Veloxis Pharmaceuticals to Pay More Than $46 Million Over Kickback Schemes

Key Takeaways

• Veloxis Agrees to Pay More Than $46 Million: Veloxis Pharmaceuticals agreed to resolve criminal and civil liability tied to kickback schemes involving healthcare providers and specialty pharmacies.
• Kickbacks Were Intended to Drive Envarsus Prescriptions: Veloxis admitted that it provided lavish meals, trips, resort stays, gifts, alcohol and purported consulting payments to induce healthcare providers to prescribe or recommend Envarsus.
• Specialty Pharmacies Were Also Paid: Veloxis admitted to making per-patient and per-month payments to specialty pharmacies to encourage purchases of Envarsus, while describing the payments in contracts as compensation for “enhanced services.”
• Company Records Were Falsified: Veloxis admitted that employees falsified expense reports and business records to conceal kickbacks, including practices that resulted in physician payments being underreported or not reported through the Open Payments Program.
• Compliance Obligations Will Continue for Five Years: Veloxis entered into a five-year Corporate Integrity Agreement requiring an enhanced compliance program and an independent review of its effectiveness.

Deep Dive

Veloxis has agreed to pay more than $46 million to resolve criminal and civil liability tied to kickback schemes involving healthcare providers and specialty pharmacies, the Justice Department said Monday. The North Carolina drugmaker entered into a deferred prosecution agreement connected to a criminal conspiracy charge and agreed to settlements covering alleged false claims submitted to federal healthcare programs and failures to properly disclose payments to physicians.

The resolution includes a criminal penalty of more than $10 million, $34.45 million to settle False Claims Act allegations and a separate $1.55 million civil penalty over payments that Veloxis allegedly failed to report through the Centers for Medicare & Medicaid Services' Open Payments Program. The latter is the largest recovery under the Sunshine Act since the law was passed in 2010.

From October 2016 until around June 2023, Veloxis and its employees engaged in a scheme to pay healthcare providers to induce them to prescribe, order or recommend Envarsus, according to admissions and court documents filed in Massachusetts. During that period, Envarsus was the company's only drug. It is an immunosuppressant taken once a day by adult kidney-transplant recipients, and Veloxis was trying to gain market share against a cheaper generic drug.

That meant winning over people who could make Envarsus matter inside transplant centers and hospitals: healthcare providers capable of influencing whether the drug found its way onto institutional formularies or treatment protocols. Veloxis's methods went considerably further than persuasion.

Healthcare providers were taken to lavish dinners and expensive trips and retreats, some presented as "advisory boards." Gifts and costly alcohol were provided. Consulting payments were made for work that Veloxis admitted was never actually performed. At times, spouses or other guests joined the dinners and trips. Then came the accounting.

Employees submitted falsified expense reports to conceal the spending, according to the company's admissions. Extra names were placed on attendee lists to reduce the apparent cost of meals on a per-person basis. Other names — those of physicians who really had attended — were omitted to avoid reporting the payments under the Sunshine Act. The records did not simply disguise what Veloxis was spending. They helped obscure whom the company was spending it on.

One exchange captured the commercial logic with unusual economy. When a surgeon asked to attend a speaker program, a Veloxis employee told the surgeon the employee "need[ed] scripts. Lots of them." Months earlier, the same employee had said it was "[t]ime to open your Rolodex and make things happen."

Veloxis admitted that it intended the improper payments to healthcare providers to produce more Envarsus prescriptions.

The Money Moved Through Pharmacies, Too

The scheme did not stop at the physician's office. From 2017 through 2023, Veloxis admitted, it made per-patient and per-month payments to specialty pharmacies to induce them to begin or continue purchasing Envarsus rather than competing drugs, including a cheaper generic alternative. On paper, the money was described as payment for "enhanced services," such as collecting data or providing adherence services.

The paper and the practice did not match. Veloxis admitted that it paid pharmacies regardless of whether they supplied any data, whether the required data fields were provided, whether the information arrived in the specified format or whether the adherence services had been performed at all. The contracts gave the payments a business purpose. The company's admissions describe another one.

Those payments, together with the kickbacks to healthcare providers, underpin the False Claims Act portion of the resolution. The government alleged that Veloxis knowingly caused claims to be submitted to Medicare, Medicaid and TRICARE for Envarsus prescriptions written by providers or filled by pharmacies that the company had knowingly and willfully paid in violation of the Anti-Kickback Statute.

Veloxis will pay $21,211,251 to the federal government and another $13,238,749 to certain states, bringing the False Claims Act settlement to $34.45 million. The company separately agreed to the $1.55 million CMS penalty after admitting that its Open Payments reports, built from falsified expense records, understated or omitted the true amounts paid or transferred to physicians.

The criminal side carries its own consequences. Veloxis entered into a deferred prosecution agreement in connection with a criminal information filed in the District of Massachusetts charging the company with conspiracy to violate the federal Anti-Kickback Statute. Its criminal penalty exceeds $10 million.

The settlement does not leave compliance as an afterthought to the financial penalties. Veloxis has entered into a five-year Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General and must implement a compliance program addressing Anti-Kickback Statute risks arising from financial arrangements. An independent compliance expert will review whether that program is effective. The broader criminal resolution also calls for enhanced policies, procedures, internal controls, oversight, reporting and enforcement mechanisms.
Veloxis did receive credit from the Justice Department for what happened once the misconduct was being addressed. The company admitted liability and accepted responsibility, proactively disclosed evidence the government did not know about and helped investigators interview current and former employees and collect evidence from third parties. It terminated employees responsible for misconduct, revised its Anti-Kickback Statute policies and strengthened its training, reporting, disciplinary and internal-investigation programs. Relationships with third parties involved in the conduct were also terminated.

There is a temptation in a case this sprawling to see the dinners, resorts, consulting contracts, pharmacy agreements and altered expense reports as separate compliance failures. The government's case describes something more coherent. Each sat somewhere between the money Veloxis was willing to spend and the prescriptions it wanted in return. The five-year compliance agreement now asks the company to build controls capable of recognizing that connection before prosecutors do.false c

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