Physicians Are My Friends; Surely I Can Get Paid to Talk to Them!

by BakerHostetler

On April 26, 2013, the U. S. Department of Justice (DOJ) intervened in a whistleblower case alleging Novartis Pharmaceuticals Corporation (Novartis) knowingly and willfully violated the federal FCA by inducing physicians to prescribe Novartis drugs in the form of payments to the physicians for speaking at programs that did not appear to be bona fide. The case was initiated by a Novartis sales representative who allegedly was directed by Novartis to engage in such improper conduct to increase physician prescriptions of its drugs. The DOJ's intervention occurred just days after it filed a separate case against Novartis, alleging Novartis provided kickbacks in the form of discounts and rebates to at least 20 pharmacies to induce them to switch thousands of transplant patients from competitor drugs to Novartis drugs.

The Physician Kickback Case

The DOJ alleged that from 2002 through 2011, Novartis paid outside physicians approximately $65 million to participate in more than 38,000 "speaker programs" that provided little or no educational benefit and were designed to induce referrals for three Novartis drugs. The DOJ's concerns with the speaker programs, included: (1) payments made to physician speakers for poorly attended (many programs took place with fewer than three healthcare professionals) or cancelled programs; (2) selection of lavish or inappropriate venues where the exchange of medical information would be difficult, such as fishing trips, meals at Hooters restaurants and dinners at upscale eateries, with some bills coming to more than $1,000 per attendee (few or no slides were shown at many of the programs); (3) the same speakers and attendees (many of whom were personal friends of the speaker (sometimes only members of the speaker's own medical practice attended)) discussing the same topic on multiple occasions, often within a short time period; (4) hiring unqualified physicians with ineffective communication skills to speak about the appropriate use of its drugs; (5) permitting Novartis's sales representatives to exercise considerable discretion in setting the amount of the physicians' payments; (6) Novartis's tracking of its return on investment (documenting increased attendee and speaker prescriptions for the drugs after the events); and (7) where compliance violations were identified, the corrective actions involving the employees were little more than "mere slaps on the wrist." In addition, according to the DOJ, the sales representatives would personally deliver the honorarium checks to further exercise influence.

The DOJ alleged that the physician payments were made to induce the physicians to write prescriptions for Novartis drugs, and such prescriptions were realized as a result of the payments. Indeed, the complaint alleges that in many cases the initial list of suggested speakers was generated by Novartis's marketing department. The DOJ further alleged that Novartis was aware that its speaker programs created opportunities for kickbacks to physicians and failed to develop sufficient controls to prevent the speaker programs from being used as a vehicle for kickbacks.

Effect of Current Corporate Integrity Agreement

Novartis has denied any wrongdoing in this matter and asserts that the speaker programs were designed to inform physicians about the appropriate use of its drugs and are customary and standard in the industry. In September 2010, Novartis entered into a settlement agreement with the DOJ and paid $422.5 million in penalties to settle an FCA claim based in part on violations of the anti-kickback statute due to illegal remuneration paid to physicians through a variety of mechanisms, including speaker programs. As part of the settlement Novartis signed a corporate integrity agreement (CIA) to implement a rigorous compliance program. The DOJ alleged that "[e]ven after entering into the [CIA], Novartis's compliance program failed to prevent kickbacks from being paid in conjunction with Novartis's speaker programs. No individual at the company was tasked with examining its speaker program data to determine whether the programs were used for an illegitimate purpose," as required under the CIA.

While the two pending cases are civil lawsuits, if Novartis is determined to have breached the existing CIA by continuing the illegal speaker programs, it may face exclusion from federal healthcare programs. Historically, the DOJ has not used exclusion against big pharmaceutical companies; however, the cases against Novartis cast some doubt on whether it has reformed its business practices with respect to kickbacks. If the DOJ opts to pursue exclusion, such reforms may be more forthcoming as a result of the government's initiative on combating healthcare fraud.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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