UPDATE 1-Novartis to pay $390 mln in U.S. settlement over pharmacy kickbacks

(Adds details on case, comments from whistleblower, company)
By Sarah N. Lynch
WASHINGTON, Nov 20 (Reuters) - Novartis Pharmaceuticals
Corp will pay $390 million to settle U.S. charges that it paid
specialty pharmacies illegal kickbacks in exchange for inducing
patients to refill certain medications, according to an accord
announced Friday.
The settlement between a U.S. unit of Swiss drugmaker
Novartis AG NOVN.VX , the federal government and more than 40
states concerns payments that the drug manufacturer paid between
2007 and 2012 to certain specialty pharmacies to entice them to
recommend prescriptions to Medicaid and Medicare patients.
The federal part of the case, brought by the U.S. Attorney
for the Southern District of New York, involved six drugs
including iron-reducing Exjade and immunosuppressant Myfortic.
In the settlement, Novartis admitted to a series of facts
detailing its relationship with specialty pharmacies and how the
alleged scheme worked.
The company said it is implementing new controls to help
strengthen its arrangements with specialty pharmacies, and that
it is "committed to high standards of ethical business conduct."
Specialty pharmacies typically dispense medications that are
more costly, or require special handling.
The sector has come under intense scrutiny in recent months,
after drug manufacturer Valeant Pharmaceuticals (N:VRX) International
Inc VRX.TO VRX.N was forced to sever ties with specialty
pharmacy Philidor over questions about Philidor's billing
practices and business relationship with Valeant.
The Novartis case was sparked by David Kester, a former
sales manager who filed a whistleblower complaint under the
False Claims Act - a law that permits non-government employees
to file actions on behalf of the government.
Prosecutors say that Novartis selected certain specialty
pharmacies to be part of a closed distribution network called
EPASS, which was used to fill prescriptions.
The pharmacies were then asked to urge patients to continue
taking the drug and downplay its risks and side effects.
Novartis also ran a contest and kept "score cards" on which
pharmacy kept patients on certain drugs for the longest period
of time.
"I believe many of my customers, who were the physicians and
nurses treating patients with life-threatening diseases, did not
fully understand the relationships between the specialty
pharmacies and Novartis," Kester told Reuters in written
responses to questions.
Two of the pharmacies in the case - Accredo Health Group
Inc, a unit of Medco Health Solutions ESRX.O and BioScrip Inc
BIOS.O - previously settled charges and collectively paid $75
million.
Kester's attorney Shelley Slade said the case marks the
largest-ever recovery to the government from a False Claims Act
lawsuit based solely on a kickback theory.