Government One-Two Punches Novartis and Exposes Dangers of Speaker Programs

Late last month, the Government stung Novartis with separate False Claims Act (FCA) suits only days apart.  On April 23rd, the Government charged that Novartis paid kickbacks to numerous pharmacies in the form of discounts and rebates in order to induce the pharmacies to switch kidney transplant patients to Novartis’ Myfortic® from rival branded and generic drugs.  And while that case presents a good blog topic in its own right, it is the Government’s second case that should really make everyone stand up and take notice.  In the April 26th FCA Complaint, the Government reveals that Novartis spent $65 million on 38,000 speaker programs from 2002 through 2011 in support of sales for the hypertension drugs Lotrel® and Valturna®, and the diabetes drug Starlix® and has charged that the Company’s Speaker Programs were essentially nothing but kickbacks, providing little or no educational value.  The problem is that much of what happened at Novartis has happened (and may well continue to happen) elsewhere.

The Complaint

As most in this business know, it is a common and perfectly acceptable business practice for a pharmaceutical company to engage physicians as consultants to conduct speaker programs, where the physician-speaker presents per-approved corporate slides to other doctors and healthcare providers about the one or more of the company’s drugs.  The attendees learn about the company’s drug, ask questions of the speaker and all in attendance get the opportunity to engage in a genuine scientific exchange.  Speaker programs are typically held in restaurants, perhaps in a private room or secluded area that is conducive to a genuine scientific discussion, and those in attendance are served a fairly modest, but nice dinner, for their time and trouble away from their homes and practices.  For his or her trouble in acting as a spokesperson for the company, the speaker-consultant is paid an “honorarium” ranging on average from $1000-$3000.  At the end of the program, the attendees should know more about the sponsoring company’s drug product than before the evening started and, if convinced of the drug’s merit, should write more prescriptions for the drug going forward.  When done properly, company-sponsored speaker programs are a legitimate and effective sales and marketing technique for the promotion of a company’s drug.  So, what did Novartis do regarding its speaker programs that upset the Government?

According to the Government’s Complaint, Novartis’ speaker programs amounted to a massive kickback scheme in which the company paid doctors millions of dollars to speak at thousands of programs the overwhelming majority of which suffered from one or more of the following defects:  1) cancelled programs in which the speaker was nonetheless paid an honorarium; (2) programs that were held in lavish or inappropriate venues (on fishing trips, at Hooters restaurants, etc.) in which little scientific discussion took place; 3) programs that were poorly attend (i.e., had fewer than three attendees, despite a three-person minimum attendance rule); and/or 4) programs involving the same topic, the same speaker and the same attendees (most of whom were often friends with the speaker) on multiple occasions often within days or weeks of each other.   The problem, the Government contends, was that “[e]ven after Novartis entered into a CIA with the [OIG] in September 2010, its compliance program included insufficient controls to prevent speaker programs from being used as a vehicle for kickbacks to doctors through the payment of honoraria or lavish dinners and entertainment.  Novartis had no controls to prevent sales representatives from hosting programs in which the same doctors spoke repeatedly to the same attendees on exactly the same topic.”

The Government notes in its Complaint that Novartis kept track of its “return on investment,” finding that the more it spent on speaker program honoraria, the more prescriptions its speaker-consultants would write and that when payments dropped, so did prescriptions.  Finally, the Government strongly criticizes Novartis’ compliance program, noting that in 2011 the Company “monitored only 107 out of thousands of speaker programs” and that “[e]ven with a monitor present” there were numerous, often serious speaker program policy violations resulting in “sanctions that were mere slaps on the wrist.”

For its part, Novartis issued a statement responding to the Complaint, disputing the Government’s characterization of its speaker programs and defending its compliance program.


The first noteworthy aspect of this case is that it is one of the few instances in which charges have been brought without a pre-existing settlement.  There had to have been discussions between the Government and Novartis beforehand . . . does Novartis think it can beat back the Government on these facts?  The second point to note is that both Complaints lodged against Novartis in April are not the first time the Company has come under fire for violations of the FCA or the Anti-kickback Statute.  In September, 2010, Novartis had paid the Government approximately $422 million in criminal and civil fines and entered into a CIA in order to settle allegations of kickbacks relating to Trileptal®, Diovan®, Zelnorm®, Sandostatin®, Tekturna®, and Exforge®.  In fact, most of the egregious and sensational allegations in the most recent Complaint concern conduct that pre-dated the 2010 settlement and one has to wonder how the Government’s last whistleblower missed the speaker programs at Hooters.

On a serious note, there are several important lessons that can be drawn from the recent kickback allegations against Novartis, regardless how the charges are ultimately resolved .  First, any program involving the payment of money to doctors, no matter how well conceived or intentioned, can “go off-track” quickly and become difficult to control.  Second, while a company is expected to have a good monitoring program to ensure compliance with its policies, it is even more important to have meaningful discipline for those who violate those policies.  If the allegations in the Government’s Complaint are true, Novartis will have a hard time defending its disciplinary scheme and, therefore, the effectiveness of its compliance program under the current CIA.  Finally, and even more importantly than monitoring and discipline — at least in this former compliance officer’s opinion – is the need for good internal controls.  Why?  Because internal controls work to prevent things from going wrong in the first place.  In short, if a company’s internal controls are good, the number of compliance issues identified through monitoring and the corresponding need for discipline will drop like a rock.  (A company still has to have a strong monitoring program, however, in order to ensure that its speakers “stay on label”).

In the case of speaker programs and the issue of kickbacks, a company needs both strong “front-end” and “back-end” controls.  Front-end controls are achieved by a system in which no speaker program is scheduled without 6-10 “RSVPs” from invited doctors.  You need this many RSVPs because half the doctors never show up and 3-5 attendees are needed to pass the laugh test.  If a company doesn’t have the requisite number of RSVPs, the program should either not be scheduled, or if it has been scheduled, it should be cancelled before the company is contractually obligated to pay the speaker his or her honorarium.  An example of a good back end control is reconciling the RSVP list with an actual program attendance sheet in order to both  accurately capture the number of attendees — an important exercise under the Sunshine provisions of the Affordable Care Act, which will require allocation of dinner costs to physicians — and to ensure that the speaker’s friends aren’t the same attendees showing up time after time.

Obviously, the nature of the controls will be determined by the nature of the company’s policies, though in this day and age the policies (and therefore the controls) should mostly look the same (e.g., meal “caps,” minimum attendee to speaker ratio, no guests, etc.).  As any compliance officer knows well, “an ounce of internal control prevention is worth a pound of discipline.”

Case Reference Details

The case alleging kickbacks to doctors is United States ex rel. Bilotta v. Novartis Pharmaceuticals Corporation et al., No. 11-cv-0071 (S.D.N.Y.). It was originally filed as a qui tam action under the False Claims Act by relator Oswald Bilotta, a former Novartis sales representative who witnessed many of the alleged transgressions.

Click on the link to view the Novartis False Claims Act Second Amended Complaint.

The case alleging kickbacks to 20 or more pharmacies is U.S. v. Novartis Pharmaceuticals Corporation, No. 11 Civ 8196 (S.D.N.Y.). The Government alleges that Novartis offered ickbacks to pharmacies that encouraged kidney transplant patients to switch from competitive products to the Novartis drug Myfortic®.

Click on the link to view the U.S. v. Novartis Pharmaceuticals Corporation Complaint in Intervention.





About José P Sierra

José Sierra is a partner at Laredo & Smith, LLP, in Boston, which provides respected advice and creative representation in business litigation, white collar criminal defense, government investigations, corporate compliance, and business and employment law. Prior to joining the Firm, Mr. Sierra was a principal at Fish & Richardson. Previously, Mr. Sierra was senior vice president, chief compliance and ethics officer for Sepracor Inc., and Kos Pharmaceuticals, and was legal director at Schering-Plough Corporation, and an assistant U.S. attorney in the Newark, NJ U.S. Attorney's Office.

Mr. Sierra's practice focuses on white collar criminal defense, government investigations and corporate compliance. Contact him at 617-443-1100 or via .

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