BOSTON – Novartis Pharmaceuticals Corporation (Novartis) has agreed to pay $51.25 million to resolve allegations that it violated the False Claims Act by illegally paying the Medicare co-pays for its own drugs. 

When a Medicare beneficiary obtains a prescription drug covered by Medicare Part B or Part D, the beneficiary may be required to make a partial payment, which may take the form of a co-payment, co-insurance, or deductible (collectively, co-pays). Congress included co-pay requirements in these programs, in part, to encourage market forces to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs. The Anti-Kickback Statute prohibits pharmaceutical companies from offering or paying, directly or indirectly, any remuneration – which includes money or any other thing of value – to induce Medicare patients to purchase the companies’ drugs.   

“According to the allegations in today’s settlement, Novartis coordinated with three co-pay foundations to funnel money through the foundations to patients taking Novartis’ own drugs,” said United States Attorney Andrew E. Lelling. “As a result, the Novartis’ conduct was not ‘charitable,’ but rather functioned as a kickback scheme that undermined the structure of the Medicare program and illegally subsidized the high costs of Novartis’ drugs at the expense of American taxpayers. At the same time, we recognize that Novartis’ current management has taken constructive steps to address the government’s concerns with the company’s prior relationships with co-pay foundations.”

“Through this settlement and others, the government has demonstrated its commitment to ensuring that drug companies do not use kickbacks to influence the drugs prescribed by doctors or purchased by patients,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division.  “We will continue to safeguard the Medicare program from kickbacks and their pernicious effects, including the undermining of important cost-control mechanisms instituted by Congress.”

“Improper coordination between pharmaceutical manufacturers and foundations operating patient assistance programs harms Medicare by increasing costs and distorting the prescription drug market,” said Gregory E. Demske, Chief Counsel to the Inspector General.  “This CIA promotes independence in those relationships and accountability on the part of manufacturer Boards of Directors and senior management.”

“Novartis tried to game the system to boost its bottom line at the expense of sick patients facing economic hardship, and the hard-working taxpayers who fund the Medicare program,” said Joseph R. Bonavolonta, Special Agent in Charge of the FBI Boston Division. “Today’s settlement is a warning to all pharmaceutical companies that if they pay kickbacks, like Novartis did in this case, our health care fraud task force will do everything it can to make sure they are held accountable.”

The government’s allegations in the settlement announced today are as follows:

At certain intervals during the period from Jan. 1, 2010, through Dec. 31, 2014, Novartis used The Assistance Fund (TAF) as a conduit to pay kickbacks to Medicare patients taking Gilenya, a Novartis drug for multiple sclerosis (MS), and used the National Organization for Rare Disorders (NORD) and Chronic Disease Fund (CDF) as conduits to pay kickbacks to Medicare patients taking Afinitor, a Novartis drug for renal cell carcinoma (RCC) and progressive neuroendocrine tumors of pancreatic origin (PNET).

With respect to TAF, in October 2012, Novartis learned from Express Scripts, which then was managing Novartis’ free drug program for Gilenya, that Novartis was providing free Gilenya to 364 patients who would become eligible for Medicare the following year. Novartis and Express Scripts transitioned these patients to Medicare Part D so that, in the future, Novartis would obtain revenue from Medicare when the patients filled their prescriptions for Gilenya. Knowing that these patients could not afford co-pays for Gilenya, Novartis developed a plan for it to cover their co-pays through TAF, which operated a fund that, ostensibly, offered to cover co-pays for any MS patient who met TAF’s financial eligibility criteria, regardless of which MS drug the patient was taking. Specifically, just after it made a payment to TAF, Novartis arranged for TAF to open its MS fund at 6:00 p.m. on Friday, Dec. 14, 2012, and for Express Scripts to have personnel working overtime that night and the following morning submitting applications to TAF on behalf of patients who previously had been receiving free Gilenya from Novartis. Novartis knew that the timing of the opening of the fund and the readiness of Express Scripts to submit applications on behalf of Gilenya patients at that time would result in Gilenya patients receiving a disproportionate share of the grants from the fund while it was open. After the fund closed on Saturday, Dec. 15, 2012, Novartis confirmed that, during the brief period the fund had been open, TAF used Novartis’ money to provide 374 Gilenya patients with grants to cover their Medicare co-pays in 2013. Novartis subsequently made further payments to TAF, and TAF provided many of these same Gilenya patients with grants to cover their Medicare co-pays in 2014.

With respect to NORD, Novartis learned that, as of the 2010 donation year, no other manufacturer of RCC medications would be contributing to a pre-existing NORD RCC co-pay assistance fund. Novartis knew that Afinitor was approved for use as a second-line RCC treatment only, and only when certain first-line products had failed. Novartis also knew, therefore, that any co-pays NORD covered for initial RCC treatments would not be used to cover co-pays for Afinitor. Novartis informed NORD that it would be willing to donate to its RCC fund if NORD narrowed the fund’s eligibility definition so as not to cover co-pays for first line treatments. Novartis wanted the definition narrowed to ensure that a greater amount of its donations would subsidize its product, as opposed to others. NORD then created a new fund entitled “Advanced Renal Cell Carcinoma Second Line Co-Payment Assistance Program.” This fund excluded any patients seeking co-pay coverage for first-line RCC treatments and disproportionately funded patients taking Afinitor compared to its overall usage rate among all RCC drugs. Novartis financed this NORD fund through 2014.

With respect to CDF, in 2012, after Afinitor was approved to treat PNET, Novartis asked CDF to open a fund to cover Afinitor co-pays for PNET patients. At that time, Novartis knew that the FDA had approved a competing drug to treat PNET. Nonetheless, with Novartis’ knowledge, CDF launched a fund labeled “PNET” that covered co-pays only for Afinitor and did not cover co-pays for the other PNET drug. Novartis continued with this understanding as the sole financial backer of this supposed “PNET” fund through 2014. 

Novartis entered into a five-year corporate integrity agreement (CIA) with OIG as part of this settlement and a simultaneous settlement being announced today by the United States Attorney’s Office for the Southern District of New York. The CIA requires Novartis to implement measures, controls, and monitoring designed to promote independence from any patient assistance programs that it finances. In addition, Novartis agreed to implement risk assessment programs and to obtain compliance-related certifications from company executives and Board members.

To date, the Department of Justice has collected over $900 million from ten pharmaceutical companies (United Therapeutics, Pfizer, Actelion, Jazz, Lundbeck, Alexion, Astellas, Amgen, Sanofi, and Novartis) that allegedly used third-party foundations as kickback vehicles. The Department also has reached settlements with four foundations (Patient Access Network Foundation, Chronic Disease Fund, The Assistance Fund, and Patient Services, Inc.) that allegedly conspired or coordinated with these pharmaceutical companies.

U.S. Attorney Lelling, Assistant Attorney General Hunt, HHS Chief Counsel to the Inspector General Demske, and FBI Boston SAC Bonavolonta made the announcement today. The U.S. Postal Inspection Service also assisted with the investigation. The matter was handled by Assistant U.S. Attorneys Gregg Shapiro and Abraham George, of Lelling’s Affirmative Civil Enforcement Unit, and by Trial Attorneys Sarah Arni and Augustine Ripa of the Justice Department’s Civil Division.