Labor & Employment Law Daily Wrap Up, WHISTLEBLOWERS—2d Cir.: Former Novartis sales rep revives anti-kickback allegations under False Claims Act, (Jan 2, 2025)

By Todd Harrison, J.D.

A plaintiff adequately pleads an anti-kickback statue violation when they state with requisite particularity that at least one purpose of the alleged scheme was to induce fraudulent conduct.

Partially reversing a lower court’s dismissal of a former pharmaceutical sales representative’s anti-kickback allegations brought under the False Claims Act, the Second Circuit held, for the first time, that the “at-least-one-purpose” rule is sufficient to adequately plead an anti-kickback statute violation. In other words, a plaintiff needs to state with requisite particularity that at least one purpose of the alleged scheme was to induce fraudulent conduct, a heightened pleading standard that the sales rep in this case satisfied with regard to three of his claims (Camburn v. Novartis Pharmaceuticals Corp., No. 22-2708 (2d Cir. Dec. 27, 2024)).

Hired by Novartis to help sell its drug Gilenya, which is used to treat Multiple Sclerosis, the sales rep in this case was fired shortly after he filed this instant qui tam suit under the False Claims Act and equivalent state and municipal laws.

Observation requirement. Since Gilenya’s approval, the FDA has imposed a first-dose observation requirement for new patients, who must be monitored by a doctor while attached to an electrocardiogram machine for six hours. Because this requirement is burdensome for physicians, Novartis sought to widen the drug’s appeal to the market through, among other activities, operating a peer-to-peer speaker program during which physicians shared insights about the drug with other health professionals.

According to the sales rep, these programs actually obfuscated a scheme by which Novartis offered remuneration to physicians in exchange for prescribing the drug to their patients, leading him to file this lawsuit. Ultimately, the lower court dismissed his third amended complaint with prejudice, concluding that the sales rep had not pleaded his factual allegations with the adequate particularity under Rule 9(b) to support a strong inference of an anti-kickback statute-based False Claims Act violation. This appeal followed.

At-least-one-purpose rule. At the outset, the court held, as a matter of first impression, that in relator-initiated actions, a defendant violates the anti-kickback statute when at least one—rather than the primary or sole—purpose of the remuneration it provides is to induce the purchase of a federally reimbursable healthcare product. This “at-least-one-purpose” rule aligned with those of the court’s sister circuits. Further, a plaintiff who pleads an anti-kickback statute violation as a predicate to an FCA claim need not state a quid pro quo exchange, said the court.

In this instance, the sales rep needed only to allege that at least one purpose of the remuneration was to induce prescriptions, without alleging a cause-and-effect relationship between the payments and the physicians’ prescribing habits, explained the court.

Speaker events. Turning to the adequacy of the sales rep’s pleadings, the Second Circuit determined that the district court erroneously dismissed three categories of factual allegations. One such allegation concerned speaker events with no legitimate attendees.

Here, the sales rep provided “illustrative examples” of physician-speakers giving presentations solely to other Novartis speakers or to members of their own practice, including presentations held at high-end steakhouses. In each instance, the sales rep identified with particularity the doctors and attendees involved, specifying the dates on and venues at which the alleged events took place. These details were sufficient to meet the requirements of Rule 9(b), said the court.

In addition, the court agreed with the sales rep that these events gave rise to a strong inference of fraudulent conduct. Their exclusive attendance by individuals attached to practices already familiar, via their respective physician-speakers, with Gilenya, in combination with their “upscale” settings, supported a strong inference that at least one purpose of this aspect of the speaker program was to provide kickbacks to prescribers. These allegations, even without more, supported a claim of an anti-kickback statute violation, according to the court.

Canceled events. Another anti-kickback statute violation was stated with respect to the compensation of speakers for canceled events. The sales rep identified by name and location three physicians whom Novartis paid for canceled events. The sales rep described exactly how much each speaker was paid for canceled events in a two-year period and detailed the volume and dollar value of claims each allegedly submitted to Medicare Part D in the same period. These allegations too were set forth with enough particularity to give rise to a strong inference that the payments constituted, at least in part, unlawful remuneration.

Speaker selection. Finally, the sales rep stated an anti-kickback statute violation with respect to the selection and retention of speakers. The complaint recounted the testimony of two sales representatives who outlined how their managers encouraged them to offer speaking engagements to certain physicians, including allegations that the physicians in question would not prescribe Gilenya without being granted compensable speaking engagements.

Taken as true, all three categories of activities plausibly and strongly suggested that Novartis operated its speaker program at least in part to remunerate certain physicians to prescribe Gilenya, said the court, finding that at the motion to dismiss stage the sales rep had adequately pleaded an anti-kickback statute violation. As such, the dismissal of these categories was reversed and the matter was remanded for further proceedings.

Remaining allegations. The Second Circuit determined that the district court properly dismissed sales rep’s remaining allegations, which failed to support the conclusion that at least one purpose of the alleged remuneration Novartis provided was to induce higher prescriptions. Few specific details concerning these allegations were provided to satisfy the at-least-one-purpose rule, concluded the court.

The case is No. 22-2708.

Judge: Pérez, M.

Attorneys: James E. Miller (Miller Shah) for Steven M. Camburn. Evan R. Chesler (Cravath, Swaine & Moore) for Novartis Pharmaceuticals Corp.

Companies: Novartis Pharmaceuticals Corp.

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