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Managed Care Lawsuit Watch - July 2013


This summary of key lawsuits affecting managed care is provided by the Health Care Group of Crowell & Moring. If you have questions or need assistance on managed care law matters, please contact Chris Flynn, Peter Roan, or any member of the health law group.

Please click to view the full Crowell & Moring Managed Care Lawsuit Watch archive.

Cases in this issue:


Fox Ins. Co., Inc. v. Centers for Medicare & Medicaid
No. 11-16286 (9th Cir. May 14, 2013)

The United States Court of Appeals for the Ninth Circuit upheld CMS's immediate termination of a Medicare Part D contract with prescription drug plan sponsor Fox Insurance Company, Inc. (Fox). The court also affirmed the district court's ruling that Fox immediately repay a prorated share of its monthly capitation payment for the month of the termination.

In 2010, CMS investigated complaints from enrollees and physicians alleging that Fox improperly denied access to critical medications—including protected classes of medications such as HIV and cancer drugs. An on-site audit by CMS revealed that Fox had acted inappropriately in a number of ways: Fox had improperly denied drugs for the treatment of cancer and HIV/AIDS, the protection of transplants, and the prevention of seizures. According to the government, Fox had also required unnecessary, invasive, and costly procedures—such as cardiac catheterizations or positron emission tomography scans—as preconditions to receiving medications, had no compliance plan or structure in effect, and had not conducted an internal audit or properly monitored its business operations. Upon discovery of these issues, the government acted pursuant to a statutory provision authorizing immediate termination, without a pre-termination hearing, noting that a delay in the termination would create an "imminent and serious risk" to the health of plan enrollees. Ultimately, CMS terminated Fox's contract and demanded repayment of the prorated capitation payment for the month during which the contract had been terminated.

Fox brought two actions in district court challenging the termination and arguing that CMS was not entitled to immediate repayment because it violated the reconciliation regulations and that CMS' recovery should be offset by amounts it owed Fox. The trial court ruled that immediate repayment was properly demanded and granted summary judgment regarding the termination: CMS had reasonably interpreted its regulation, and Fox had failed to substantially comply with its obligations.

On appeal, Fox once again challenged both the termination and the demand for immediate repayment. Fox contended, among other things, that CMS's termination was improper because Fox had taken steps to be in substantial compliance by the completion of CMS's audit. The Ninth Circuit did not accept this argument in light of the extensive record in support of Fox's noncompliance. The court explained that merely taking steps to improve is not substantial compliance as defined in the Medicare regulations.

Finally, the court rejected Fox's argument that the general payment reconciliation regulations applied because CMS properly relied on a specific applicable regulation that supported the demand for immediate repayment. The Ninth Circuit ruled that Fox could seek recovery of amounts CMS owed under the normal reconciliation process, rather than through a setoff against the immediate repayment of the capitation payment.

Aflac, Inc. v. Bloom; Fustok v. UnitedHealth Group, Inc. et al.
No. 4:12-cv-331 (M.D. Ga. May 22, 2013); No. 12-cv-787 (S.D. Tx. May 20, 2013)

Two recent district court cases highlight a split in the analysis of the Employee Retirement Income Security Act (ERISA) preemption of  recoupment cases for overpayments made to providers by health plans based on allegedly fraudulent billing. Specifically, the two courts come out on opposite sides in answer to the same question: is a "but for" analysis based on the existence of an ERISA plan (i.e. but for the ERISA plan, a provider would not have submitted fraudulent bills) enough for ERISA to preempt state law fraud claims?

In Alfac Inc. v. Bloom, a health plan brought an action against a medical provider for recovery of fees based on the allegation that the provider did not actually provide the medical services that he claimed. The health plan also sought an injunction to prohibit the provider from treating any of the plan's members. The health plan asserted claims, in part, for breach of contract, fraud, negligent misrepresentation and unjust enrichment.

The provider removed the case to the United States District Court for the Middle District of Georgia based on ERISA preemption. The health plan opposed removal to federal court, arguing that its claims did not arise under ERISA for two reasons: (1) it was not suing in a fiduciary capacity, and (2) it was seeking monetary damages from the provider. 

The district court accepted removal jurisdiction by finding that the health plan was acting in a fiduciary capacity in seeking reimbursement from the provider for fraudulently billed services and, because these claims were seeking benefits under an ERISA plan, the claims were preempted by ERISA. The court stated, "Without the Plan, there would be haven no payment made to [the provider]." The court found that the reason the provider should not have been paid—namely the provider's fraud—did not "divorce [the plan's] claims from the [ERISA] Plan, without which the alleged fraud would have never been perpetrated." The court further found that the health plan's request for injunctive relief fell within the relief available under ERISA § 502(a)(3). As such, although the allegations could support state law causes of action, "it is clear that in substance [the health plan] is acting in a fiduciary capacity as the sponsor and manager of the Plan to recover benefits paid under the Plan that should not have been paid and to obtain injunctive relief to protect the plan."

In Fustok v. UnitedHealth Group, Inc., the United States District Court for the Southern District of Texas denied a plaintiff-provider's motion to dismiss a health plan's common law fraud counterclaims by finding that the counterclaims had "too tenuous a connection to warrant ERISA preemption." Although the court retained jurisdiction over the health plan's claims, it reached its conclusions based on strikingly dissimilar reasoning compared to the Alfac court. In Fustok, a provider brought claims for reimbursement of services provided to a health plan's members. The health plan counterclaimed for fraud and reckless misrepresentation based on allegations that the provider billed for services it did not provide. The provider moved to dismiss the health plan's fraud and reckless misrepresentation claims based on ERISA preemption. The district court denied the provider's motion to dismiss, noting that the health plan's fraud claim did not rest on a disputed interpretation of the scope of coverage under the ERISA plan. The court noted that the plan's "counterclaims concern what procedures were performed, and whether those procedures were performed for therapeutic purposes, and not what procedures are covered. Whether [the provider's] billing practices are tortious does not require interpretation of the Plan." (Citations omitted). The court specifically noted that "though this fraud claim would not exist in the absence of the benefit plan, this Court finds that is too tenuous a connection to warrant ERISA preemption."

In these two cases, two federal district courts analyzed the same set of facts and came to opposite conclusions regarding ERISA preemption. In Aflac, the court found that the existence of the ERISA plan under which a fraud was perpetrated was enough for ERISA to preempt the state law causes of action and allow the court to address the health plan's fraud claims. In Fustok, by contrast, the court specifically stated that the mere existence of the plan was not sufficient to warrant ERISA preemption, and therefore retained jurisdiction over the health plan's otherwise viable state law fraud claim. These cases tee up for appellate consideration the fundamental question of whether it is proper to dismiss state law fraud claims based on ERISA preemption where the only ERISA connection to the case is the fact that the plan at issue is an ERISA plan and interpretation of coverage or benefits under the plan is not required.

Am. Federation of State, County and Municipal Employees District Council 37 Health & Security Plan v. Bristol Myers Squibb Co.
No. 12-cv-02238-JPO (S.D.N.Y June 3, 2013)

The United States District Court for the Southern District of New York dismissed a complaint alleging that programs by prescription drug manufacturers by which they offered to cover co-payment obligations for their drugs violated federal racketeering and antitrust laws. Plaintiffs, employee welfare benefits plans, sued prescription drug manufacturers Bristol-Myers Squibb Co. and Otsuka American Pharmaceutical, Inc. The complaint alleged that these co-pay subsidy programs "undermine the contractual insurance arrangement between the insurer and the insurer's member by reducing or eliminating the personal cost-share feature of the insurance contract," increase the burden on the plan of proving benefits, and constitute undisclosed kickbacks that "undermine health benefit providers' best attempts to control prescription drug costs." This, according to the plaintiffs, constituted an unlawful scheme to defraud health insurers and commercial bribery.

In dismissing claims for mail and wire fraud, the court held that the co-pay subsidy program did not involve any element of deception, but rather was "open and notorious." The court then turned to the plaintiffs' three remaining theories of a RICO violation: (1) that the defendants caused misrepresentations to be made at the point of purchase; (2) that the defendants committed fraud through routine and hidden waiver of personal co-pay obligations; and (3) that the defendants committed fraud by causing inaccurate price benchmarks to be promulgated.

On the misrepresentation theory, the court found that the plaintiffs failed to allege any active deception by the pharmacists who (accurately) inform the plans that the members have met their co-pay obligations. The plaintiffs also did not allege any relationship, let alone a contractual relationship, between the defendants and any party to the transaction that would require the defendants to disclose to the plans when a member uses a co-pay subsidy. Nor did the plaintiffs allege that the pharmacies are contractually obligated to collect less money from the plans when a co-pay subsidy is used. Accordingly, the court dismissed the claim based on this theory with prejudice.

Similarly, according to the court, the plaintiffs did not allege any contractual relationship between them and the pharmacies that prohibit the pharmacies from accepting co-pay assistance payments from the pharmaceutical manufacturers. Absent contractual prohibitions of such behavior, the conduct at issue does not violate RICO. The court thus dismissed the complaint on this theory with prejudice as well.

The final theory of RICO liability the plaintiffs proffered faired slightly better. The plaintiffs claimed that the defendants failed to report to the benchmark pricing agencies their co-pay subsidy programs, thereby resulting in higher benchmark prices and inflated payments by the plans. Though the court dismissed the complaint on this theory of liability as well, it gave the plaintiffs leave to amend to allege facts about who engaged in deception, when and where they did so, why the statements were deceptive, and how the plans reacted to those statements.

Finally, the plaintiffs alleged that the co-pay subsidy scheme constituted commercial bribery by eliminating or reducing their members' personal obligations under their prescription drug plans' cost-sharing provisions. The court disagreed, holding that the plaintiffs could not demonstrate any fiduciary relationship between the plans and their members that would give rise to liability for commercial bribery. The plaintiffs were also unable to allege that their members acted as "agents" or "intermediaries" of the plans, or that the plans were the "buyers" of the drugs themselves.  Consequently, the court dismissed this claim with prejudice as well.

Parra v. PacifiCare of Arizona
No. 11-16069 (9th Cir. April 19, 2013)

The United States Court of Appeals for the Ninth Circuit upheld a grant of summary judgment against a Medicare Advantage Organization (MAO) plan operated by PacifiCare of Arizona because the plan lacked a private right of action to recover medical costs from a participant's wrongful death proceeds received by his survivors. 

After a car accident involving an MAO enrollee, the MAO paid $137,000 for his medical expenses. When the enrollee later died from those injuries, his family received a $500,000 wrongful death settlement from the driver's insurer.  PacifiCare sued the relatives to recover those medical expenses from the settlement, arguing it had a private right of action under two provisions of the federal Medicare Act: 42 U.S.C. § 1395w-22(a)(4) (the "MAO Statute") and 42 U.S.C. § 1395y(b)(3)(A) (the Medicare Secondary Payer Act (MSP) "Private Cause of Action").  

PacifiCare first argued that, because the Medicare Act's MAO Statute allows MAOs to charge primary plans for conditional payments made for plan participants, it also provides a private right of action to recover these payments. The court rejected this argument, explaining that the cited text did not expressly grant access to federal courts for MAOs in this situation. The Ninth Circuit also noted that courts had previously held that a nearly identical Medicare Act provision on HMOs did not provide HMOs a private cause of action.

The court also found that there was no private cause of action for the plan from a cross-reference in the MAO Statute to a law creating a cause of action for the United States. The referenced law allowed the United States to bring an action against entities responsible for making payment for the same item or service under a primary plan. PacifiCare argued that the cross-reference meant that the plan shared this right. The court instead found that the cross-reference merely explained when MAO coverage was secondary to a primary plan. The court rejected the plan's argument that it had a cause of action based on a federal regulation, explaining that laws, and not administrative regulations, determine whether an implied cause of action exists.

PacifiCare also argued that it had a cause of action based on the MSP Private Cause of Action, which grants a cause of action when the primary plan fails to provide for primary payment. This would have been an extension of the Third Circuit decision in In re Avandia Mktg., 685 F.3d 353 (3d Cir. 2012), which held that MAOs had private causes of action against third-party tortfeasors for medical expenses advanced for plan participants. Instead, the court distinguished Avandia and explained that the Private Cause of Action did not apply when the MAO sued the participant's survivors—not the primary plan—and the primary plan had in fact paid the sum claimed by the MAO. 

The court also declined to create federal common law on subrogation of Medicare claims and held that the district court properly refused to exercise supplemental jurisdiction over the remaining state law claims.

MRI Scan Center, LLC v. National Imaging Assocs., Inc, et. al
No. 13-60051 (S.D. Fla. May 6, 2013)

Plaintiff MRI Scan Center provides imaging services to individuals insured by defendant Cigna. MRI Scan Center bills Cigna for the services, who, in turn, employs defendants National Imaging and Medsolutions as third-party administrators to process MRI Scan Center's claims. After MRI Scan Center services a patient, Cigna provides an Explanation of Benefits (EOB) to the patient, and National Imaging or Medsolutions issue a separate but similar document (EOP) explaining payment to the plaintiff. MRI Scan Center alleged violations of the EOB and EOP arrangements, claiming that defendants inflated administrative costs so Cigna could charge higher premiums. MRI Scan Center filed an action for equitable relief under the Employee Retirement Income Security Act (ERISA). National Imaging filed a motion to compel arbitration while Cigna and Medsolutions filed motions to dismiss.

The court granted National Imaging's motion to compel arbitration. MRI Scan Center asserted that the ERISA violations fell outside the scope of its arbitration agreement with National Imaging because the violations arose from National Imaging's relationship with Cigna, not from National Imaging's contract with MRI Scan Center. The court disagreed, holding that the purported ERISA violations stemmed from performance of the contract and were thus within the scope of the arbitration clause. MRI Scan Center also alleged that ERISA and federal common law preclude enforcement of the arbitration clause because the clause interferes with the its ERISA rights. The court disagreed, noting that MRI Scan Center relied on a statute applicable only to employee benefit plan procedures for claims submitted by participants and beneficiaries. The court thus granted National Imaging's motion to compel arbitration, but stayed rather than dismiss the action as to National Imaging.

The court then granted Cigna and Medsolution's motions to dismiss with prejudice. ERISA claims may be brought by a beneficiary or participant; therefore, as a healthcare provider, MRI Scan Center lacked standing because it was neither a beneficiary nor a participant. Though MRI Scan Center had patients execute assignments permitting it to bill the patients' insurer, the assignment of the right to direct payment of benefits did not assign the patients' rights to bring causes of action under ERISA unrelated to reimbursement of benefits.

In addition to lacking standing, the court held that MRI Scan Center did not state a claim upon which it could seek relief because it did not exhaust its administrative remedies, which is a prerequisite to bringing an ERISA action.

C.M. v. Fletcher Allen Health Care, Inc. and the Fletcher Allen Preferred Plus Medical Plan
No. 5:12-cv-108 (D. Vt. April 30, 2013)

The United States District Court for the District of Vermont denied a health plan's motion to dismiss claims brought by a plan participant alleging violations of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (Parity Act). The plaintiff, a plan participant of the defendant benefit plan, filed suit alleging in relevant part that the plan violated the Parity Act, in writing and in practice, by imposing certain limitations on mental health benefits that it did not impose on medical benefits. The participant alleged that the plan conducted prospective and concurrent medical necessity reviews of routine, outpatient, out-of-network mental health office visits, but did no such reviews for comparable medical office visits. The participant also alleged that the plan imposed a numeric cap on the number of routine outpatient visits allowed before pre-approval is required, without imposing the same numeric cap on medical benefits.

The defendants filed a motion to dismiss the claims arguing that a comparison of the plan provisions, mental health provider guidelines, and medical provider guidelines demonstrated the implausibility of the plaintiff's claims. However, the court found this argument unconvincing, stating that: 1) the documents did not allow a point-by-point comparison or an unambiguous conclusion regarding whether a disparity exists; and 2) a comparison of the documents would not address whether the plan's provisions are implemented in a way that violates the Parity Act. The court also reasoned that under the Parity Act plan administrators must bear the burden of establishing why mental health benefits and medical benefits are treated differently based on divergent clinical standards and stated that the defendants had not met this burden.

Crowell & Moring acts as consulting outside counsel to the defendants, Fletcher Allen Health Care, Inc. and the Fletcher Allen Preferred Plus Medical Plan.

Love v. Blue Cross and Blue Shield Association
No. 03-21296 (S.D. Fla. June 24, 2013)

The United States District Court for the Southern District of Florida granted a motion to enforce an injunction against a group of providers seeking reimbursement for health care services by managed care companies.

In July 2010, Advocare LLC and a group of medical professionals filed claims against Independence Blue Cross, QCC Insurance Company, Keystone Health Plan East, and AmeriHealth HMO in the Superior Court of New Jersey (the "New Jersey Lawsuit"). The plaintiffs alleged that the defendants underpaid claims under a professional group provider agreement entered into on January 1, 2007 and an addendum to that contract entered into on March 1, 2007.

In August 2011, the defendants requested that counsel for the plaintiffs execute a consent order permitting the filing of an amended answer and counterclaim to add an affirmative defense based on a settlement in a prior litigation known as In re Managed Care Litigation. That multi-district litigation was formed on April 17, 2000 and concerned, among other things, reimbursement for health care services by managed care companies. One track of In re Managed Care Litigation involved a class action brought on behalf of all providers who submitted claims to health care companies—including Independence Blue Cross, Keystone Health Plan East, and AmeriHealth HMO—for the provision of medical services. The Superior Court of New Jersey dismissed the New Jersey Lawsuit without prejudice, with leave to re-file the complaint pending final resolution of the action before the district court.

In In re Managed Care Litigation, the providers alleged that the defendants systematically denied, delayed, and diminished payments for medical services through the manipulation of computerized billing programs.  The defendants eventually settled the claims in a class settlement agreement entered by the district court on April 20, 2008. The settlement agreement applies to "[a]ny and all Physicians, Physician Groups and Physician Organizations who provided Covered Services" to a plan participant from May 22, 1999 through the approval date by the court. The settlement agreement covers "any and all causes of action" that could have been asserted by the covered parties arising out of or related to "any of the facts, acts, events, transactions, occurrences, courses of conduct, business practices, representations, omissions, circumstances or other matters" referenced in In re Managed Care Litigation. This includes claims that the defendants "improperly manipulated claim procedures or capitation payments or any other payments;" "paid at incorrect rates or improperly applied reimbursement policies;" or "fraudulently misrepresented the criteria for . . . claims payments and adequacy of capitation payments."

The district court granted the defendants' motion to enforce the injunction, stating that the plaintiffs' claims shared the same nucleus of operative fact as the claims covered by the In re Managed Care Litigation settlement agreement. Both cases, the court stated, involved the defendants' contractual duty to pay its doctors for health care services, and the doctors' contractual right to receive compensation. The plaintiffs argued that the New Jersey Lawsuit dealt primarily with issues of contract interpretation specific to individual agreements with the defendants. The court rejected this argument, reasoning that regardless of the legal theory asserted by the plaintiffs, the New Jersey Lawsuit would necessitate re-litigation of the factual merits of the defendants' alleged improper claims-handling practices. 

The district court also rejected the plaintiffs' theories of waiver and estoppel, holding that the plaintiffs gave their written consent for the defendants to assert the affirmative defense at issue here. Furthermore, the defendants asserted their affirmative defense late because in the early stages of the New Jersey Lawsuit, the plaintiffs believed they had opted out of the In re Managed Care Litigation settlement, so the defendants did not believe the plaintiffs were bound by the settlement at the time. Finally, the district court rejected the plaintiffs' argument that claims arising after the settlement's effective date should be allowed. The district court held that all the claims arise from contracts made in 2007, so all the claims began before the settlement's effective date.

Christus Health Gulf Coast, et al. v. Aetna, Inc. and Aetna Health, Inc.
No. 11-0483 (Texas Supreme Court, April 19, 2013)

The Supreme Court of Texas ruled that several hospitals involved in a payment dispute with Aetna, Inc. and Aetna Health, Inc. did not have a viable claim against Aetna because they had contracted with a third party administrator and not Aetna itself. Aetna had delegated the administration of its Medicare Plan (Plan) to North American Medical Management of Texas (NAMM), a third-party administrator. When NAMM became insolvent and failed to reimburse the hospitals for services provided, the Hospitals filed a suit against Aetna. The hospitals argued that Aetna was liable for NAMM's failure to timely pay claims and was responsible for $13 million in outstanding claims.      

The trial court granted summary judgment for Aetna. The Texas Court of Appeals affirmed this ruling, holding that the hospitals had no viable prompt-pay claim because they had entered into contracts with the third-party administrator and not with Aetna directly. The Texas Supreme Court affirmed, ruling that the hospitals' suit could not succeed due to a lack of privity between the Hospitals and Aetna.

Chehalem Physical Therapy, Inc. and South Whidbey Physical Therapy and Sports Clinic v. Coventry Health Care, Inc.
No. 09-cv-00320-HU (D. Or. Apr. 16, 2013)

The United States District Court for the District of Oregon granted a motion for certification of an injunctive class for a group of providers suing Coventry Health Care over the interpretation of reimbursement provisions of preferred provider organization (PPO) agreements.

The plaintiffs allege that Coventry miscalculated the amount of reimbursements payable to the plaintiffs for workers' compensation medical services under the provider agreements. Specifically, the plaintiffs claim that Coventry impermissibly discounts the billed charge in situations where a contractual discount is not applicable. Plaintiff South Whidbey Physical Therapy and Sports Clinic (South Whidbey) filed a motion to certify an injunctive class consisting of all health care providers who have a PPO provider agreement with Coventry's subsidiary, First Health Group Corporation, that uses Coventry's workers' compensation "National Rate Code" (NRC) associated with two specific Coventry "Target Rate Codes" (TRC), excluding providers in Louisiana.

According to South Whidbey, class certification is appropriate because providers who have the same TRCs would have the same rates and operative language contained in the provider agreement. Further, South Whidbey claims that Coventry could identify all of the NRCs bundled together in the TRCs listed in the class definition, ensuring that all providers that fit the class definition would be included. Defining the class by specific TRCs would allow the court to fashion an appropriate injunction because Coventry would be able to determine electronically which provider agreements were erroneously discounted using the NRCs within the listed TRCs.

The court rejected South Whidbey's definition, holding that South Whidbey's proffered definition lacked the precision necessary to define the class by excluding the state code associated with each TRC and ignoring the existence of multiple versions of a TRC in each state.

But the court certified the class using its own definition: all health care providers, excluding those in Louisiana, who have a PPO provider agreement with the fee structure at issue and who have experienced the allegedly-wrongful deduction to their bill. According to the court, this definition encompasses all plaintiffs who are challenging a widespread calculation procedure that is generally applicable to the entire class. If each provider filed an individual lawsuit, each individual provider would be challenging the identical procedure used by Coventry to calculate reimbursement amounts. The class definition and certification thus avoids duplicative litigation involving the same or substantially similar legal and factual issues.

Regarding the specific TRCs in each contract, the court reasoned that if a jury determines Coventry breached the contract, an injunction could be written broadly enough to leave the method of compliance and the burden of complying up to Coventry. The court stated that Coventry "constructed a labyrinthian system" to review provider bills with its rate codes, so Coventry would have to determine how best to enjoin its practice of miscalculation as applied to specific codes at issue for the providers. The interpretation of the contract language, however, did not implicate specific rate codes, rendering them unnecessary for the class definition.

United States v. Novartis Pharmaceuticals Corp.
No. 11 Civ. 8196 (CM) (S.D.N.Y. Apr. 23, 2013)

The federal government alleged in its complaint filed on April 23, 2013, that Novartis offered kickbacks to pharmacies, in the form of volume-based discounts or rebates. Novartis allegedly offered the discounts or rebates to induce pharmacies to switch transplant patients to its drug Myfortic, or continue to recommend and dispense Myfortic instead of competitor drugs. Myfortic is used as a long-term immunosuppressant to prevent organ rejection in transplant patients. The main competitor drug is a generic medication called CellCept.

The U.S. alleged that Novartis violated the anti-kickback statute (AKS) when it offered or paid the described discounts or rebates to pharmacies, causing the pharmacies to present false claims to federal health care programs in violation of the False Claims Act (FCA). The AKS makes it a felony to knowingly and willfully offer or pay any remuneration to induce referrals for the furnishing, or arranging for the furnishing, of items or services reimbursable by a federal health care program (i.e., Medicare, Medicaid, TRICARE, etc.), or to induce the purchasing, leasing, ordering (or arranging for any such action) of items or services reimbursable by a federal health care program. It is also a felony under the AKS to knowingly and willfully solicit or receive any remuneration in return for referring an individual for the furnishing of (or arranging for the furnishing of), purchasing, leasing, ordering, or arranging for (or recommending such action) items or services reimbursable by a federal health care program. Violations of the AKS are actionable under the FCA.

The discounts or rebates in this case allegedly exceeded $100 million, and were offered to twenty or more pharmacies for an extended period of time—from 2005 to the time of the government's complaint. The U.S. alleged that Novartis knew (and indeed was focused on) the scope of Medicare reimbursements for Myfortic sold by pharmacies receiving rebates, and knowingly disregarded its own policies with respect to kickbacks. To establish the kickback arrangement, Novartis allegedly would ascertain whether a pharmacy possessed sufficient influence over its customers, then require the pharmacy to show how its activities would affect Myfortic sales, before signing a rebate or discount contract.

In addition to considerable liability under the FCA, Novartis could face consequences associated with its corporate integrity agreement (CIA) with the Office of Inspector General (OIG) of the federal Department of Health and Human Services in connection with another matter from September of 2010. That CIA requires Novartis to "ensure that [its] Policies and Procedures address … appropriate ways to conduct Promotional Functions in compliance with all applicable Federal healthcare program requirements," including the AKS and the FCA. Further, Novartis must (1) submit annual certifications to OIG to attest compliance with federal laws, the CIA's requirements, and Novartis policies and (2) disclose to OIG all probable violations of criminal, civil or administrative laws applicable to any federal health care program, including the AKS.


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