Novartis Settles Whistleblower Lawsuit for $390 Million

Novartis has agreed to pay $390 million to settle whistleblower allegations claiming the pharmaceutical company paid kickbacks to specialty pharmacies in an effort to induce patients into refilling company medications. Novartis, a multinational pharmaceutical company based in Basel, Switzerland, grossed more drug sales in 2013 than any other pharmaceutical company in the world.

The case began after a former Novartis sales manager filed a whistleblower lawsuit under the False Claims Act, which allows non-government employees to file claims on the government’s behalf and receive a share of any money recovered. The settlement agreement is between the U.S. division of Novartis and the federal government, as well as more than 40 states that joined the whistleblower lawsuit.
According to Reuters, Novartis offered deals to specialty pharmacies between 2007 and 2012. Specialty pharmacies typically dispense costly medications. In order to increase prescriptions of Novartis drugs like Myfortic (a transplant drug) and Exjade (an iron chelation drug), the pharma giant offered the specialty pharmacy rebates and referrals.

One of the specialty pharmacies implicated in the scheme was BioScrip. Last year, BioScrip gave the government information on the company’s financial relationship with Novartis, presumably to avoid facing stiffer penalties for accepting kickbacks from the drug maker (in the end, BioScrip agreed to pay $15 million and disclose information to the DOJ).

BioScrip officials told the Justice Department that it pushed patients to get Exjade refills at Novartis’ behest. Novartis admitted to the allegations, saying that BioScrip was one of three specialty pharmacies that the drug maker incentivized to increase drug prescription refills. One of the other specialty pharmacies-Accredo Health Group Inc., a unit of Medco Health Solutions-ended up settling kickback charges for roughly $60 million.

These incentives included the allocation of more patients to the specialty pharmacies based on the number of refills the participating pharmacies pushed on patients. In addition to asking the specialty pharmacies to push their medications, Novartis also asked that the pharmacies downplay any risks and side effects associated with the company’s drugs.

Novartis offered additional drug rebates to the participating specialty pharmacies when they met quarterly shipment goals based on the drug maker’s sales targets. According to the whistleblower lawsuit, Novartis used ‘scorecards,’ detailing which pharmacies kept patients on Novartis drugs for the longest periods of time. According to a company statement issued by Novartis in the wake of the settlement announcement, these arrangements remained in place until around March of 2012.

The whistleblower lawsuit claims that a total of six different Novartis medications were involved in the scheme. The whistleblower, former Novartis sales manager David Kester, will receive a portion of the amount recovered in the settlement.

It should be noted that this and other recent cases have brought serious scrutiny to the specialized pharmacy industry. Prior to the Novartis settlement, drugmaker Valeant Pharmaceuticals International Inc. came under fire for similar behavior. In the Valeant case, the company was forced to sever a business relationship with Philidor, another specialty pharmacy, over shady billing practices.

Novartis CEO Says Practice Cited in Whistleblower Suit is ‘Quite Common’

The Wall Street Journal wrote an article about the Novartis settlement in which Novartis CEO Joseph Jimenez said the rebates that Novartis offered to specialty pharmacies are designed to make sure that patients finish their course of medication. While in theory that may be true, when it came time to put into practice, Novartis demonstrated that the rebates and everything that went with them amounted to kickbacks.

Jimenez was quoted as saying the practice is actually “quite common” in the industry, adding that Novartis is still using the practice, even though the company had to pay $390 million to settle claims alleging that the company was, in fact, offering illegal kickbacks.

Jimenez also had this to say:

“We continue to maintain that specialty pharmacies must continue to play a role in ensuring patient adherence. How that is going to play out as to whether we change our behavior or not remains to be seen.”

Maybe you didn’t catch that last bit…”how that is going to play out as to whether we change our behavior or not remains to be seen.” A lot can be inferred by this comment, namely that Jimenez and the company he sits at the helm of, don’t seem to have any intention of changing the corporate culture that got Novartis into this hot water in the first place.

The sentiment from the quote may likely be shared by many other drug industry CEO’s that Jimenez rubs shoulders with. How, you ask, could a major drug company CEO feel so comfortable with taking such a stance?

Well, let’s look at some numbers:

According to Novartis’s 2014 annual report, the drugmaker took in a reported $58 billion in net sales with $10.8 billion in free cash flow. With that much money sitting in the war chest, do you think Jimenez is sweating this $390 million whistleblower settlement? I suggest the answer is no.

After the WSJ piece went to press, Novartis issued a statement that, without specifically citing Jimenez’s comments, said the media’s coverage of his comments didn’t reflect Novartis’ position.

Until companies like Novartis (which has been the subject of a number of fraud allegations in recent years) are persuaded to change their ways, they will continue to engage in the same kind of fraudulent behavior, chalking up these huge payments to the government from fraud cases as the cost of doing business.

There are a number of things that can be done to stem the tide of corporate crime:

  • Put those with knowledge of egregious fraud in prison. When executives feel like they can cut corners in the name of profit, knowing full well that they will land on their feet when their tenure is over, they are more likely to bend the rules. Put these same executives behind bars when they knowingly break the law and they will surely think twice about the consequences of their actions.
  • Make the punishment match the crime. To you and me, $390 million sounds like a huge amount of money. To Novartis, with $10.8 billion in reserves, it’s a drop in the bucket. Will they think twice about engaging in the same behavior? If the company was worried about it, do you think Jimenez would’ve said what he said?
  • Blow the whistle. See corporate crime yourself? Come forward and report it. Retain a solid whistleblower attorney to help you file a claim. It can save taxpayer funds and you could see a sizable whistleblower reward for exposing the fraud.
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