Novartis agrees to $678 million settlement in drug kickback case

The drug company Novartis Pharmaceuticals will pay a $678 million settlement to settle federal charges of paying kickbacks to doctors to prescribe its medications. In a separate suit, the company will pay $51 million related to Medicare fraud, for illegally paying co-pays to get patients to take its drugs.

This is just the latest in a long string of suits brought against large pharmaceutical companies for both criminal allegations and questionable practices.

According to the fraud suit, Novartis spent more than $100 million on fine dining, fishing trips, sporting events, golf excursions and speaker fees to influence doctors to prescribe its drugs.

The junkets and honorarium went to doctors who wrote thousands of prescriptions for Novartis’s diabetes and cardiovascular drugs. The company has admitted these practices and will now pay $678 million to settle the lawsuit. Most of the drugs the doctors agreed to prescribe are used to treat high blood pressure. They include Lotrel, Diovan, Exforge, Tekturna, Valturna and Tekamlo, according to the settlement. The doctors also prescribed the Type 2 diabetes drug Starlix.

“For more than a decade, Novartis spent hundreds of millions of dollars on so-called speaker programs, including speaking fees, exorbitant meals, and top-shelf alcohol that were nothing more than bribes to get doctors across the country to prescribe Novartis’s drugs,” Audrey Strauss, the acting U.S. Attorney for Manhattan, said. “Giving these cash payments and other lavish goodies interferes with the duty of doctors to choose the best treatment for their patients and increases drug costs for everyone.”

The U.S. Attorney’s Office for the District of New York said the Swiss drug manufacturer provided the drugs that were then reimbursed by federal healthcare programs. In a statement, the office said that as part of the settlement, approved by U.S. District Judge Paul G. Gardephe, Novartis “will pay the United States and various states a total of $678 million. Novartis also made extensive factual admissions in the settlement and agreed to strict limitations on any future speaker programs, including reductions to the amount it may spend on such programs.”

The FBI was also involved in the investigation.

“Greed replaced the responsibility the public expects from those who practice medicine, not to mention the potential for an erosion of trust in the pharmaceutical industry as a whole,” said FBI Assistant Director in Charge Gregory E. Demske. “This conduct was reprehensible and dishonest.”

A whistleblower lawsuit was initially filed in 2011 by a former Novartis sales representative. The federal government joined the suit in 2013. It was not the first time that Novartis had been accused of giving kickbacks to doctors. The company settled another lawsuit in 2010.

Novartis officials said the company has gone through a transformation and had agreed to “new corporate integrity obligations in the United States through 2025.” The company said Novartis is moving away from a traditional speaker program model like the one that drew federal scrutiny.

“Today’s settlements are consistent with Novartis’ commitment to resolve and learn from legacy compliance matters,” Dr. Vasant Narasimhan, the company’s chief executive, said in a statement. “We are a different company today with new leadership, a stronger culture, and a more comprehensive commitment to ethics embedded at the heart of our company. I have been clear that I never want us to achieve commercial success at the expense of our values — our values must always come first and are the foundation of everything we do.”

The U.S. Attorney’s Office for the District of Massachusetts said in a separate suit that a charity connected to Novartis – The Assistance Fund, or TAF – agreed to pay $4 million to resolve allegations it violated the False Claims Act by enabling Novartis to pay kickbacks to Medicare patients who took the company’s drugs for multiple sclerosis.

The Anti-Kickback Statute prohibits drug companies from paying those co-pays either directly or indirectly to convince patients to take their drugs. It also prohibits third parties like TAF from conspiring with drug companies to violate the statute.

Doctors are not typically targeted in this type of suit, but according to the American Medical Association, such behavior is against its ethical guidelines.

While the AMA did not make a spokesperson available to comment for this article, it did provide information on its ethical guidelines.

“The AMA’s Code of Medical Ethics provides physicians with authoritative ethical guidance regarding industry relationships. The ethical guidance emphasizes the need for independence, transparency and accountability in continuing medical education (CME) and in interactions with the medical drug/device industry.”

The AMA statement said the medicine-industry relationship has evolved significantly and “so has the medical profession’s unease with industry practices that eclipse any educational or scientific justification. In response, PhRMA (Pharmaceutical Research and Manufacturers of America) changed its code in 2008 to prohibit many controversial practices targeting physicians.” PhRMA advanced public policies that support and improve medical treatments and research.

The AMA said there is increased scrutiny over this kind of relationship with drug manufacturers and the device industry and that is embodied in the federal Physician Payments Sunshine Act, which took effect in August 2013. As an example of how it works, GlaxoSmithKline is phasing out its practice of paying doctors to speak about its products or about the diseases treated by the drugs it makes.

Medicare fraud

In the case involving kickbacks, the U.S. Attorney’s Office for the District of Massachusetts said Novartis agreed to pay $51.25 million to resolve allegations that it violated the False Claims Act “by illegally paying the Medicare co-pays for its own drugs,” according to a July 1 statement.

“When a Medicare beneficiary obtains a prescription drug covered by Medicare Part B or Part D, the beneficiary may be required to make a partial payment, which may take the form of a co-payment, co-insurance, or deductible,” the statement said. “Congress included co-pay requirements in these programs, in part, to encourage market forces to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs.” The Anti-Kickback Statute prohibits pharmaceutical companies from offering or paying to induce patients to purchase their drugs.

“Novartis coordinated with three co-pay foundations to funnel money through them,” said U.S. Attorney Andrew E. Lelling. “As a result, Novartis’ conduct was not ‘charitable,’ but rather functioned as a kickback scheme that undermined the structure of the Medicare program and illegally subsidized the high costs of Novartis’ drugs at the expense of American taxpayers.”

He said he recognizes that Novartis’ current management is taking constructive steps to address the government’s concerns.

“Improper coordination between pharmaceutical manufacturers and foundations operating patient assistance programs harms Medicare by increasing costs and distorting the prescription drug market,” the FBI’s Demske said. “The law is meant to promote independence and accountability.”