I have written extensively about the Novartis International AG (Novartis) Foreign Corrupt Practices Act (FCPA) settlement, which was announced in late June. However, the enforcement action paled next to the Stipulation and Order, July 1 2020, entered against Novartis Pharmaceuticals Corporation for its bribery and corruption in the US. According to the Department of Justice (DOJ) Press Release, Novartis “agreed to pay over $729 million in separate settlements resolving claims that it violated the False Claims Act (FCA). The first settlement pertains to the company’s alleged illegal use of three foundations as conduits to pay the copayments of Medicare patients taking Novartis’s drugs Gilenya and Afinitor. The second settlement resolves claims arising from the company’s alleged payments of kickbacks to doctors.” The settlement was entered into in the US District Court for the Southern District of New York.

As bad as Novartis’ conduct was outside of the US, I can only say it was much worse inside the US. In addition to long running corruption schemes, the company either corrupted or worked with corrupt 503(c) companies to manipulate charitable co-payments for patients using certain Novartis drugs. The total fine and penalty paid for illegal conduct inside the US was over double that paid by Novartis for its conduct outside the US. Novartis settled domestic FCA and Anti-Kickback violations for $729 million and settled FCPA violations for foreign bribery for $337 million. These cases had much for every compliance practitioner to consider, including the specific illegal conduct of Novartis, the deficiencies in their compliance program, compliance function and Chief Compliance Officer (CCO); the role of the whistleblower, corrupt culture and lessons learned. Over the next few blog posts, I will be considering the Novartis US settlements, as outlined in the Stipulation and Order of Settlement and Dismissal (Stipulation), Settlement Agreement (Agreement) and Corporate Integrity Agreement (CIA).

The Novartis US conduct consisted of two different corrupt schemes. The first, detailed in the Stipulation, involved illegal conduct under the Anti-Kickback Statute (AKS). The AKS prohibits anyone from offering or paying, directly or indirectly, money or any other thing of value, to induce referrals of items or services covered by Medicare, Medicaid, and other federally funded programs. It extends to not only improper payments to providers, but also to the improper payment of patients’ copay obligations. According to the Press Release, “Novartis hosted tens of thousands of speaker programs and related events under the guise of providing educational content, when in fact the events served as nothing more than a means to provide bribes to doctors.  Novartis paid physicians honoraria, purportedly as compensation for delivering a lecture regarding a Novartis medication, but, as Novartis knew, many of these programs were nothing more than social events held at expensive restaurants, with little or no discussion about the Novartis drugs.  Indeed, some of the so-called speaker events never even took place; the speaker was simply paid a fee in order to induce the speaker to prescribe Novartis drugs.”

According Andrew E. Lelling, the US Attorney for the District of Massachusetts, “Novartis coordinated with three co-pay foundations to funnel money through the foundations to patients taking Novartis’ own drugs. 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’s 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.”

For the second corruption scheme, as detailed in the Agreement, “Novartis has agreed to pay $51.25 million to resolve allegations that it illegally paid the copay obligations for patients taking its drugs. When a Medicare beneficiary obtains a prescription drug covered by Medicare, the beneficiary may be required to make a partial payment, which may take the form of a copayment, coinsurance, or a deductible (collectively “copays”). Congress included copay requirements in the Medicare program, in part, to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs.”

According to Audrey Strauss, the Acting US Attorney for the Southern District of New York, “For more than a decade, Novartis spent hundreds of millions of dollars on so-called speaker programs, including speaking fees, exorbitant meals, and top-shelf alcohol that were nothing more than bribes to get doctors across the country to prescribe Novartis’s drugs. Giving these cash payments and other lavish goodies interferes with the duty of doctors to choose the best treatment for their patients and increase drug costs for everyone.  This office will continue to be vigilant in cracking down on kickbacks, however they may be dressed up, throughout the pharmaceutical industry.”

Mike Volkov has said of Novartis, “We have a new poster-child for a defective corporate culture of wrongdoing. Novartis has joined the exclusive club, along with Siemens, General Motors, Wells Fargo, and others in the misconduct Hall of Fame.” He went on to say the company “now faces a significant challenge. Is it really prepared to address its culture problems, its record of misconduct and make the changes and commitment to right the ship, meaning to bring about a culture of compliance? In the absence of real changes from the head of the organization on down, the likely answer will be a resounding “No.””

Just how corrupt was Novartis? Novartis is the entity which hired former Trump lawyer Michael Cohen back in 2017. According to MarketWatch, Cohen’s hiring was “an important way for the company to understand the players of the Trump administration.” One now must wonder if it had anything to do with the then ongoing DOJ and Securities and Exchange Commission (SEC) investigations. At the very least, it demonstrates the tone of Novartis senior management at that time. It is now a recidivist under the FCPA and a violator of a prior CIA. One can only hope that Novartis would garner a serious wakeup call about their culture. But hope is not a strategy and as, Volkov said, “So far, we have seen little accountability – no major changes in senior management, the board or senior legal or compliance teams. Until that happens, Novartis is likely to limp along – as we always say, time will tell.”


Stipulation and Order of Settlement and Dismissal

Settlement Agreement

Corporate Integrity Agreement

DOJ Press Release

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© Thomas R. Fox, 2020