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Global Pharmaceutical Corruption: Lessons From The Novartis Case

Pharmaceutical and medical device companies have worked for decades to build close relationships with doctors, hospital administrators and government health officials. These interactions help healthcare professionals stay abreast of technological developments and apprised of new treatment options while providing critical feedback to manufacturers and meaningful assistance with clinical trials. And of course, they can help boost a company’s sales. There’s nothing inherently wrong with an element of self-interested promotion, but an aggressive approach to marketing healthcare products runs the risk of eclipsing any educational or scientific justification.

Last month, Switzerland-based pharmaceutical and healthcare company Novartis—along with various current and former subsidiaries—entered a series of settlements with U.S. enforcement agencies, including the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and the U.S. Attorney for the Southern District of New York. The settlements addressed misconduct in the United States, Greece, South Korea and Vietnam, and resolved violations of the False Claims Act and Anti-Kickback Statute for activities in the United States, and the Foreign Corrupt Practices Act for activities abroad.           

The object of the schemes was straightforward: Give healthcare providers incentives in exchange for using and prescribing Novartis products. What stands out is the variety of methods deployed in attempting to sidestep prohibitions on bribery and kickbacks.

  • Conference sponsorships: In Greece, a Novartis subsidiary targeted influential ophthalmology specialists for “investment,” paying the cost of attendance for international conferences with the explicit understanding that continued sponsorship would depend on increased prescription volumes.
  • Clinical studies: The same subsidiary engaged healthcare providers in a marketing survey to gather information on patients with hypertension, mischaracterizing it as an epidemiological study. While doctors were supposedly being paid for providing relevant clinical information, they often submitted forms that were incomplete or full of errors, understanding that the payments were actually a reward for writing prescriptions.
  • Consultancy program: In Vietnam, a company that would eventually be acquired by Novartis took a more traditional route to persuade doctors to use its intraocular lenses, making “consultancy” payments to a third-party distributor as partial reimbursement for its direct payments to hundreds of healthcare providers.
  • Roundtables: A Novartis subsidiary in South Korea paid for roundtable meetings organized by third-party medical journals, including the cost of “honoraria” given to participants chosen by the company’s marketing team.
  • Speaker events: Company sales representatives in the United States hosted regular dinner events at expensive restaurants and entertainment venues, often attended by the same small groups of doctors, one of whom would be paid a speaker’s fee, though there was frequently little or no discussion of relevant medical issues.

So how did things spin so far out of control? There seem to be two primary contributors. First, an intense and pervasive pressure to sell. Budgets for speaker events and honoraria were lavish and mandatory, and failing to spend the full amount was disastrous for sales representatives. The pressure extended to the healthcare provider beneficiaries, with managers keeping close tabs on the companies’ return on investment. Second, a woefully inadequate compliance infrastructure, with a perennially understaffed compliance department and minimal enforcement of internal policies.

The remedial measures dictated by legal enforcement agencies in these cases largely align with what is generally expected of compliance programs, including high-level commitment by company management, visible and vigorous policies and procedures, periodic risk assessment, training and other requirements. Some of the restrictions were crafted to address more specific compliance risks: The company must conduct its external speaker programs online rather than in person, and there are limits on the amount it can spend promoting any given product.

Pharmaceutical and healthcare companies should consider whether their own marketing programs present similar bribery risks. This month has already seen a Foreign Corrupt Practices Act action by the SEC against Alexion Pharmaceuticals, a multi-million dollar settlement between the DOJ and a specialty hospital in Oklahoma regarding improper physician referrals, and the criminal sentencing of a Tennessee healthcare executive for his involvement in a kickback scheme. But more important than the risk of prosecution, particularly in light of the ongoing COVID-19 crisis, is ensuring companies are doing their part to maintain the integrity of the world’s healthcare systems and institutions.

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