Catch of the Week: Novartis Pays $729 Million to Settle Two Kickback Cases on Heels of $345 Million Foreign Bribery Settlement
This week and last, pharmaceutical manufacturer Novartis reached three settlements involving very different forms of unlawful kickbacks and bribes. First, this week the company agreed to pay a total of $678 million to resolve a New York case alleging that it paid inflated “speaking fees” and provided other incentives to doctors to induce them to prescribe Novartis drugs. Second, Novartis will pay $51.25 million to resolve claims that is unlawfully funneled money to charities so that those organizations could cover the co-payments of Medicare and Medicaid beneficiaries for Novartis drugs.
While the two settlements are not related, both involve violations of the Anti-Kickback Statute, which prohibits the payment of financial incentives, or the provision of any other form of remuneration, in exchange for referrals of patients who will receive treatment paid for by government healthcare programs such as Medicare and Medicaid. Unlawful kickbacks, whatever form they take, can increase healthcare costs and harm patients, by tainting medical decisions with the potential for monetary gain.
Third, Novartis parent company, Novartis AG, last week agreed to pay a combined penalty of $345 million to the SEC and DOJ to resolve allegations that the company violated the Foreign Corrupt Practices Act by bribing employees of state-owned hospitals and clinics in Greece and Vietnam to induce them to use Novartis products.
With these three settlements, then, Novartis has paid over $1 billion to resolve claims arising from three different schemes. While the three schemes are very different from each other in their form and details, they share a common theme: each involves the use of unlawful financial incentives to secure business.
Novartis Dollars for Docs Wine-and-Dine Scheme
In January, 2011, Oswald Bilotta, a sales representative at Novartis, filed an action against Novartis under the qui tam provisions of the False Claims Act. Bilotta reportedly worked closely with government investigators, wearing a wire to help prosecutors gather evidence. The government intervened in 2013, and the case was litigated for years – up to the eve of trial in 2019.
In its complaint in intervention, the U.S. alleged that Novartis paid kickbacks to doctors to induce them to prescribe Novartis drugs. Between 2002 and 2011, the U.S. alleged, Novartis paid exorbitant fees to doctors to speak about its drugs at thousands of sham educational events that were often little more than social occasions for the doctors – social occasions with luxury travel, recreational activities, and fine dining, all funded by Novartis. Novartis sales representatives, on the instruction of their managers, selected doctors who were high-volume prescribers of Novartis drugs to serve as the paid “speakers” at these events, and – in case the purpose was unclear – the sales representatives then pressured the speakers to increase their prescriptions of Novartis drugs, often dropping doctors from the program if they failed to do so.
Novartis paid for these programs because its internal analysis showed that they worked: speaker programs and the payment of “honoraria” to doctors resulted in more prescriptions for Novartis drugs being written by the doctors who participated in the programs. Novartis also knew that the speaker programs presented legal problems. In 2010, Novartis had entered into a settlement agreement about different speaker programs; that settlement included a Corporate Integrity Agreement that required Novartis to implement compliance procedures. However, the company’s legal compliance programs were woefully inadequate. (In addition, in 2015, Novartis paid $370 million to resolve claims that it paid kickbacks to specialty pharmacies to induce them to recommend Novartis drugs)
The $678 million settlement consists of $591.4 million as federal FCA damages, $48.2 million as state FCA damages for Medicaid false claims, and $38.4 million as forfeiture under the Anti-Kickback Statute. The whistleblower award has not yet been determined. Update: Bilotta will reportedly receive a federal whistleblower reward of 18.5% of the $591.4 million in federal FCA damages, for a whistleblower reward of $109.4 million, one of the largest ever. The $38.4 million forfeiture amount was expressly excluded from calculation of the federal whistleblower reward, and no information has been made public about a whistleblower reward share on the $48.2 million in state FCA damages. Determination of whistleblower share in multistate settlements can be longer process involving negotiation with different states.
In addition to the monetary settlement, Novartis entered into a Corporate Integrity Agreement obligating the company to, among other things, significantly reduce its volume and spending on paid speaker programs.
Novartis Sham Co-Payment Foundation Funding Scheme
Supposed “gifts” by pharmaceutical companies to charitable foundations that help patients pay for expensive drug treatments harm taxpayers and the government by steering patients to expensive drugs. These “gifts” come with strings attached, and are designed to boost sales of the donor’s products. Such unlawful payments violate the Anti-Kickback Statute.
Novartis’s $51.2 million settlement resolves claims that it coordinated with three different foundations – The Assistance Fund, the National Organization for Rare Disorders, and the Chronic Disease Fund – so that those organizations could use Novartis “donations” to fund co-payments owed not by any patient who sought assistance from the foundations, but specifically by Medicare beneficiary patients prescribed the Novartis drugs Gilenya (for multiple sclerosis) and Afinitor (for renal cell carcinoma and certain pancreatic cancers).
The Novartis settlement is the latest in a substantial line of settlements secured by the U.S. Attorney’s Office for the District of Massachusetts in False Claims Act cases alleging that drug companies conspired to increase sales of their drugs by ensuring that donations they made to foundations would be used to cover co-payments for the donor’s drugs. In 2019, that office announced settlements totaling $253 million with eight drug companies and two charitable foundations.
Novartis Foreign Bribery Scheme
Novartis AG, the Novartis parent company based in Switzerland, and former Novartis subsidiary Alcon Pte Ltd were alleged to have violated the Foreign Corrupt Practices Act by bribing officials in, respectively, Greece and Vietnam to induce the purchase of Novartis-branded pharmaceuticals and Alcon surgical products, and then falsifying their corporate books and records to conceal the bribes. Novartis Greece paid a criminal monetary penalty of $225 million, and Alcon paid a criminal monetary penalty of $9 million. In addition, Novartis AG paid a $112 million fine to the SEC, bringing the total settlement to $345 million.
As with its Anti-Kickback Statute violations, this is not the first time Novartis has faced liability for FCPA violations. In 2016, Novartis AG agreed to pay $25 million to settle SEC charges that its China-based subsidiary paid kickbacks to Chinese government employees and their families to induce sales.
Lessons for Whistleblowers
Novartis has racked up a long string of fines and settlements in the face of repeated government enforcement actions. As said above, these enforcement actions have a common theme: Novartis is alleged to have made unlawful payments in order to increase sales of its products, in ways that increase healthcare costs and harm competition. These schemes can be difficult for the government to detect without information provided by insiders or others with non-public knowledge of fraudulent activities.
Such individuals may be eligible for a share of any recovery by the government that results from their reporting – if they report the wrongdoing using the appropriate whistleblower reward program. Healthcare and pharmaceutical fraud can be reported under the False Claims Act. FCPA violations can be reported under the SEC Whistleblower Reward Program (and whistleblowers do not need to be U.S. citizens). Whistleblowers play a critical role in letting the government and the public know about wrongdoing like the actions described above.
- Healthcare and Pharmaceutical Fraud
- The Anti-Kickback Statute
- Foreign Corrupt Practices Act
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