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U.S. sues Novartis, alleging kickbacks to pharmacies

A Novartis logo is pictured on its headquarters building in Mumbai April 1, 2013. REUTERS/Vivek Prakash
A Novartis logo is pictured on its headquarters building in Mumbai April 1, 2013. REUTERS/Vivek Prakash

By Bernard Vaughan and Jonathan Stempel

(Reuters) - The U.S. government filed a civil fraud lawsuit against Novartis AG on Tuesday, accusing a unit of the Swiss drug maker of causing the Medicare and Medicaid programs to pay tens of millions of dollars in reimbursements based on fraudulent, kickback-tainted claims.

U.S. Attorney Preet Bharara in Manhattan said Novartis Pharmaceuticals Corp had since 2005 induced at least 20 pharmacies to switch thousands of kidney transplant patients to its immunosuppressant drug Myfortic from competitors' drugs, in exchange for kickbacks disguised as rebates and discounts.

He said Novartis tried to conceal the scheme by omitting the agreements from rebate and discount contracts with pharmacies.

In one alleged case, Novartis offered a Los Angeles pharmacist a "bonus" rebate of 5 percent of that pharmacist's annual Myfortic sales, or several hundred thousand dollars, to switch as many as 1,000 patients to Myfortic.

"Novartis co-opted the independence of certain pharmacists and turned them into salespeople," Bharara said in a statement.

The lawsuit was filed in U.S. District Court in Manhattan, and seeks civil penalties and triple damages from Novartis for violating the federal False Claims Act.

Novartis disputes the claims and will defend itself, spokeswoman Julie Masow said in an email.

Novartis is "committed to high standards of ethical business conduct and regulatory compliance in the sale and marketing of our products," Masow said.

Myfortic net sales totaled $579 million in 2012, up 12 percent from a year earlier, according to Novartis' annual report. The Novartis Pharmaceuticals unit has offices in East Hanover, New Jersey.

In his announcement, Bharara called Novartis a "repeat offender," referring to a settlement of health care fraud charges based on kickbacks less than three years ago.

Novartis in September of 2010 agreed to pay $422.5 million to resolve criminal and civil liability over its marketing of several drugs, including the epilepsy drug Trileptal. (http://www.justice.gov/opa/pr/2010/September/10-civ-1102.html)

The company violated a federal anti-kickback statute, "choosing instead to put sales growth and profits before its duty to comply with federal law," according to the new complaint.

The federal anti-kickback statute prohibits paying people to buy drugs or services that Medicare, Medicaid or other federal healthcare programs cover, according to the complaint.

The scheme has been highly lucrative for Novartis, according to the complaint, resulting in "rapid, sometimes exponential growth in Myfortic sales."

A pharmacy in Arkansas, for example, increased its annual sales of the drug to more than $1 million from $100,000 over four years, according to the complaint.

The lawsuit also claims a Novartis account manager admitted the kickback scheme generates "an ongoing stream of revenue" for Novartis "as long as the patient is still living and using (Myfortic)."

These types of cases "are one of the highest priorities of the FBI's health care fraud program," FBI Assistant Director Ronald Hosko said in a statement.

The case is U.S. v. Novartis Pharmaceuticals Corp, U.S. District Court, Southern District of New York, No. 11-08196.

(Reporting by Jonathan Stempel and Bernard Vaughan in New York; Editing by Gary Hill, David Gregorio and Tim Dobbyn)

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