Novartis Pharmaceuticals Corporation has agreed to pay $51.25 million to resolve allegations that it violated the False Claims Act by illegally paying the Medicare co-pays for its own drugs.

When a Medicare beneficiary obtains a prescription drug covered by Medicare Part B or Part D, the beneficiary may be required to make a partial payment, which may take the form of a co-payment, co-insurance, or deductible. Congress included co-pay requirements in these programs, in part, to encourage market forces to serve as a check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs.

The Anti-Kickback Statute prohibits pharmaceutical companies from offering or paying, directly or indirectly, any remuneration – which includes money or any other thing of value – to induce Medicare patients to purchase the companies’ drugs.

Officials say Novartis coordinated with three co-pay foundations to funnel money through the foundations to patients taking Novartis’ own drugs, As a result, the Novartis’ conduct was not ‘charitable,’ but rather functioned as a kickback scheme that undermined the structure of the Medicare program and illegally subsidized the high costs of Novartis’ drugs at the expense of American taxpayers.

Novartis used The Assistance Fund as a conduit to pay kickbacks to Medicare patients taking Gilenya, a Novartis drug for multiple sclerosis, and used the National Organization for Rare Disorders and Chronic Disease Fund as conduits to pay kickbacks to Medicare patients taking Afinitor, a Novartis drug for renal cell carcinoma and progressive neuroendocrine tumors of pancreatic origin.

In October 2012, Novartis learned from Express Scripts, which then was managing Novartis’ free drug program for Gilenya, that Novartis was providing free Gilenya to 364 patients who would become eligible for Medicare the following year.

Novartis and Express Scripts transitioned these patients to Medicare Part D so that, in the future, Novartis would obtain revenue from Medicare when the patients filled their prescriptions for Gilenya.

Knowing that these patients could not afford co-pays for Gilenya, Novartis developed a plan for it to cover their co-pays through The Assistance Fund, which operated a fund that, ostensibly, offered to cover co-pays for any MS patient who met its financial eligibility criteria, regardless of which MS drug the patient was taking.

Novartis entered into a five-year corporate integrity agreement as part of this settlement. Novartis will be required to implement measures, controls, and monitoring designed to promote independence from any patient assistance programs that it finances. In addition, Novartis agreed to implement risk assessment programs and to obtain compliance-related certifications from company executives and Board members.

To date, the Department of Justice has collected over $900 million from ten pharmaceutical companies (United Therapeutics, Pfizer, Actelion, Jazz, Lundbeck, Alexion, Astellas, Amgen, Sanofi, and Novartis) that allegedly used third-party foundations as kickback vehicles. The Department also has reached settlements with four foundations (Patient Access Network Foundation, Chronic Disease Fund, The Assistance Fund, and Patient Services, Inc.) that allegedly conspired or coordinated with these pharmaceutical companies.