A.G. Schneiderman Announces $390 Million National Kickback Settlement With Novartis Pharmaceuticals

NEW YORK – Attorney General Eric T. Schneiderman today announced that his office reached an agreement in principle to settle kickback claims against Novartis Pharmaceuticals Corporation ("Novartis").  The settlement will resolve allegations that Novartis paid kickbacks to three specialty pharmacies to incentivize them to push Medicaid patients to order refills of the drug Exjade.  Under the settlement, Novartis has agreed to pay $390 million to the United States, New York, and over forty other states.  About $18.5 million of the settlement will resolve claims relating to New York's Medicaid program.

"Pharmaceutical companies cannot pay specialty pharmacies to provide one-sided information about prescription drugs to patients," Attorney General Schneiderman said. "My office will work to make sure patients are given all relevant information, including where the funding is coming from, before agreeing to partake in any allegedly educational program that is offered to them."

Since early 2014, New York has led a group of states that sued Novartis under their respective False Claims Act statutes.  The agreement with Novartis is the third settlement in connection with the case.  In January 2014, one of the pharmacies, BioScrip, Inc., agreed to pay $15 million, and in May 2015, another pharmacy, Accredo Health Group, Inc., agreed to pay $60 million.  About $4.3 million of those settlements resolved claims relating to New York's Medicaid program.

In late 2005, Exjade was approved by the U.S. Food and Drug Administration ("FDA") for the treatment of chronic iron overload due to blood transfusions.  After launching the drug, Novartis marketed Exjade as a treatment for patients with a variety of conditions that affect blood cells or bone marrow, including beta-thalassemia, sickle cell disease, and myelodysplastic syndromes. 

The settlement resolves allegations that between 2007 and 2012 Novartis paid kickbacks to three specialty pharmacies – BioScrip, Accredo, and US Bioservices.  The pharmacies were selected by Novartis to be part of a closed distribution network through which most Exjade prescriptions in the United States were filled.  Novartis created the distribution network, which it called EPASS, and therefore had significant control over how many patient referrals each pharmacy received.  The pharmacies shipped most Exjade prescriptions to patients by mail and were supposed to call patients to set up the shipments and obtain consent for refills.  The pharmacies billed themselves as specialty pharmacies that could arrange for these shipments and run educational programs for patients. 

In their court filings, the government plaintiffs alleged that Novartis paid kickbacks to the pharmacies to corrupt the pharmacies' interactions with patients by inducing the pharmacies to exaggerate the dangers of not taking Exjade, emphasize Exjade's benefits, and downplay the severity of Exjade's side effects.  The scheme began after Exjade failed to meet Novartis' internal sales goals and Novartis discovered that refill rates for Exjade were lower than anticipated.

In the course of the scheme, Novartis pressured the specialty pharmacies by threatening to exclude them from the EPASS network or to reduce the number of patient referrals they received from EPASS.  In addition, Novartis set up a contest in which the pharmacy that kept patients on Exjade the longest would receive additional patient referrals from EPASS.  The contest winner was determined by scorecards created by Novartis that were sent to each of the three pharmacies.  Novartis also paid rebates to the specialty pharmacies, which made each patient referral valuable and incentivized the specialty pharmacies to encourage patients to stay on Exjade.  The contest and the rebates were not disclosed to Exjade patients or their caregivers. 

In their filings, the government plaintiffs also alleged that lawyers for Novartis raised concerns about the contest for nearly a year before it was implemented.  According to the filings, Novartis went forward with the contest anyway after one senior executive was brought in to challenge the legal advice and another determined that the benefits of the scheme to Novartis outweighed the risk of violating the federal Anti-Kickback Statute.

To appease Novartis, all of the pharmacies put together plans to increase refill rates that included nurses placing phone calls to patients or caregivers.  One pharmacy, BioScrip, told Novartis that BioScrip would make claims about Exjade preventing organ damage that the FDA had told Novartis it should not make in Novartis' promotional materials.  Another pharmacy, Accredo, showed Novartis a call protocol that directed nurses to tell patients it was "extremely important" to take Exjade and to tell patients about the common side effects of the drug but not the more severe side effects, such as kidney and liver problems. 

Novartis admitted many aspects of the scheme in a stipulation filed in federal court in connection with the settlement.  Among other things, Novartis admitted that it told BioScrip that it might terminate its distribution agreement or reduce the number of patient referrals it received from EPASS.  Similarly, Novartis admitted that it told Accredo and US Bioservices that Novartis might reduce the number of patient referrals that they received from EPASS and that Novartis "pushed" Accredo and US Bioservices to implement plans in which nurses would call patients and encourage them to stay on Exjade.  Novartis also admitted that it used the scorecard results to allocate EPASS patients among the specialty pharmacies.

The case against Novartis was initiated by a whistleblower, David Kester, who used to work for Novartis and will receive a portion of the settlement.  Novartis, which is headquartered in East Hanover, New Jersey, is a subsidiary of the Swiss pharmaceutical company Novartis AG.  The case is captioned U.S. ex rel. Kester, et al. v. Novartis Pharmaceuticals Corporation, et al., No. 11-CIV-8196 and was filed in the United States District Court for the Southern District of New York. 

The case was handled by the Medicaid Fraud Control Unit, which worked closely with the U.S. Attorney's Office for the Southern District of New York and a multi-state team that included representatives of California, Indiana, Oklahoma, Washington, and Wisconsin.  Of the $18.5 million related to the New York Medicaid program, about $10.2 million will go to New York and $8.3 million will go to the federal government. 

Special Assistant Attorney General Christopher Y. Miller led a multi-state team that litigated the case and negotiated the settlement with Novartis.  Special Auditor-Investigator Colin Ware and Chief Auditor Michael LaCasse served as members of the state team.  The case was also handled by Special Assistant Attorney General Diana Elkind, and the investigation was conducted by Investigators Lisa McDonald and Kenneth Deis, Investigator Peter Markiewicz and Deputy Chief of Downstate Investigations Kenneth Morgan.  Electronic Investigative Support Group Deputy Director Carolyn Hart, Systems Analyst Linda Ault, and Legal Assistants Geoffrey Gund and Sam Chen provided support to all of the states that litigated the case.  The Medicaid Fraud Control Unit is led by Acting Director Amy Held and Assistant Deputy Attorney General Paul J. Mahoney.  The Division of Criminal Justice is led by Executive Deputy Attorney General Kelly Donovan.