Novartis Pharmaceuticals Corp. isn’t having the greatest year — and things just got much worse for the drug giant. In a civil suit that builds on a separate, sealed whistleblower case, federal prosecutors charged Novartis on Wednesday morning with paying out kickbacks in an effort to get pharmacies to switch kidney transplant patients’ anti-transplant rejection generic drugs with the brand-name Novartis product Myfortic.
The scope of Novartis’ alleged fraud is staggering. In the civil complaint, prosecutors charge that the company’s U.S.-based wing “used a program of rebates and discounts to boost sales of its anti-rejection drug.” Since Myfortic is far more expensive than its generic counterparts, this market share-gouging cost government health entitlements such as Medicare and Medicaid “tens of millions of dollars in reimbursements to pharmacies for which they were never entitled,” with Myfortic sales at companies that received the bribes totaling over $100 million. Some of those pharmacies allegedly received kickbacks making up a full 20 percent of their total Myfortic sales, while the U.S. government drove an outsized 47 percent of the drug’s total sales by specialty pharmacies.
If the allegations are true, then not only did Novartis brazenly defraud the United States government — the corporation and its co-conspirators also compromised public safety and patient health. As the civil complaint states, “Hundreds, possibly thousands, of transplant patients have undergone switches in their medication as a result of the recommendations from pharmacies that were based on undisclosed financial, rather than independent critical, considerations.”
Medicare and Medicaid fraud by pharmaceutical companies is the main driver of Justice Department settlements under the False Claims Act — the same statute that Novartis is being sued under. In 2012 alone, the Justice Department nabbed $3 billion from doctors and pharmaceutical companies that swindled the public entitlement programs by charging the government more than their services were actually worth. In fact, in 2010, Novartis had to settle a separate case involving kickbacks and misuse of drugs, paying out $420 million in criminal and civil damages. The newest slate of charges against the drug giant prompted Manhattan U.S. Attorney Preet Bharara to call Novartis “a repeat offender.”
While Novartis’ alleged fraudulent conduct in this case was severe enough to draw federal charges, brand name drug companies can actually get away with legally bribing generic drug makers under current law. Due to loopholes in drug patenting laws, brand name drug makers can pay off generic drug developers to delay the release of cheaper generic products into the market so that the brand name companies can profit off of their more expensive drugs for longer. While that may inflate drug corporations’ bottom lines, it also drives up costs for consumers and government health entitlements. These so-called “pay-for-delay” schemes have already made their way to the Supreme Court for higher scrutiny, and a ruling on their legality is expected this summer.