goldstein in Washington, D.C., and Bill Carmody of Susman Godfrey in New York, N.Y.

Novartis was represented by Evan R. Chesler, Rachel G. Skaistis and Benjamin Gruenstein of Cravath, Swaine, & Moore in New York.

Pharmacies Accredo Health Group and Bioscrip Corporation, also defendants in the case, paid $60 million and $15 million, respectively, to resolve Kester’s allegations.

In the lawsuit, Kester claims that Novartis defrauded the Medicare and Medicaid programs by illegally paying kickbacks to pharmacies so that they would recommend to doctors and patients six of Novartis’ specialty medications — the oncology medications Exjade, Gleevec and Tasigna, the organ transplant, immunosuppressant drug Myfortic, and the cystic fibrosis drugs TOBI and TOBI Podhaler.

Because they can artificially trump up patient demand for a product, causing doctors to prescribe and patients to order medically unnecessary or unsuitable medications, kickbacks are illegal and Medicare and Medicaid do not pay for prescriptions tainted by them.

The lawsuit accuses Novartis of paying pharmacies to recommend refills of these six drugs, which costs patients up to $11,000 per monthly refill.

With the $390 million payment from Novartis, Kester’s lawsuit is the largest recovery to the government ever in a False Claims Act lawsuit based solely on a kickback theory, yielding a total gross recovery of $465 million for the taxpayers.

Kester is a former Novartis sales manager who brought this misconduct to the government’s attention rather than partake in what he felt to be a scam that harmed patients and defrauded health care insurers.

He came forward while still employed at Novartis, and resigned about eighteen months later, shortly before this lawsuit became public.

Evidence uncovered in the lawsuit shows that Exjade patient referrals were very valuable for pharmacies and that when it launched Exjade in 2005, Novartis created a “closed distribution network” involving just three specialty pharmacies, BioScrip, Accredo, and US Bioservices.

This gave Novartis control over how many Exjade patients would be assigned to the pharmacies.

Starting in early 2007, Novartis saw Exjade sales were far below internal targets because of low refill rates due, in significant part, to side effects that were more frequent and more severe than initially expected.

To increase Exjade refills and hit its sales targets, Novartis leveraged its control over patient referrals to pressure BioScrip, Accredo, and US Bioservices to hire or assign nurses to call Exjade patients and, under the guise of education or clinical counseling, encourage patients to order more refills.

Federal officials alleged that Novartis knew that, when the pharmacies called patients, they emphasized the benefits of taking Exjade – for example, by telling patients that not taking Exjade would cause damage to their organs or lead to infertility – while understating the serious, potentially life-threatening risks of taking Exjade – for example, by not mentioning potential side effects like kidney and liver failure.

Novartis encouraged the pharmacies to promote Exjade refills in these ways even though FDA had characterized claims about Exjade preventing organ damage as “unsubstantiated.”

Novartis incentivize the pharmacies to intensify their efforts to promote Exjade refills, Novartis devised a scheme under which it allocated more patient referrals and gave higher rebates to pharmacies that obtained higher refill rates.

Novartis went forward with this scheme – which operated from 2008 to 2012 – even though it knew that the scheme presented risks of violating the Anti-Kickback Statute.

With regard to Myfortic, Novartis offered lucrative rebate offers to five specialty pharmacies in return for the pharmacies’ promise to recommend to doctors that they switch patients to Myfortic from competitor drugs.

In July 2011, Novartis offered rebates to a specialty pharmacy in Mississippi once the pharmacy owner agreed to “create a letter to” doctors “with a recommendation of moving [ ] patients to Myfortic.”

As part of the settlement, Novartis made extensive factual admissions about its relationships and interactions with specialty pharmacies in connection with distribution of Exjade and Myfortic and accepted responsibility for those admissions.

“I am very proud of all of the lawyers at Vogel, Slade & Goldstein, Susman Godfrey, the U.S. Attorney’s Office for the Southern District of New York, other federal government offices, and the States who joined this case and stood up for patients with life threatening diseases,” Kester said in a prepared statement. “These patients and their caretakers are already overwhelmed by their diseases and any advice they receive from any clinician, including a pharmacy clinician, needs to be in the patient’s best interest and not tainted by outside influence. This case took almost four years and was not easy, but I hope this settlement brings clarity to how the healthcare industry should interact with pharmacies.”

Slade said that Kester exposed a new tactic by drug manufacturers to unlawfully pump up drug sales: paying kickbacks to pharmacies that recommend prescription refills.”

“The government’s vigorous prosecution of this case should make pharmaceutical companies think long and hard before embarking on any scheme – whether or not the subject of prior enforcement action – – that co-opts the medical judgment of health care professionals.”

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