Who’s Suing Novartis AG (ADR) (NVS), And Why?

Would you hold a pharmaceutical product presentation in Hooters? That’s just one of many alleged instances that the U.S. government lists as reasons to sue pharmaceutical giant Novartis AG (ADR) (NYSE:NVS). The Justice Department announced last week that it filed a lawsuit against the company for allegedly paying kickbacks to physicians to prescribe its drugs.

Back-to-back kickbacks?
Actually, this latest legal challenge is the second for Novartis AG (ADR) (NYSE:NVS) in a four-day period. And the federal government is late to the party. The cities of Chicago and New York, along with the District of Columbia and 27 states, already were included as plaintiffs in the lawsuit.

Novartis is accused of paying kickbacks to doctors to write more prescriptions of its drugs, a violation of the Anti-Kickback Act, and charging government programs for those drugs, which is prohibited under the False Claims Act. This isn’t the first time Novartis came under scrutiny. In 2010, the company was accused of illegally promoting epilepsy drug Trileptal. As a result, Novartis AG (ADR) (NYSE:NVS) agreed to avoid questionable marketing practices — including kickbacks to physicians.

However, the federal government says that the big pharmaceutical company broke that corporate integrity agreement. The current lawsuit details many examples where Novartis AG (ADR) (NYSE:NVS) allegedly reimbursed physicians by wining and dining to encourage them to prescribe more of its products.

It is allowable for pharmaceutical companies to pay physicians who make presentations about the companies’ products as part of “speaker programs.” Novartis, though, allegedly paid physicians even when they made no presentations. The government also accuses the company of holding events in locales where it would have been virtually impossible for a presentation to be made — including Hooters restaurants and on fishing trips in Florida.

Some of the examples listed in the government’s case against Novartis certainly raise eyebrows. One physician was allegedly paid a $1,000 honorarium to make a presentation to only two other doctors at an expensive Washington, D.C., restaurant. The cost of the meal: $672 per person. And one of those doctors attended a similar presentation not long before then, according to the Justice Department.

From January 2002 through November 2011, Novartis AG (ADR) (NYSE:NVS) held more than 38,000 speaker programs for just three drugs at a total cost of almost $65 million. The plaintiffs in the case maintain that Novartis got its money’s worth. They say that the company’s own internal analyses show that physicians who attended these presentations — and especially those paid to speak — prescribed Novartis’ drugs more frequently.

Novartis AG (ADR) (NYSE:NVS) disputes the allegations made against it. Company President Andre Wyss said, “We disagree with the way the government is characterizing our conduct in both of these matters and we stand behind our Compliance program.” Wyss added that his company “invests significant time and resources to help ensure we conduct our business in an ethical and responsible manner.”