I have written extensively about the Novartis International AG (Novartis) Foreign Corrupt Practices Act (FCPA) settlement, which was announced in late June. However, that enforcement action paled next to two resolutions entered into on July 1, 2020. The Stipulation and Order of Settlement and Dismissal (Stipulation), involved Novartis Pharmaceuticals Corporation (Novartis US) for its violations of the anti-kickback statute in the US. The Settlement Agreement pertained to the company’s alleged illegal use of three foundations as conduits to make the co-payments of Medicare patients taking Novartis’s drugs Gilenya and Afinitor.

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 and Corporate Integrity Agreement (CIA). Today I want to consider the corruption schemes.

Speaker Programs and Roundtables Corruption Scheme

According to the Stipulation, under Novartis compliance policies, speaker programs were supposed to be promotional programs led by a speaker who was approved and trained by the company and who received an honorarium for presenting an on-label and medically relevant slide presentation and Q&A session related to a Novartis product. Novartis paid for the attendees’ meals and alcohol for programs held in restaurants.

However, in practice it was far different. It begins with the budgets for speaker programs and roundtable. Novartis sales representatives were provided budgets which they were directed to “spend all of their budgets”. Moreover, these sales representatives were incentivized to do so  “as part of an evaluation of their overall sales efforts. If a sales representative failed to spend all of their budget, that could be a negative factor in their annual review” as a part of their bonus compensation.

The sales representatives selected the Health Care Providers (HCPs) who were “high-volume prescribers” to become speakers and paid honoraria to induce these HCPs to continue to write or write more Novartis products. Indeed, “Novartis paid many high-prescribing doctors tens or hundreds of thousands of dollars in honoraria. For instance, over the course of the Relevant Period, Novartis paid over $320,000 in honorarium to a doctor who wrote more than 8,000 prescriptions for the Covered Drugs; over $220,000 in honorarium for a doctor who wrote more than 9,000 prescriptions for the Covered Drugs; and over $200,000 to a doctor who wrote more than 3,600 prescriptions for the Covered Drugs.”

For dinners there was a limited of $125 per person. However, this limit was routinely exceeded without pre or post approval. Usually, the sales representatives falsified their expense reports for these expenditures but even when they did not there were a large number of reports that noted the expenditure amount was exceeded. For instance, “In 2006, an internal Novartis presentation noted that between August 2005 and April 2006 “[o]ver 24% of the [speaker] events appear to have exceeded the guideline for average [food and beverage] cost per attendee in major cities.” It noted that one of the “[r]easons for excessive costs per person” was that “[e]vents are planned with high costs (e.g. very exclusive places, expensive menu choices, no control over alcohol spending).””

Although the company’s compliance policies required that speaker programs and roundtables provide medical information regarding the company’s products to HCPs, at many events, there was little to no medical discussion. It was reported that at many, the sales representative hosting the events did not require the speaker, who was being paid an honorarium, to even bother to deliver a presentation at all. Finally, “in a number of instances paid doctors honoraria for purportedly speaking at events that never took place.”

Co-Pay Corruption Scheme

The second corruption scheme was detailed in the Settlement Agreement. It involved fraudulent co-pays. 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 co-payment, co-insurance or a deductible (co-pays).  Congress included co-pay requirements in the Medicare program to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs.

The co-pay scheme was carried out with or through three charitable entities, including The Assistance Fund (“TAF”), National Organization for Rare Disorders (“NORD”), and Chronic Disease Fund (“CDF”). Each of these entities claim 501(c)(3) status as funds that paid the co-pays of certain patients, including Medicare patients. The Settlement Agreement stated, “Novartis used TAF as a conduit to pay kickbacks to Medicare patients taking Gilenya and used NORD and CDF as conduits to pay kickbacks to Medicare patients taking Afinitor.”

With TAF, Novartis was providing free Gilenya to 364 patients who would become eligible for Medicare the following year. When these patients filed their Medicare Part D, Novartis would obtain revenue from Medicare when the patients filled their prescriptions for Gilenya. The corruption involved a plan for Novartis to cover their co-pays through TAF, which operated a fund that offered co-pay assistance to any MS patient who met TAF’s financial eligibility criteria, allegedly regardless of which MS drug the patient was taking. Novartis arranged for TAF to open its MS fund at 6:00 p.m. on Friday, December 14, 2012, 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 submission of 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. Indeed, after this special application period closed the next day, Novartis confirmed TAF used Novartis’s money to provide 374 Gilenya patients with grants for Medicare co-pay assistance in 2013. Novartis subsequently made further payments to TAF, and TAF provided many of these same Gilenya patients with grants for Medicare co-pay assistance in 2014.

With respect to NORD the corruption scheme was equally invidious. Here Novartis drug 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 copay assistance given to patients for initial RCC treatments would not be used to provide co-pay assistance to patients on 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 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 assistance with first-line RCC treatments and disproportionally funded patients taking Afinitor compared to its overall usage rate among all RCC drugs. Novartis financed this NORD fund through 2014.

Finally, with respect to CDF, after Afinitor was approved to treat PNET, “Novartis asked CDF to open a co-pay assistance fund to pay Afinitor copays for PNET patients. At that time, Novartis knew that the FDA had approved a competing drug to treat PNET. Nonetheless, with Novartis’s knowledge, CDF launched a fund labeled “PNET” that paid the copays of Afinitor patients only and not those of patients seeking assistance for the other PNET drug. Novartis continued with this understanding as the sole donor to this supposed “PNET” fund through 2014.”

Tomorrow, I will consider the abject failures of the Novartis compliance function in all of this.


Stipulation and Order of Settlement and Dismissal

Settlement Agreement

Corporate Integrity Agreement

DOJ Press Release

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© Thomas R. Fox, 2020