Schuette Announces $5.4M Settlement with Novartis – Nov. 24

Lansing, Michigan – November 24, 2015 – Attorney General Bill Schuette today announced that Michigan has reached an agreement in principle to settle kickback claims against Novartis Pharmaceuticals Corporation (“Novartis”).  The settlement will resolve allegations that Novartis provided kickbacks to certain specialty pharmacies in exchange for recommending the drug Exjade to Medicaid and Medicare patients. Under the settlement, Novartis has agreed to pay $390 million to the United States and over forty states. Michigan will be receiving $5,400,080.84. Exjade is an FDA-approved medication for the treatment of chronic iron overload due to blood transfusions.

“Deceptive medical marketing practices threaten the health and well-being of Michigan families,” said Schuette. “Michigan consumers shouldn’t have to wonder whether financial incentives are negatively influencing their medical care.”

Background on Novartis Pharmaceuticals Settlement

The settlement stems from a whistleblower lawsuit, U.S. ex rel. Kester, et al. v. Novartis Pharmaceuticals Corporation, et al., No. 11-CIV-8196, which was filed in the United States District Court for the Southern District of New York.  Two of the specialty pharmacies named as defendants in the case, BioScrip, Inc. and Accredo Health Group, Inc., already agreed to pay $15 million and $60 million respectively to resolve claims that they accepted kickbacks from Novartis to promote Exjade.  Michigan received $1,264,817.36 under those settlements in July of this year.

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.

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.  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.  The contest allegedly went forward even after lawyers for Novartis raised their concerns.

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 or 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 indicated to 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 to the specialty pharmacies.

Novartis, which is headquartered in East Hanover, New Jersey, is a subsidiary of the Swiss pharmaceutical company Novartis AG.


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