RPT-UPDATE 1-Novartis loses new bid to dismiss U.S. lawsuit over kickbacks

Thu Aug 7, 2014 9:46pm EDT

(Repeats to insert dropped word "a" in 7th paragraph)

By Jonathan Stempel

NEW YORK, (Reuters) - A Manhattan federal judge on Thursday said the U.S. Department of Justice may pursue most of its lawsuit accusing Novartis AG of civil fraud for allegedly using kickbacks to boost sales of drugs covered by Medicare and Medicaid.

U.S. District Judge Colleen McMahon allowed the government to continue its False Claims Act case against the Swiss drugmaker over claims submitted to Medicare and some state Medicaid programs for Myfortic, used by patients with kidney transplants, and Exjade, for patients who get blood transfusions.

She also dismissed a part of the case covering claims submitted to state Medicaid programs other than New York's prior to March 23, 2010, when the Affordable Care Act, also known as Obamacare, was enacted.

Novartis, which has offices in East Hanover, New Jersey, had objected to what it called the government's "potentially limitless" theory that any claims submitted by pharmacists who got kickbacks were tainted.

It said the government, to pursue its case, instead must show a kickback scheme actually caused pharmacists to sell Myfortic or Exjade.

Julie Masow, a Novartis spokeswoman, said the company is disappointed that much of the case was allowed to go forward, adding it will continue to vigorously defend itself.

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

The government accused Novartis of providing discounts and rebates from 2005 to 2013 to induce at least 20 pharmacies to switch thousands of patients to Myfortic, an immunosuppressant.

It also said that from 2007 to 2012, Novartis offered patient referrals and rebates to BioScrip Inc so that pharmacy would recommend refills of Exjade, which is meant to reduce iron levels in patients.

The government alleged that these activities caused Medicare and Medicaid to pay tens of millions of dollars of improper reimbursements, and violated a federal anti-kickback law. Eleven U.S. states are co-plaintiffs. BioScrip settled for $11.7 million in January.

McMahon had on May 29 allowed the case to proceed, but said she wanted to further review the legal issues.

In her decision on Thursday, she said Congress "gave absolutely no indication" that it intended to limit the reach of the False Claims Act where kickbacks were concerned.

"Where a party falsely certifies compliance with the (anti-kickback law) in connection with a claim, the claim is 'false' as a matter of law, and so is not eligible for reimbursement," she wrote.

McMahon gave the government 21 days to again plead claims she dismissed.

The lawsuit stemmed from a whistleblower case 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.

The case is U.S. v. Novartis Pharmaceuticals Corp, U.S. District Court, Southern District of New York, No. 11-08196. (Editing by Ken Wills)