By Brendan Pierson
Sept 18 (Reuters) - Drugmaker Eli Lilly on Wednesday urged a federal appeals court to overturn a $183 million judgment against it in a case accusing it of defrauding Medicaid, arguing that it was being wrongly held liable despite following its reasonable interpretation of the government health insurance program's requirements.
The case, before a three-judge panel of the Chicago-based 7th U.S. Circuit Court of Appeals, has attracted attention from major business groups including the U.S Chamber of Commerce, the nation's biggest business lobbying group, and leading drug industry association Pharmaceutical Research and Manufacturers of America (PhRMA), which argued in an amicus brief that allowing the judgment to stand would create "untenable uncertainty and chaos" for regulated companies.
7th Circuit Judges Candace Jackson-Akiwumi, Kenneth Ripple and Joshua Kolar asked relatively few questions and did not clearly indicate how they would rule.
The case stems from a 2014 whistleblower lawsuit brought in Chicago federal court by Ronald Streck, a lawyer and pharmacist who accused Lilly of short-changing Medicaid, a state- and federally-funded insurance program for low-income people.
Medicaid requires participating drugmakers to pay the program rebates on drugs prescribed to Medicaid beneficiaries, with larger rebates for higher-priced drugs. Streck said that, until 2017, Lilly underreported the prices for prescription drugs that it charged its distributors.
Specifically, Streck said, Lilly failed to report that, when it increased prices, it billed distributors for the additional price on any unsold drugs they had bought at the old price and still had in stock.
Lilly denied the allegations, saying that those price increases were offset against service charges it paid to distributors, and did not result in any net increase in price.
Lilly began reporting price increase charges to distributors in 2017 after the U.S. Centers for Medicare and Medicaid Services issued a new rule stating that many price increase charges would likely have to be reported.
However, Lilly said that it had told regulators about its methodology several times before then and received no pushback, and that the government declined to intervene in Streck's case, reinforcing its belief that its interpretation was correct.
U.S. District Judge Harry Leinenweber in Chicago denied Lilly's motion for summary judgment in 2022 while granting Streck's motion for summary judgment that Lilly's price statements were false, allowing the case to go to trial on damages and on the issue of whether Lilly had committed fraud knowingly. In May 2023, a jury found the company liable for $61 million, which the judge tripled to $183 million as allowed by the federal False Claims Act.
John O'Quinn of Kirkland & Ellis, arguing for Lilly on appeal, told the panel that the jury should have been allowed to weigh in on whether Lilly's reported prices were actually false, and to hear more evidence that the government led it to believe its interpretation of the law was right.
"This case turns on the reasonableness of Lilly's price reporting assumptions," he said.
Daniel Miller of Walden Macht Haran & Williams, arguing for Streck, urged the panel to uphold the judgment, calling Lilly's price increase bills to distributors "a pure cash grab." He noted that, while the government had declined to intervene, it was supporting the lawsuit as an amicus.
Joshua Dos Santos, a lawyer for the U.S. Department of Justice, said that the jury "was entitled to disbelieve either the reasonableness of (Lilly's) explanation, or the sincerity of it."
He said overturning the judgment would undermine a U.S. Supreme Court ruling last year in a case against pharmacy operator SuperValu that a company cannot avoid liability for fraud by citing an objectively reasonable interpretation of the law that it did not actually believe.
Lilly said in its appeal brief that its case was "fundamentally different" from the SuperValu case because it actually believed in its interpretation.
The case is United States ex rel Streck, 7th U.S. Circuit Court of Appeals, No. 23-2134.
For plaintiff: Daniel Miller of Walden Macht Haran & Williams
For the government: Joshua Dos Santos of the U.S. Department of Justice
For Lilly: John O'Quinn of Kirkland & Ellis
Read more:
Whistleblower's claim that Eli Lilly short-changed Medicaid will go to jury
U.S. Supreme Court gives boost to whistleblowers in drug pricing case
