Novartis Announces $390 Million False Claims Act Settlement on Rebates to Specialty Pharmacies

Novartis AG, the world’s largest seller of prescription drugs, has announced a $390 million tentative agreement to settle a whistleblower’s False Claims Act suit against them. The False Claims Act suit alleged improper kickbacks to pharmacies to boost sales of several prescription drugs. Novartis Chief Executive Joe Jimenez told reporters that Novartis had made the disputed payments to ensure patients took the drugs, including treatments to prevent rejection of transplanted organs. United States government attorneys disagreed and intervened in the case.

The Department of Justice joined the case against Novartis in 2013 and was set to head to trial next week, raising the specter of billions of dollars in damages and penalties. On Tuesday, October 27, 2015, Novartis said it had reached a “settlement in principle” with the DOJ, various intervening states, and whistleblower David Kester, a former Novartis sales manager.

If the settlement is finalized by the courts, it will resolve allegations of improper discounts and rebates to specialty pharmacies in connection with the immunosuppressant Myfortic, the iron overload drug Exjade, and three other Novartis medications. Novartis was specifically accused of corrupting pharmacist judgment by tying financial incentives to dispensing costlier and less effective Novartis drugs instead of rival products. Earlier this year several specialty pharmacies including Bioscript, and Acredo Health on charges related to Exjade and this case. This is much less than the $3.4 billion the DOJ and 11 states, announced they were seeking in damages at the beginning of the case which was scheduled to go to trial on November 2, 2015.

In making the settlement, Novartis stated that they “neither admit nor deny liability,” and that they “continue to believe that specialty pharmacies play a key role in patient adherence and support.” Novartis is continuing to use similar tactics to the ones that landed them in hot water because they are designed to keep patients on their medication regimens.

This settlement comes approximately five years after Novartis agreed to settle a separate False Claims Act suit for $422.5 million. That suit alleged a violation of the False Claims Act and misdemeanor criminal allegations involving off-label promotion and kickbacks to doctors. As part of that settlement, Novartis entered into a five-year corporate integrity agreement. It was not clear whether the latest allegations could have been construed as violating that CIA.

When the DOJ intervened in the case in 2013, U.S. Attorney Preet Bharara called Novartis “a repeat offender,” calling attention to the September 2010 settlement.

The gravity of the alleged violations combined with Novartis’ history of misconduct have given this case an atypically high profile, with observers speculating that this case would give the DOJ the opportunity to make good on their recent promises to punish corporate wrongdoing with more than just fines.

Representatives of the DOJ and OIG have not yet commented on the agreement’s potential terms, including any individual liability, such as criminal charges or exclusion from activities involving Medicare and Medicaid. A Novartis spokeswoman who did speak on the issue only said, “although negotiations are ongoing, we expect any final settlement to resolve relevant exclusion remedies.”

This case serves a reminder to pharmaceutical manufacturers to review their compliance policies and procedures on rebates to specialty pharmacies.

Novartis still faces an ongoing anti kickback case in which the complaint was unveiled this summer so there is much more to this story.