Feds want Novartis to cough up $3.4B in damages, fines in kickback case

Kickback allegations against Novartis ($NVS) just got scarier. After years of investigating the Swiss drugmaker, the Justice Department and 11 states are demanding almost $3.4 billion in damages and fines in a False Claims Act lawsuit nearing trial.

That's a record in a pharma kickback case, and if federal and state prosecutors win, it would surpass GlaxoSmithKline's ($GSK) $3 billion marketing settlement with the Justice Department and a number of U.S. states.

That's because the government has totted up more than 166,011 Medicare and Medicaid claims related to the alleged kickbacks, and more than $500 million in government payments for those scripts. It's asking for triple that amount in damages. And it's demanding as much as $1.83 billion in fines--$5,000 to $11,000 for each of those 116,011 allegedly false claims.

The allegations center on Novartis' pharmacy relationships, rather than financial payments to doctors. According to the feds, Novartis offered special deals to pharmacies to boost prescriptions of its transplant drug Myfortic in a head-to-head competition with Roche's ($RHHBY) CellCept. The drugmaker set up another scheme to increase refills of its iron chelation drug Exjade, the government says.

Novartis "continues to dispute the allegations and is continuing to defend itself in this litigation," company spokeswoman Julie Masow said. "We look forward to a full presentation of all of the evidence during the trial."

One pharmacy, BioScrip, flipped on Novartis last year, agreeing to pay $15 million and detail its financial relationship with the drugmaker to settle the government's claims about Exjade kickbacks. BioScrip said it pushed patients to get Exjade refills in return for more patient referrals and higher rebates.

U.S. Attorney Preet Bharara

Novartis allegedly targeted pharmacists with discounts and rebates for Myfortic switches, too. In one instance quoted in the feds' original FCA suit, the company offered a Los Angeles pharmacist a 5% "bonus" rebate on its annual Myfortic sales to switch 700 to 1,000 patients to the drug from other treatments, the prosecutors said. Announcing the allegations back in 2013, U.S. Attorney Preet Bharara said Novartis "co-opted the independence of certain pharmacists and turned them into salespeople for one of its drugs."

A trial is set for Nov. 2. Most FCA allegations aren't resolved that way; the government has announced settlement after settlement in whistleblower cases. The government's demands for big damages and fines may be an arm-twisting technique to get Novartis to make a deal. We have four months to find out.

In the meantime, Novartis is fighting other kickback allegations. Last October, a federal judge refused to dismiss a lawsuit claiming that Novartis lavished entertainment on certain physicians in return for increased prescriptions. The feds claim that Novartis salespeople spent up to $10,000 at a time on dinners for doctors, and some physicians turned up repeatedly for the same educational presentations. The lawsuit says the attendees increased script numbers on cardiovascular meds Lotrel and Valturn, along with the diabetes drug Starlix. A pretrial conference in that case is set for next month.

- see the pre-trial order

Special Report: Pharma's Top 11 Marketing Settlements

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