United States ex rel. Kester v. Novartis Pharmaceuticals Corp.
23 F. Supp. 3d 242
S.D.N.Y.2014Background
- Government intervened in a qui tam False Claims Act (FCA) suit originally filed by relator Kester, alleging Novartis paid kickbacks to specialty pharmacies (Myfortic and Exjade schemes) that tainted Medicare/Medicaid claims.
- Myfortic scheme (2005–2013): Novartis allegedly paid rebates to multiple pharmacies conditioned on recommending switching/transplant patients to Myfortic (named pharmacies: Baylor, Bryant, Kilgore, Transcript, Twenty-Ten).
- Exjade scheme (2007–2012): Novartis allegedly used its EPASS distribution network to induce BioScrip to solicit patient refills and rewarded the pharmacy with referrals and per-shipment rebates.
- Pharmacies certified AKS (Anti‑Kickback Statute) compliance in enrollment/provider agreements and Part D subcontracts; Government alleges those certifications were false and that claims were thus legally false.
- Novartis moved to dismiss under Rule 9(b) for failure to plead fraud with particularity; Court denied the Rule 9(b) motion without prejudice, directing Novartis to file a Rule 12(b)(6) motion addressing legal sufficiency (notably whether AKS violations render claims "false" absent but‑for causation).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of Rule 9(b) pleading for FCA §§ 3729(a)(1)(A) and (a)(1)(B) | Government: detailed scheme allegations plus actual Medicare/Medicaid claims data (per-pharmacy counts, amounts, time windows) satisfy Rule 9(b) and identify false claims. | Novartis: Complaint fails to identify particular false claims (dates/claim numbers/patients) as required by Rule 9(b). | Denied without prejudice — Court adopts a strict Karvelas standard requiring identification of particular false claims but finds the Complaint may satisfy Rule 9(b) if the Government’s legal theory (re AKS) is viable; awaits Rule 12(b)(6) briefing. |
| Legal theory: do AKS violations render claims "false" such that all claims during scheme are FCA violations? (express/implied certification) | Government: AKS compliance is a precondition to payment; claims submitted by pharmacies while receiving undisclosed kickbacks are legally false (express and implied certifications). | Novartis: Post‑2010 AKS amendment uses phrase "resulting from," requiring but‑for causation—only claims actually caused by the kickback recommendation are false. | Court: Issue is dispositive of pleading sufficiency and unresolved on Rule 9(b); needs full Rule 12(b)(6) briefing to resolve whether Government’s broader theory is legally viable. |
| Conspiracy claims under § 3729(a)(1)(C) | Government: alleged unlawful agreement and overt acts in furtherance of fraud. | Novartis: challenges particularity under Rule 9(b). | Denied — conspiracy is an inchoate offense; no specific false claim need be pleaded with particularity for § (C). |
| State-law unjust enrichment / payment by mistake claims | Government: Novartis was unjustly enriched by proceeds tied to tainted, reimbursed prescriptions; alleged increased sales and payments to pharmacies provide basis. | Novartis: argues insufficient articulation of how it was unlawfully enriched. | Denied — court finds Complaint adequately alleges Novartis’s enrichment tied to the scheme; Rule 9(b) does not require dismissal on the sole ground argued. |
Key Cases Cited
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (Rule 9(b) particularity elements for fraud pleadings)
- Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009) ("reliable indicia" standard allowing detailed scheme + circumstantial proof that claims were submitted)
- Karvelas v. Melrose–Wakefield Hosp., 360 F.3d 220 (1st Cir. 2004) (requirement to identify particular false claims with sufficient detail under Rule 9(b))
- Clausen v. Laboratory Corp. of America, 290 F.3d 1301 (11th Cir. 2002) (FCA targets the claim for payment; plaintiffs must plead actual false claims)
- Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001) (framework for factual vs. legal falsity and express/implied false certification theories under the FCA)
- U.S. v. Wells Fargo Bank, N.A., 972 F.Supp.2d 593 (S.D.N.Y. 2013) (pervasive-scheme context: representative example claims can satisfy Rule 9(b) when thousands of claims implicated)