Manhattan U.S. Attorney Files Healthcare Fraud Lawsuit Against Novartis Pharmaceuticals Corp. For Orchestrating A Multi-Million Dollar Prescription Drug Kickback Scheme

Preet Bharara, the United States Attorney for the Southern District of New York, and Ronald T. Hosko, the Assistant Director of the Federal Bureau of Investigation, Criminal Investigative Division (“FBI”), announced today that the United States has filed a civil healthcare fraud lawsuit against NOVARTIS PHARMACEUTICALS CORP. (“NOVARTIS”). The Government’s Complaint seeks treble damages and civil penalties under the False Claims Act against Novartis for giving kickbacks, in the form of rebates and discounts, to 20 or more pharmacies in exchange for their switching transplant patients from competitor drugs to NOVARTIS’s drug, Myfortic. The lawsuit alleges that, as a result of NOVARTIS’s kickback scheme, Medicare and Medicaid have issued tens of millions of dollars in reimbursements based on false, kickback-tainted claims.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, using the lure of kickbacks disguised as rebates, Novartis co-opted the independence of certain pharmacists and turned them into salespeople for one of its drugs. And by allegedly hiding this illegal quid pro quo from physicians, patients, and federal healthcare programs, 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. Novartis, as we allege, is a repeat offender, having settled healthcare fraud charges based on kickbacks less than three years ago.”

FBI Assistant Director Ronald T. Hosko said: “The FBI takes these allegations very seriously because of the potential impact to the nation’s healthcare system and to the public. These cases are one of the highest priorities of the FBI’s health care fraud program. We have established a centralized unit called the Major Provider Response Team to provide nationwide investigative assistance given the complexity of such investigations.”

The following allegations are based on the Complaint filed today in Manhattan federal court:

NOVARTIS markets and manufactures Myfortic, an immunosuppressant drug approved for use by patients who have undergone kidney transplants. NOVARTIS markets Myfortic to hospital centers and pharmacies that serve these transplant patients. Since 2005, NOVARTIS has orchestrated a scheme whereby it offered kickbacks, disguised as “performance” rebates and discounts, to 20 or more pharmacies with influence over prescription decisions. In exchange, those pharmacies committed to use that influence to “convert” (i.e., switch) patients to Myfortic from competitor drugs and/or to oppose the use of a cheaper, generic immunosuppressant drug.

In one case, according to a NOVARTIS manager, NOVARTIS offered a pharmacist in Los Angeles a “bonus” rebate equal to 5% of that pharmacist’s annual Myfortic sales, amounting to several hundred thousand dollars, to induce the pharmacist to “shoulder the burden” of switching 700 to 1,000 transplant patients to Myfortic. NOVARTIS found that it was highly profitable to pay pharmacies even 10% or 20% in kickbacks in exchange for switching transplant patients to Myfortic because, in the words of a Novartis manager, the “short term cost” bought NOVARTIS “a long term annuity.”

In an effort to actively conceal the quid pro quo, NOVARTIS documented its relationships with the pharmacies in rebate and discount contracts that omitted the agreements between NOVARTIS and the pharmacies to switch patients to Myfortic or keep them from switching to competitor drugs. For example, in discussing a potential kickback relationship with a national pharmacy, NOVARTIS and the pharmacy recognized that, although a basic objective of that relationship was the “conversion” of patients to Myfortic, NOVARTIS “cannot put this in writing.” Further, the pharmacies hid the financial benefits they stood to gain from physicians, patients, and the federal healthcare programs, and instead, presented their efforts to switch patients to Myfortic as unbiased professional judgments.

NOVARTIS’s kickback scheme violated the federal anti-kickback statute, which prohibits the offer or payment of rebates and other types of remuneration to induce the purchase or recommendation of any drug or service covered by Medicare, Medicaid, or another federal healthcare program. By orchestrating this scheme, NOVARTIS further caused the pharmacies to submit tens of thousands of claims to Medicare and Medicaid, resulting in those programs paying out tens of millions of dollars in reimbursements based on false claims tainted by kickbacks.

The Complaint seeks treble damages and penalties under the False Claims Act, 31 U.S.C. §§ 3729 et seq., for the tens of millions of dollars in reimbursements that Medicare and Medicaid paid for Myfortic shipments that resulted from NOVARTIS’s kickback scheme. In addition, the United States seeks compensatory damages under the common law theory of unjust enrichment for the tens of millions of dollars in profits that NOVARTIS has obtained as result of Medicare and Medicaid reimbursements for Myfortic.

Mr. Bharara praised the investigative work of the FBI’s Major Provider Response Team. He also thanked the Office of Inspector General at the U.S. Department of Health and Human Services and the Commercial Litigation Branch of the U.S. Department of Justice’s Civil Division in Washington D.C., for their extraordinary assistance in this case.

The case is being handled by the Office’s Civil Frauds Unit. Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating healthcare and other types of frauds. Assistant U.S. Attorneys Li Yu, Ellen M. London, and Rebecca C. Martin are in charge of the case.

U.S. v. Novartis Pharmaceuticals Corporation - Complaint in Intervention (11 Civ 8196)