Feds Accuse Novartis of Kickback Drug Scheme

MANHATTAN (CN) - Novartis Pharmaceuticals cost Medicare and Medicaid tens of millions of dollars by paying kickbacks to pharmacies to switch transplant patients to one of its drugs instead of cheaper generics, federal prosecutors say.

The United States unsealed a four-count complaint against Novartis on Tuesday, accusing it of unjust enrichment, False Claims Act violations and conspiracy. It seeks treble damages, penalties and restitution for "a Novartis-orchestrated kickback scheme."

"Under this scheme, Novartis paid kickbacks to pharmacies in exchange for the pharmacies switching transplant patients to the Novartis drug Myfortic, or continuing to recommend and dispense Myfortic instead of cheaper, generic competitor drugs. As part of the scheme, Novartis has also knowingly caused the pharmacies to submit false claims to Medicare and Medicaid that were tainted by kickbacks, causing these programs to pay tens of millions of dollars in reimbursements that should not have been paid," the complaint states.

Novartis paid more than 20 pharmacies kickbacks from 2005 until today, knowing it was violating the federal anti-kickback law, the U.S. attorney says in the complaint. It "disguised these kickbacks as 'performance' rebates or discounts," and "these pharmacies agreed to disregard their professional independence, and use their influence to switch patients to Myfortic," according to the complaint.

"For example, in early 2011, the owner of Twenty-Ten Prescription Pharmacy in Los Angeles told Novartis that, in exchange for '5 percent more' in rebates, Twenty-Ten would 'do all the conversions' requested by Novartis. Similarly, Novartis agreed to a kickback arrangement with Transcript Pharmacy in Flowood, Mississippi, after Transcript promised to recommend moving patients to Myfortic 'only if' Novartis allowed Transcript to participate in the kickback scheme." (Citations omitted.)

Novartis and the pharmacies concealed the scheme from doctors, patients and the government, prosecutors say.

"As Novartis and the pharmacies profited from their kickback scheme through, respectively, escalating levels of Myfortic sales and ongoing flows of kickback payments, Medicare and Medicaid were made to bear the financial cost of this corrupt scheme. All of the pharmacies receiving kickbacks from Novartis submitted claims to Medicare and Medicaid. Further, in seeking Medicare and Medicaid reimbursement, neither these pharmacies nor Novartis disclosed their quid pro quo arrangements. The Myfortic kickback scheme, in short, resulted in the submission of tens of thousands of false Medicare and Medicaid claims.

"These false claims, in turn, caused Medicare and Medicaid to disburse tens of millions of dollars in reimbursements that should not have been paid. Specifically, Novartis data shows that the total amount of Myfortic sales by pharmacies receiving kickbacks was well in excess of $100 million; and, according to a 'payer mix' analysis that Novartis received in 2011, reimbursements by Medicare and Medicaid accounted for 47 percent of the total Myfortic sales through those pharmacies and their peers. Thus, Novartis has, through its kickback scheme, caused tens of millions of dollars in losses to those federal health-care programs."

Novartis stock closed at $73.23 on Tuesday, up 62 cents from Monday.

Novartis paid $420 million in civil and criminal penalties in 2010 to resolve similar allegations about it epilepsy drug Trileptal. In that case, it paid the kickbacks to doctors.

Novartis sued Teva Pharmaceuticals two years ago, to try to block it from introducing a generic form of Myfortic.

Although government fines in these cases may look stiff, they typically amount to a small percentage of the profits big pharmaceutical companies make by illegally marketing their drugs.

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