Novartis Faces up to $3.3 Billion in Damages from Whistleblower Kickback Suit

7/2/2015

In what may be the largest whistleblower lawsuit ever, the Justice Department, along with 11 states, are accusing Swiss pharmaceutical titan, Novartis, of running a massive kickback scheme through the U.S. Medicare and Medicaid programs. Specifically, the U.S. is accusing the drugmaker of referring patients to a handful of specialty pharmacies who sent in thousands of fraudulent reimbursement claims for the drugs Exjade and Myfortic. The U.S. disclosed in a court filing in New York that it is seeking up to $3.3 billion dollars in damages. Under the False Claims Act, the U.S. Code’s main whistleblower legislation, the government is seeking $1.52 billion, triple the amount of kickbacks the company allegedly received from 2004 to 2013. The Justice Department is also calling for $1.83 billion in fines, ranging from $5,000 to $11,000 for each of the 166,031 allegedly fraudulent reimbursement claims sent by the accused pharmacies. If Novartis loses the case, the company could face an even harsher punishment: exclusion from federal reimbursement programs, potentially shutting them out of the increasing role of the federal government in U.S. healthcare. A trial is set to begin in November in U.S. District Court in Manhattan, although many whistleblower suits that involve the government are often settled before the case goes to trial.

The lawsuit was originally filed in 2012 by former Novartis account executive, David Kester. The company has denied wrongdoing, saying in an e-mail statement on Wednesday, “We look forward to a full presentation of all of the evidence during the trial.” The U.S. Government and the 11 states joined the suit in 2013. Kester is also representing 17 other states affected by the rebate scheme. Although individual plaintiffs submit the original lawsuit under whistleblower statutes, the government has the option to join the case if it feels that the claims are worth the effort, which can dramatically increase the likelihood of a successful verdict or appropriate settlement. The case is especially precarious for Novartis as, in addition to the whopping amount of damages requested in the lawsuit, the company has already been sanctioned by the Justice Department and arguably the best U.S. attorney in history, Preet Bharara’s New York office for previous violations. In 2010 Novartis signed a Corporate Integrity Agreement, requiring the company to set up an internal compliance mechanism to report violations. When Bharara filed suit in 2013, he called the company a “repeat offender,” which could be especially damaging to Novartis considering that the alleged scheme occurred both before and after this agreement was signed.

The outlook for Novartis does not look good in this matter. In addition to the current lawsuit, another employee filed a whistleblower suit, accusing the company of sending doctors on lavish vacations and expensive dinners in order to convince them to prescribe Novartis drugs. Also, Express Scripts agreed to pay $60 million in damages last month for its part of the kickback scheme, and another specialty pharmacy, BioScrip, agreed to pay $15 million to settle allegations related to the case last year. Federal authorities may be hesitant to push for full exclusion, however, as that would potentially remove other vital medications that government healthcare consumers need. This indication is hinted by language in the recent documents filed by federal authorities that only list fines and damages, without mentioning federal exclusion. Exjade is used to remove excess iron from blood following transfusions and Myfortic is prescribed to help prevent kidney transplant rejection. Novartis is based out of Basel, Switzerland, but also maintains U.S. regional offices in Hanover, New Jersey.

Sources:

Bloomberg Business – Bob Van Voris

Reuters – Jonathan Stempel

Wall Street Journal – Ed Silverman