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

Novartis AG (NOVN) was sued by the U.S. for allegedly making illegal payments to pharmacies for switching transplant patients to its drug Myfortic, the second time in less than three years the company has faced federal claims it used illegal kickbacks to increase sales.

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.

“Novartis caused the public to pay tens of millions of dollars for kickback-tainted drugs that were dispensed by pharmacists who were in cahoots with the company,” Manhattan U.S. Attorney Preet Bharara said in a statement yesterday.

The U.S. is seeking triple damages, restitution and civil penalties. In the statement, 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 provides that Novartis may be barred from participation in federal health care programs, including Medicare and Medicaid, for a “material breach.”

The U.S. claims that Novartis offered the Myfortic kickbacks from 2005 to the present. In 2011, within months of signing the corporate integrity agreement, Novartis negotiated with Walgreen Co. (WAG) to try to get the drug store chain to join in the alleged illegal scheme, the government said.

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. Jim Graham, a Walgreen spokesman, declined to comment.

Open Matter

“This is an open matter,” the HHS inspector general’s office said in a statement today. The office declined to say whether Novartis violated the corporate integrity agreement or what actions the office may take.

“Conduct that violates the False Claims Act may or may not violate the terms of a CIA,” according to the statement. The agreements are focused on setting up compliance programs and don’t guarantee a company won’t violate the law, the inspector general’s office said.

By filing the civil 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.

Myfortic is an immunosuppressant drug used to help prevent organ rejection in kidney transplant patients. 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.

Anti-Kickback Statute

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.

“We are not a defendant, nonetheless we are looking into the allegations,” Julie Smith, a Baylor Hospital spokeswoman, said today.

In the 2011 negotiations with Walgreen, Novartis tried to get the drug store chain to encourage use of Myfortic, through its on-site pharmacies at transplant centers and its mail-order division, instead of CellCept and generic CellCept, in exchange for payments, according to Bharara’s office. The complaint didn’t say whether any deal was reached.

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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