Feds again go after Pharma, with a couple of twists

by Daniel R. Hoffman, Ph.D.

Published May 7, 2013, 10:50 a.m. ET

Last week the US Justice Department filed suit against Novartis that essentially accuses the company of bribing physicians with lavish dinners, trips and speaking fees so they would prescribe the company's drugs. The suit alleges, "In many instances Novartis made payments to doctors for purported speaker programs that either did not occur at all or that had few or no attendees." While Novartis considers these programs as continuing education sessions for physicians, the prosecutors claim "thousands of programs were held all over the country at which few or no slides were shown and the doctors who participated spent little or no time discussing the drug at issue." In other words, there was not even a pretense at medical education.

In fact, the suit contends that "Many speaker programs were also held in circumstances in which it would have been virtually impossible for any presentation to be made, such as on fishing trips off the Florida coast. Other Novartis events were held at Hooters restaurants."

Some physicians even played alternating roles on the party train, servering as speaker at one session and then as an attendee at another session on the same subject.

That suit followed by only a few days another Justice Department suit against Novartis for bribing pharmacists in violation of the 2005 False Claims Act. On this one the federal prosecutors allege that the company paid kickbacks to pharmacists to switch patients from competing brands to Novartis' drugs and/or oppose using cheaper generics to treat the same condition.

At a time when finance runs all of pharma's operations, it seems that even payoffs are subject to their metrics. So Novartis tracked the return on its investment in these lavish payoffs and determined that they resulted in an enormous growth of prescriptions for the drugs they promoted that way.

The federal complaint alleges that by paying off physicians, Novartis caused federal health care programs such as Medicare, Medicaid, TRICARE and the Department of Veterans Affairs to pay million of dollars more for drug reimbursements.

Federal actions against pharma companies for payoffs, off-label marketing and other violations appear almost every week. A couple of things make these two actions stand out. First, the government dinged Novartis two years ago for payoff violations, resulting in a $422 million fine (see here) and a requirement that the company sign and comply with a Corporate Integrity Agreement (CIA).

This time around, the government claims that since Novartis pressured its sales reps to spend their quarterly budget for these lavish speaker programs, the company remains unwilling to comply with the law and the CIA it signed. As one of the federal prosecutors said at the press conference, they "question whether Novartis is getting the message."

Depending on whether the Justice Department wants to make an example of Novartis, the current suits could result in more than just a half-billion dollar slap on the wrist. Since many of the currently alleged kickbacks to doctors and pharmacists occurred after Novartis signed the CIA, the government may be able to exclude it from contracts with huge federal healthcare programs such as Medicare and Medicaid. As the dollar volume of sales to those programs is enormous, the lost revenue could reach into the billions.

Novartis' answer to the federal complaint provides the other differentiating item in this story. In its PR release, Novartis stated, "Physician speaker programs are an accepted and customary practice in the industry." Without reading too much into the piece, it appears Novartis is saying that everyone in pharma does this kind of thing, so they shouldn't be singled out for following an accepted industry practice.

That raises the question of what was worse, the bribes/kickbacks or the attempt to justify it.