UPDATE 2-Novartis must face U.S. gov't lawsuit alleging drug kickbacks

Thu May 29, 2014 5:28pm EDT

(Adds allegations, BioScrip settlement, whistleblower lawsuit)

By Jonathan Stempel

NEW YORK May 29 (Reuters) - A federal judge on Thursday refused to dismiss a U.S. government lawsuit accusing Novartis AG of civil fraud for having conducted two illegal kickback schemes to boost sales of drugs covered by Medicare and Medicaid.

U.S. District Judge Colleen McMahon in Manhattan rejected the argument by the Swiss drugmaker's Novartis Pharmaceuticals Corp unit that the lawsuit should be dismissed because the government had failed to show how it had been defrauded.

McMahon, however, invited Novartis by June 13 to seek dismissal on a different ground, that the claims were legally inadequate, saying she needed to more fully review that issue.

The government accused Novartis of having from 2005 to 2013 induced at least 20 pharmacies to switch thousands of kidney transplant patients to its immunosuppressant drug Myfortic by providing kickbacks, in the form of discounts and rebates.

It also claimed that in a scheme lasting from 2007 to 2012, Novartis provided kickbacks, in the form of patient referrals and rebates, to BioScrip Inc in exchange for that pharmacy recommending refills of Exjade, a drug meant to reduce excess iron in patients who receive blood transfusions.

These activities allegedly led Medicare and Medicaid to pay tens of millions of dollars of improper reimbursements, violating an anti-kickback law that prohibits paying people to buy drugs or services covered by federal healthcare programs.

"The government has provided a strong factual basis for its assertion that claims tainted by the Novartis kickback scheme were actually submitted to Medicare and Medicaid, given that it used actual claims data as the basis for its detailed allegations," the judge wrote.

Eleven U.S. states joined the case as co-plaintiffs. BioScrip settled for $11.7 million in January.

Novartis spokeswoman Julie Masow said the company, which has offices in East Hanover, New Jersey, intends to renew its bid to dismiss the case by McMahon's deadline.

"The use of specialty pharmacies to support patients with complex medical conditions is an effective, well-established practice to help ensure patients comply with their physician-directed treatment plans," she said.

A spokeswoman for U.S. Attorney Preet Bharara in Manhattan declined to comment.

Three separate state complaints remain pending in related litigation, McMahon said.

The lawsuit was brought under the federal False Claims Act, which lets the government pursue triple damages.

It stemmed from a whistleblower lawsuit by David Kester, a former Novartis respiratory account manager from Raleigh, North Carolina. He is also pursuing separate claims against Novartis and other companies regarding other drugs.

Shelley Slade, a lawyer for Kester, declined to comment.

In announcing the lawsuit in April 2013, Bharara had called Novartis a "repeat offender," referring to its 2010 agreement to pay $422.5 million to settle criminal and civil claims over its marketing of the epilepsy drug Trileptal and other drugs.

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; Additional reporting by Nate Raymond; Editing by Lisa Shumaker and Richard Chang)

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