Novartis to pay $390 million in U.S. settlement over pharmacy kickbacks

WASHINGTON (Reuters) - Novartis Pharmaceuticals Corp will pay $390 million to settle U.S. charges that it paid specialty pharmacies illegal kickbacks in exchange for inducing patients to refill certain medications, according to an accord announced Friday.

The logo of Swiss pharmaceutical company Novartis is seen on its headquarters building in Basel, Switzerland October 27, 2015. Novartis agreed in principle to pay $390 million to settle U.S. allegations that it used kickbacks to speciality pharmacies to push sales of some drugs, the Swiss company said on Tuesday, hitting third-quarter earnings. REUTERS/Arnd Wiegmann - RTX1TGEF

The settlement between a U.S. unit of Swiss drugmaker Novartis AG, the federal government and more than 40 states concerns payments that the drug manufacturer paid between 2007 and 2012 to certain specialty pharmacies to entice them to recommend prescriptions to Medicaid and Medicare patients.

The federal part of the case, brought by the U.S. Attorney for the Southern District of New York, involved six drugs including iron-reducing Exjade and immunosuppressant Myfortic.

In the settlement, Novartis admitted to a series of facts detailing its relationship with specialty pharmacies and how the alleged scheme worked.

The company said it is implementing new controls to help strengthen its arrangements with specialty pharmacies, and that it is “committed to high standards of ethical business conduct.”

Specialty pharmacies typically dispense medications that are more costly, or require special handling.

The sector has come under intense scrutiny in recent months, after drug manufacturer Valeant Pharmaceuticals International Inc was forced to sever ties with specialty pharmacy Philidor over questions about Philidor’s billing practices and business relationship with Valeant.

The Novartis case was sparked by David Kester, a former sales manager who filed a whistleblower complaint under the False Claims Act - a law that permits non-government employees to file actions on behalf of the government.

Prosecutors say that Novartis selected certain specialty pharmacies to be part of a closed distribution network called EPASS, which was used to fill prescriptions.

The pharmacies were then asked to urge patients to continue taking the drug and downplay its risks and side effects.

Novartis also ran a contest and kept “score cards” on which pharmacy kept patients on certain drugs for the longest period of time.

“I believe many of my customers, who were the physicians and nurses treating patients with life-threatening diseases, did not fully understand the relationships between the specialty pharmacies and Novartis,” Kester told Reuters in written responses to questions.

Two of the pharmacies in the case - Accredo Health Group Inc, a unit of Medco Health Solutions and BioScrip Inc - previously settled charges and collectively paid $75 million.

Kester’s attorney Shelley Slade said the case marks the largest-ever recovery to the government from a False Claims Act lawsuit based solely on a kickback theory.

Reporting by Sarah N. Lynch; Editing by Susan Heavey and Bill Rigby