Suppressed v. Suppressed

Filing 412

MEMORANDUM Opinion and Order Signed by the Honorable John J. Tharp, Jr on 8/17/2017:Mailed notice(slb, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES ex rel. BERNARD
LISITZA, et al.,
Plaintiffs,
v.
PAR PHARMACEUTICAL COMPANIES,
INC.,
Defendant.

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No. 06 C 06131
Judge John J. Tharp, Jr.

MEMORANDUM OPINION AND ORDER
In this qui tam action brought primarily under the federal False Claims Act and parallel
state statutes, the plaintiffs—the United States, the State of Michigan, and the State of Indiana—
allege that defendant Par Pharmaceutical Companies, Inc., caused national pharmacy chains to
submit false claims for reimbursement from Medicaid by inducing them to fill prescriptions not
with the generic drugs originally prescribed but with more expensive forms and dosages of those
drugs manufactured by Par. The plaintiffs maintain that the pharmacies’ reimbursement claims
were “inherently” false because the pharmacies “overcharged” the government, but that
argument reads the requirement of a false or misleading statement out of the False Claims Act.
The reimbursement claims were not “inherently” nor expressly false simply because the
government paid more for Par’s drugs than it would have paid for the form or dosage that was
originally prescribed.
The plaintiffs also maintain that the claims were false because they omitted information
that the drug for which reimbursement was sought was not the originally prescribed drug but an
alternate form or dosage strength selected to circumvent the reimbursement cap that applied to

the originally prescribed drug, without regard for regulations requiring physician authorization
and the dispensing of only medically necessary and economical treatments. The claims therefore
implicate the Supreme Court’s recent decision in Universal Health Services, Inc. v. United States
ex rel. Escobar, 136 S. Ct. 1989 (2016), which addressed the scope of liability under the False
Claims Act for “implied false certification,” that is, the submission of claims that omit material
information about regulatory non-compliance. Par maintains, and the Court agrees, that under the
standard established in Escobar, the reimbursement claims it submitted were not false or
misleading.
Furthermore, Par’s motion argues that the plaintiffs lack evidence of even one claim for
reimbursement for a drug that was switched in a manner that arguably violated the law because
there was no physician approval, no demonstration of “medical necessity,” and no proof that the
drug dispensed was the most “economical” choice. The plaintiffs did not put proof of any such
claim in the record; they refer to their expert witnesses’ identification of statistical trends instead,
and argue that they have no burden until trial to show evidence of the false claims. But that is not
how summary judgment works. The plaintiffs have not presented evidence sufficient to support a
finding that any particular claim the pharmacies filed was false, even according to their own
theory. Accordingly, Par’s summary judgment motions are granted.
I. BACKGROUND
This is the fourth of a related set of four qui tam FCA suits, the first dating from
September 2001, which the relator Bernard Lisitza filed against the pharmacies Omnicare,
Walgreens, and CVS, respectively, and finally against Par and three other drug makers that are
no longer defendants. All allege an unlawful prescription-switching scheme (i.e., the
unauthorized substitution of more expensive pills) that resulted in overcharging the Medicaid

2

program and, therefore, violating the FCA. In this case, the United States and the states of
Michigan and Indiana intervened and filed separate complaints. Many other states permitted the
relator to litigate their claims for them. 1 In the current motions Par seeks summary judgment on
the merits against the United States, Michigan, and Indiana, arguing that it is entitled to judgment
as a matter of law because the plaintiffs cannot establish the falsity of the claims on which the
lawsuit is based.
A.

The Complaints

The operative pleading of the United States is the Corrected Second Amended Complaint
of July 9, 2013, which names only Par as a defendant. See Corrected Second Amended
Complaint (“CSAC”), ECF No. 231. Michigan and Indiana filed their own complaints, see Mich.
Compl., ECF No. 69; Ind. Am. Compl., ECF No. 148. Although the complaints are separate, and
Par moved against each plaintiff separately, the complaints are substantially similar and the
United States, Michigan, and Indiana filed a joint opposition brief and joint statements of fact.
Accordingly, except where necessary to distinguish between these governmental parties, this
opinion will simply refer to all three of these governmental parties as “the plaintiffs.”
In general, the plaintiffs allege that Par orchestrated an illegal prescription-switching
scheme by developing or acquiring the rights to manufacture and/or distribute widely available
generic drugs, but in different dosage strengths or forms than those commonly offered by
competitors, and then marketing its drugs to pharmacies based on their ability to obtain higher
Medicaid reimbursements for Par’s products, which were not subject to standard reimbursement
caps because they were so unusual. To effect the scheme, the pharmacies programmed their

1

In a separate opinion today, the Court dismissed the complaint of the relator pursuant to
the FCA’s public disclosure bar. Accordingly, the claims of the non-intervening states have also
been dismissed and are not addressed in this opinion.
3

automated systems to automatically switch drugs to Par’s atypical versions of commonly
prescribed medications. Specifically, this case pertains to the following so-called “subject
drugs”: 10- and 20-mg tablets of fluoxetine (generic Prozac, an anti-depressant), 150- and 300mg capsules of ranitidine (generic Zantac, an antacid), and 7.5-mg tablets of buspirone (generic
Buspar, an anti-anxiety medicine). Par’s drugs were alternatives to the fluoxetine capsules in the
same strengths, ranitidine tablets in the same strengths, and buspirone tablets in a 15-mg
strength—the dosage most commonly prescribed. This case relates only to the dispensing of the
subject drugs by two pharmacies, Omnicare and Walgreens. More precisely, the complaint
alleges that Par induced Omnicare to offer its fluoxetine and buspirone products, but not
ranitidine, the third subject drug. Walgreens is alleged to have dispensed all three subject drugs.
The plaintiffs assert that the subject drugs were dispensed without physician approval,
were not “medically necessary,” and were not economical within the meaning of governing state
and federal Medicaid regulations, and further that Par and the pharmacies acted solely based on a
profit motive, all in violation of the False Claims Act because their actions violated the
regulations and consequently inflated the costs to Medicaid. The plaintiffs also allege a
conspiracy between Par and the pharmacies, as well as common-law fraud; finally, Michigan and
Indiana separately allege state common-law torts of unjust enrichment (both), and theft and
offense-against-property (Indiana only).
B.

Par’s Motions

In seeking summary judgment on the merits, Par argues that the plaintiffs cannot meet
their burden of establishing that Par caused the submission of claims that were false within the
meaning of the FCA or the parallel state statutes. Par further argues that the other claims

4

necessarily fail as well, based on the absence of falsity. This opinion jointly addresses Par’s three
motions.
Since the close of briefing, the parties have filed, with leave of court, supplementary
briefs addressing the impact of the Supreme Court’s decision in Universal Health Services, Inc.
v. United States and Massachusetts ex rel. Escobar and Correa (“Escobar”), 136 S. Ct. 1989
(June 16, 2016). See Pls. Suppl. Brief, ECF No. 398; Par Suppl. Br., ECF No. 399. That case
pertains to the so-called “implied false certification” theory that, according to Par anyway, is the
theory underlying the plaintiffs’ FCA claims.
In reviewing the motions for summary judgment, the Court must view the facts and draw
reasonable inferences in favor of the non-moving parties, to the extent they are supported by the
record. United States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 823 (7th Cir.
2011). Under Local Rule 56.1(a)(3) & (b)(3), the parties must set forth, and respond to, proposed
undisputed facts and provide support with admissible evidence. See also Fed. R. Civ. P. 56(c) &
(e). They have done so here, albeit with a great deal of improper argument folded in. The bulk of
the factual disputes presented by the parties are not material to the resolution of these motions,
which simply argue that the plaintiffs cannot prove falsity as a matter of law. The immaterial
facts are omitted.
II. FACTS
The Medicaid program, one type of government-sponsored insurance, is a Third Party
Payor (“TPP”) that reimburses pharmacies for the cost of filling prescriptions dispensed to the
program participants. Under the Medicaid system, retail and institutional pharmacies (such as
Omnicare, which operates primarily in nursing homes) provide prescription medications to
customers and then file claims for reimbursement from the relevant state or federal agency that

5

administers Medicaid and sets the reimbursement rate. State and federal Medicaid agencies
establish their reimbursement rates for prescription drugs, which they cap in the form of a
Federal Upper Limit (“FUL”) or, under state law, a Maximum Allowable Cost, or “MAC.” The
Court will adopt the parties’ convention of referring to “MACs” as inclusive of all
reimbursement caps. These MACs are typically set with reference to market conditions and the
actual costs of the drugs. With certain drugs, however, the Average Wholesale Price determines
the reimbursement rate; this generally results in a much higher reimbursement rate because
AWPs are benchmarks prices set by manufacturers with little or no relation to the drug’s cost.
The AWP is used when there are too few active sellers of a given drug to allow the TPPs to set
reimbursement rates according to their market-based formulas. At various times, Par’s drugs at
issue in this case commanded reimbursement rates based upon the Average Wholesale Price
method, in contrast to the same drugs in the market with different (and, at least initially, more
common) dosages and forms, which were capped by MACs.
When a new generic drug comes to market, the Food and Drug Administration grants a
180-day exclusive marketing period to the manufacturer. See 21 U.S.C. § 355(j)(5)(B)(iv).
MACs are not set until that period expires and other sellers enter (or do not enter) the market. No
MAC is set unless other sellers materialize. A “new” drug under FDA regulations is not related
solely to its active ingredient; each separate dosage strength and format needs its own approval
and is separately priced for reimbursement. Thus, for example, 10-mg fluoxetine tablets are not
regarded by the FDA as the same drug as 10-mg fluoxetine capsules, and two 7.5-mg buspirone
tablets are not the same as one 15-mg tablet.
The two pharmacies at issue in this case against Par, Walgreens and Omnicare, entered
into Medicaid Provider Agreements with the federal government and the states in which they

6

operated. These agreements contained certain conditions of participation in the Medicaid
program, most of which contain the following terms quoted here from the state of Florida’s 2003
enrollment agreements, 2 with immaterial differences:
The Provider agrees to participate in [Medicaid] under the
following terms and conditions:
***
(2) Quality of Service. The provider agrees that services or goods
billed to the Medicaid program must be medically necessary, of a
quality comparable to those furnished by the provider’s peers, and
within the parameters permitted by the provider’s license or
certification.
(3) Compliance. The provider agrees to comply with local, state,
and federal laws, as well as rules, regulations, and statements of
policy applicable to the Medicaid program, including the Medicaid
Provider, including the Medicaid Provider Handbooks issued by
the [responsible Medicaid agency].
See Pl. Resp. SOF §¶ 18, ECF No. 370. As relevant to part (3), every Medicaid jurisdiction in
this case has some requirement that treatments be medically necessary and the most costefficient or economical (various terms are used) available. The conditions of enrollment are
enforceable with penalties including suspension from the Medicaid program. The plaintiffs’ brief
contains an addendum setting forth the applicable laws of every plaintiff state. See Addendum of
Laws, ECF No. 369-1.
The pharmacies submitted reimbursement claims to Medicaid after filling prescriptions
with Par drugs, as they would do with any other drugs they dispensed. A standard form required
2

The parties’ citation to Florida rules is odd, as that State’s claims are not at issue in this
motion, whereas Par’s motion directly attacks the complaints of the United States, Michigan and
Indiana. The Court has ferreted out one exhibit featuring a 2002 executed Michigan provider
agreement and a Billing Agent Authorization. See Exhibit 50 to Corrected Second Amended
Complaint, ECF No. 232-3. But only the faces of these documents are included, and not the
reverse sides, referenced on the front sides, that contain the relevant certification language. If the
parties agree that the certifications are the same or similar, it is a mystery why Florida forms
were chosen as the examples rather than one of the plaintiffs’.
7

the pharmacy to set forth: a provider number, a total amount billed, the name of patient, the
National Drug Code for the drug dispensed (not “prescribed”), the prescription number, and the
date filled. Sample Claim Form, ECF 232-3. The forms typically were submitted electronically.
All claim forms require a provider certification that “the foregoing information is true,
accurate, and complete.” Pl. Fact Resp ¶ 51, ECF No. 370. They further require
acknowledgement that “payment and satisfaction of the claim will be from Federal and State
funds, and that any falsification of claims, statements or documents, or concealment of
material fact may be presented under applicable Federal or State laws.” Id. There are few
claim forms made part of the summary-judgment record, but Par does not dispute that Walgreens
and Omnicare sought reimbursement from Medicaid for hundreds of thousands of prescriptions
for the subject drugs during the relevant time period, nor that the claim forms contained the
quoted language or its substantial equivalent.
The premise of the complaints is that Par convinced Walgreens and Omnicare to offer its
products, rather than the standard forms and dosages then prevailing in the market, by
emphasizing the greater profitability of selling Par’s non-MAC-controlled products. The pitch
was straightforward: sell Par’s products; receive higher reimbursements; make more profit. Some
exceptions existed—Par notes occasions when its drugs had reimbursement rates that were
equivalent to or lower than the MAC set for the competition—and we will come back to these
later. But there is no fundamental dispute that, over the course of the scheme, reimbursements for
the subject drugs far exceeded what Medicaid would have paid if MAC-capped dosages and
forms had been dispensed instead of the subject drugs.
Par marketed its subject drugs to Walgreens and Omnicare based at least in part on the
absence of MACs on its products, and it was Par that approached the pharmacies to market its

8

atypical offerings (which is not to say who devised the prescription-switching scheme; that fact
is disputed). Par was aware that FULs were not set for drugs without at least three active sellers,
and that states had broader discretion over setting MACs. Par was generally aware of the
reimbursement rates on ranitidine, fluoxetine, and buspirone, and it made assumptions or
predictions about limits that might be established, or modified, in the future. Par prepared
financial projections highlighting the potential profitability of switching from the more common
forms and dosage strengths; these projections were, at least, used as talking points for the
marketing executives and might have been physically shared with the pharmacies’ purchasing
executives. To suggest the legality of its proposal, Par also commissioned a “survey” of each
state’s Board of Pharmacy regarding policies relevant to dispensing generics (in this instance,
fluoxetine); that survey as presented (or used in marketing presentations) to the pharmacies did
not include the states’ requirements that Medicaid services be medically necessary and provided
in a cost-effective, economical manner. The survey was prepared by a pharmacist, not a lawyer.
To persuade the pharmacies of the long-term benefits of switching, Par used its industry
knowledge to predict that it was unlikely that competition from other sellers would materialize in
the future, after Par’s exclusivity rights expired. Beyond the benefit of greater reimbursements,
Par offered other financial incentives to the pharmacies to switch to its drugs and to purchase
them in large quantities; these included rebates while the switching was ongoing. Later, Par
offered price reductions on other products to offset the pharmacies’ profit losses once the
switching scheme ended in 2004 due to government investigations.
The pharmacies grasped the opportunity to increase their profits through higher Medicaid
reimbursements and aggressively sold the switching plan internally, all the way down to the
retail pharmacists dispensing the drugs. They adjusted their computer systems to automatically

9

suggest Par’s versions of the subject drugs, and over time, the pharmacies typically dispensed
Par’s subject drugs although there is no evidence that the frequency with which physicians
actually prescribed the atypical dosage strengths and forms Par distributed increased at all, let
alone exponentially.
As an example of the implementation of the scheme, in April 2001, the predecessor
agency to the Centers for Medicare and Medicaid Services (CMS) issued a bulletin announcing
the imminent issuance of FULs for 150 mg and 300 mg ranitidine tablets. Capsules were not
mentioned. By August, Par was aware that fewer than three firms would actively sell capsules
and it assumed, therefore, that no FUL would be set for capsules; this was confirmed when CMS
issued the FULs for the tablets only. Par prepared a chart entitled “Walgreens Ranitidine
Analysis (tablets vs. gelcaps)” that it used as part of its marketing of the subject drugs to
Walgreens. Par’s model also suggested that, based on certain assumptions, the cost to Walgreens
of acquiring Par’s capsules could be higher than what it would pay for tablets (diminishing any
price motive for the pharmacies if those assumptions held true). But Par also offered rebates and
price reductions to customers who purchased the subject drugs in bulk to provide additional
financial incentives for the pharmacies to switch.
Par approached Walgreens, including its Director of Pharmacy Marketing, Tom Lawlor,
to pitch its ranitidine capsules, and in the process suggested that Walgreens could make more
money dispensing Par’s capsules because there was no MAC. The Par executives involved in
marketing the ranitidine included Nick DiMaio, Julee Tredowicz, and Scott Tarriff. By July
2001, Walgreens had contracted with Par for purchases of ranitidine capsules and instituted a
program in which its front-line pharmacists would dispense capsules instead of tablets (with
physician approval, Par says). Internally, a Walgreens purchasing executive, Bill Groth,

10

explained that the switching was due to the MACs set for tablets and the potential to greatly
increase profits with capsules. Groth also referred to a lower acquisition cost for Par’s drugs.
Lawlor sent an email instructing that store managers should explain to “staff” (i.e., pharmacists)
that “MAC pricing on tabs (and no MAC on caps) plus rebates has forced our hand.” Walgreens
programmed its computerized prescription-filling system to “suggest” capsules for any ranitidine
prescription. Lawlor referred to this in a company-wide email as “automatically switching” the
drugs. The system permitted pharmacists to override the suggestion, but neither party adduced
evidence of the frequency with which they did so. Between July and October 2001, Walgreens
earned up to $259,460 more in gross profit by dispensing Par’s capsules instead of tablets, based
upon the plaintiffs’ models projecting the profits if Walgreens had, hypothetically, dispensed the
tablets and received the FUL reimbursement rate (as opposed to any particular states’ MACs).
Over the period of 2000 to 2006, the government estimates “differential losses” to state and
federal governments of $14,028,549, just from Walgreens’ claims for reimbursement for Par’s
ranitidine capsules. In short, the profits were higher, as predicted by Par and hoped for by
Walgreens. Par implemented its marketing scheme in much the same way with Omnicare and
Walgreens as to the other subject drugs. It is not necessary to the disposition of these motions to
set forth these transactions in the same level of detail.
After the Illinois Department of Health sent a formal warning to Walgreens on July 25,
2001, that dosage-form switching to non-equivalent 3 products required documented physician
permission; Lawlor emailed all Walgreens pharmacies emphasizing this mandate. It is unclear
whether the pharmacists had previously been instructed on the issue, although Lawlor testified

3

Again, because of distinctions relating to effectiveness and safety, under state and
federal law each dosage strength or form is treated as a separate drug, even if the active
ingredient is identical.
11

that to his knowledge, proper procedures were followed. Whether because pharmacists were
already obtaining permission or because they chose to ignore the warning, it did not abate the
switching, which continued with the same frequency after the warning.
Over the course of the alleged scheme, due to fluctuations in the applicable MACs, there
were some claims that Walgreens submitted for ranitidine capsules that were reimbursed at the
same or a lower rate than the more-common alternates; the plaintiffs estimate this to have
occurred about 10% of the time, and they do not seek to recover on such claims as part of this
lawsuit. See Pl. Stmt. Add’l Facts ¶ 74, ECF No. 371. The same phenomenon occurred with the
other subject drugs at times, and the plaintiffs also exclude those claims from the universe of
allegedly inflated claims. Id. ¶ 75.
DISCUSSION
Summary judgment “shall” be granted if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(a); Yahnke v. Kane Cty., Illinois, 823 F.3d 1066, 1070 (7th Cir. 2016). In opposing a
summary judgment motion, it is the plaintiffs’ burden to identify record evidence sufficient to
support a jury verdict in their favor. Yannacopoulos, 652 F.3d at 823 (in opposing summary
judgment, a plaintiff must present evidentiary material sufficient to allow him to carry his burden
of proof); United States ex rel. Kelly v. Serco, Inc., 846 F.3d 325, 330 (9th Cir. 2017) (“To
survive summary judgment, the relator must establish evidence on which a reasonable jury could
find for the plaintiff.”). The underlying substantive law governs whether a factual dispute is
material; irrelevant factual disputes do not preclude summary judgment. Carroll v. Lynch, 698
F.3d 561, 564 (7th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

12

A factual dispute is genuine when “the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Id.
As relevant here, 31 U.S.C. § 3729(a) imposes liability on any entity that: (1) knowingly
presents, or causes to be presented, a false or fraudulent claim for payment or approval; (2)
knowingly makes, uses, or causes to be made or used, a false record or statement “material to a
false or fraudulent claim; [or] (3) “conspires to commit a violation of” any part of § 3729(a). 4
There is no dispute here that the Medicaid reimbursement requests submitted by the pharmacies
are “claims” within the definition of the FCA. 31 U.S.C. § 3729(b)(2)(A).
Par seeks judgment principally on the ground that the plaintiffs have not proved “the
essential element of falsity.” Par Reply 2, ECF No. 375. More specifically, Par seeks summary
judgment on the basis that the plaintiffs cannot prove that Walgreens or Omnicare submitted any
“false” claim for reimbursement based on their dispensing any of Par’s drugs. Id. at 1. Par
contends that the claims were not “false” under the FCA and that the plaintiffs failed to adduce
evidence of any particular claims that were submitted about drugs proven to have been switched
to a Par subject drug without physician approval, medical necessity, and/or cost-effectiveness.
Since Par expressly disclaims any other bases for summary judgment, none will be considered
here. To survive Par’s summary judgment motion, then, the plaintiffs must be able to point to
evidence from which a reasonable jury could conclude that the pharmacies made a false
statement in order to obtain reimbursement from the government for dispensing the subject
drugs. United States ex rel. Sheet Metal Workers Int'l Ass'n, Local Union 20 v. Horning
Investments, LLC, 828 F.3d 587, 592 (7th Cir. 2016). See also Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986) (“Federal rules “mandate the entry of summary judgment, after adequate time
4

The citation is the FCA as amended in 2009, because § 3729(a)(1)(B) applies to cases
pending on or after June 7, 2008. See Yannacopoulos, 652 F.3d at 822 n.2
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for discovery and upon motion, against a party who fails to make a showing sufficient to
establish the existence of an element essential to that party’s case, and on which that party will
bear the burden of proof at trial.”).
A.

The Reimbursement Requests Were Not “False Claims” Under the FCA

In arguing that the claims at issue in this case were not false as a matter of law, Par
contends that the claim forms contained no false or misleading representations. Par also
challenges the evidentiary basis for the plaintiffs’ claims, arguing that there is no evidence that
physician approval had not been obtained for the claims at issue, 5 nor that the switching violated
the regulations pertaining to medical necessity and cost-effectiveness.
1.

Intervening change in the law governing the FCA

After Par’s motions were filed and briefing was under way, the legal landscape changed
significantly in this Circuit. The development pertains to two theories of falsity under the FCA:
false certification and implied false certification—in essence, falsity resulting from express
misrepresentations or from misrepresentation by omission.
When Par first moved for summary judgment, the Seventh Circuit had not accepted the
implied-false-certification theory of FCA liability, and before the plaintiffs filed their joint
5

The government sidesteps this argument by branding it irrelevant. In apparent
acknowledgment that record evidence supports the conclusion that physician approval was
requested in some cases, the government contends that any such requests were pro forma and
any approvals were unknowing—and, further, that “physicians cannot bilk Medicaid any more
than pharmacies can.” Mem. 29, ECF No. 369. This appears to be a concession that the
government does not have a claim-by-claim accounting of which claims are for drugs that were
switched with, or without, physician approval. Perhaps it is because of this void that the
government does not argue that the claims at issue in this case were false because physician
approval was absent in states where it was required; instead, the government focuses on the
reimbursement inflation resulting from dispensing drug forms and dosages that were not
medically necessary or economical. See, e.g., Pls. Supp. 8, ECF No. 398 (“each claim form
omitted information that directly impacted payment: that the drug was originally prescribed in a
different dosage form or strength that could have been filled for much less money; and that the
claim was submitted as part of a systematic switching scheme”).
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response brief, it rejected the theory outright. United States v. Sanford-Brown Ltd., 788 F.3d 696,
711-12 (7th Cir 2015) (Sanford-Brown I). This was a boon to Par, to the extent that it had cast
the plaintiffs’ legal theory as implied false certification, and the plaintiffs’ response gave unduly
short shrift to that new and controlling precedent from the Court of Appeals for this Circuit. 6
But Sanford-Brown I was not long for this world; its core holding that there is no implied
false certification theory of FCA liability was rejected by the Supreme Court only a year later in
Universal Health Services, Inc. v. United States and Massachusetts ex rel. Julio Escobar, 136 S.
Ct. 1989 (June 16, 2016) (“Escobar”). The Supreme Court expressly recognized in Escobar the
viability of a theory of implied false certification in FCA cases “in some circumstances.” Id. at
1999. Specifically, the Court held that “when . . . a defendant makes representations in
submitting a claim but omits its violations of statutory, regulatory, or contractual requirements,
those omissions can be a basis for liability if they render the defendant’s representations
misleading with respect to the goods or services provided.” Id. (emphasis added). To embody
6

Sanford-Brown I was decided about three-and-a-half weeks before the plaintiffs filed
their response brief and seriously wounded their FCA claim. Disappointingly, and in a lapse the
Court assumes was the product of inadvertence in the face of the advancing deadline for filing
their brief, the plaintiffs both mischaracterized and failed to meaningfully engage with SanfordBrown I in their response brief. See ECF No. 369. In a perplexing statement at page 35 of their
brief, the plaintiffs assert that in Sanford-Brown I, “[t]he court found that compliance (or lack of
compliance) with the regulations . . . had no direct impact on the amount of government
payment, and thus was not actionable.” The case said no such thing. The opinion did not discuss
any distinction between regulatory violations that affect the amount of payment and those that do
not, which may explain why the plaintiffs’ brief includes only a general cite to the portion of the
opinion that deals with the implied certification issue, rather than a pin cite to a page of the
opinion where that purported holding is actually set forth. Had the Seventh Circuit actually said
in Sanford Brown I that regulatory violations affecting the amount of payment sought from the
government are actionable absent an express misstatement on the claim form, the government
certainly would have featured that holding front and center in its response brief rather than
burying it in a three-sentence paragraph more than 30 pages in. The plaintiffs’ characterization is
all the more perplexing because elsewhere they did, albeit haltingly in a footnote, acknowledge
that Sanford Brown I rejected the implied certification theory, at least in cases not involving
express “conditions of payment.” Pl. Mem. 40 n.13, ECF No. 369. (As will be discussed,
Escobar subsequently eliminated that potential distinction).
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this principle, the Court set forth two conditions for an implied-certification claim: “first, the
claim does not merely request payment, but also makes specific representations about the goods
or services provided; and second, the defendant’s failure to disclose noncompliance with
material statutory, regulatory, or contractual requirements makes those statements misleading
half-truths.” Id. at 2001. Addressing the concern of opening the flood gates to many more FCA
claims by recognizing an implied falsity cause of action, the Court explained that its decision
would keep claims appropriately cabined because the FCA still imposes “rigorous” requirements
with respect to scienter and materiality. Id. at 2002.
Escobar was decided at the pleadings stage and did not address the question of whether
all claims for payment “implicitly represent that the billing party is entitled to payment” because
it was clear on the alleged facts of that case that the claimant did more than demand payment; it
made certain representations about the services provided while omitting “critical qualifying
information” about those services. Id. at 2000. Specifically, the mental health services facility in
question was alleged to have violated the FCA by submitting reimbursement claims displaying
codes for specific services provided by specific types of qualified professionals, when in fact
services (such as counseling and the prescribing of medications) were provided by unlicensed or
unqualified personnel. The Court held that the claims submitted were not simply demands for
payment but also included representations about what kind of provider performed the treatments
for which payment was sought. Thus the omitted information—that these providers were not
appropriately trained and licensed to provide the treatment under Massachusetts Medicaid
regulations—rendered

those

representations

“misrepresentations.” 136 S. Ct. at 2000-2001.

16

misleading

half-truths,

and

therefore,

Escobar changed the framework of this case, first, by vitiating Par’s argument that no
relief can be obtained under an implied false-certification theory in this Circuit. It also did away
with Par’s argument that only an undisclosed violation of “an express condition of payment” can
be “material” the government’s decision to pay a claim. See, e.g., Par Mem. 19-23, ECF No. 359.
The Court held, to the contrary, that “[w]hether a provision is labeled a condition of payment is
relevant but not dispositive of the materiality inquiry.” 136 S. Ct. at 2001. (Accordingly this
Court does not address that argument of Par’s any further.)
Despite these developments, the plaintiffs do not unabashedly embrace Escobar either.
Having attempted to avoid primary reliance on a theory of implied false certification in their
response brief (filed when Sanford-Brown I was good law), in their supplemental brief, the
plaintiffs downplay the significance of Escobar to the element of falsity under their theory of the
case, which they say is not one of implied false certification at all. The plaintiffs argue instead
that the FCA is per se violated when a provider “overcharges” the government or “inflates” a
claim by “select[ing] the more expensive treatment to increase government reimbursement, for
no additional medical benefit to the patient.” Pls. Resp. 2, ECF No. 269. The plaintiffs say it is
obvious that the government was defrauded if Par “intentionally and systematically caused
claims to be submitted and paid by Medicaid for Par’s higher-reimbursed medications that
offered no additional medical benefits than the dosage forms originally prescribed.” USA Resp.
34, ECF No. 369. In other words, the plaintiffs assert that a facially accurate and non-misleading
claim is nevertheless false or fraudulent within the meaning of the FCA if there are underlying
regulatory violations with a direct nexus to the government’s decision to pay the claim. As
discussed immediately below, however, that is not what Escobar says. And prudently, the
plaintiffs also argue that, alternatively, their claims survive under the implied false certification

17

theory. That battle is at least pitched on the correct field, but the outcome still favors the
defendants.
2.

The Plaintiffs’ “Direct Nexus” Theory of FCA Liability is Untenable

The plaintiffs’ argument that their case falls outside the implied false certification
framework is unpersuasive. See Pls. Suppl. 1, ECF No. 398. In arguing that Escobar has no
effect on their core argument, they essentially request strict liability on the premise that charging
more than the lowest possible rate is by definition a false claim because doing so “directly affects
payment.” Id. at 6. The plaintiffs argue that, unlike here, implied certification was a necessary
theory in Escobar because the regulatory violations in that case did not pertain to payment. Id.
This argument is difficult to understand. The Court fails to see how this case is meaningfully
different from the situation presented by Escobar, where violations of licensing regulations led to
the provision of care for which no reimbursement should have been available. If that is not an
“overcharge,” what is?
Notably, the plaintiffs provide no authority for drawing this untenable distinction.
Moreover, their broad interpretation of the FCA, under which liability arises whenever there is a
“direct nexus” between a fraudulent scheme and inflated payments by the government, Resp. at
24, ECF No. 369, is inconsistent with Escobar, which expressly reiterated what the Court had
said before: “The False Claims Act is not ‘an all-purpose antifraud statute.’” 136 S. Ct. at 2003
(quoting Allison Engine, 553 U.S. at 672). “[E]ven when a relator can prove that a defendant
engaged in fraudulent conduct affecting the government, FCA liability attaches only if that
conduct resulted in the filing of a false claim for payment from the government.” United States
ex rel. Booker v. Pfizer, Inc., 847 F.3d 52, 57 (1st Cir. 2017) (affirming grant of summary
judgment against relator who offered only aggregate data to connect a fraudulent scheme to bill

18

for off-label (non-FDA approved) uses of drugs to the submission of false claims) (internal
quotation marks omitted). The sine qua non of an FCA claim is the submission of a claim that is
actually false. Id. And as one court has explained, the “paradigmatic” false claim is “an incorrect
description of the goods or services provided or a request for reimbursement for goods or
services never provided.” United States ex rel. McBride v. Halliburton Co., 848 F.3d 1027, 1031
(D.C. Cir. 2017) (citations omitted); see also United States ex rel. Presser v. Acacia Mental
Health Clinic, LLC, 836 F.3d 770, 779 (7th Cir. 2016) (identifying these forms of misdescription
as causing claims to be false). Thus, to prove an FCA claim, a plaintiff “must show (1) that the
defendant made a statement in order to receive money from the government; (2) that the
statement was false; and (3) that the defendant knew the statement was false.” United States ex
rel. Hanna v. City of Chicago, 834 F.3d 775, 778 (7th Cir. 2016). As Escobar teaches, the effect
that a representation has on the government’s decision to pay a certain amount pertains to the
issue of materiality, rather than the falsity of the claims themselves. 136 S. Ct. at 2002. The
plaintiffs’ “direct nexus” theory thus conflates two distinct elements of an FCA claim—falsity
and materiality—into a single inquiry and in the process does away with the requirement of a
false statement in connection with the claim.
Relying on Marcus v. Hess 7 and nonprecedential district court cases, the plaintiffs
contend that “Courts have consistently held that a claim for payment that overcharges the
7

Hess, of course, has been superseded by amendments to the statute. Indeed, it
precipitated an amendment because, as the Seventh Circuit described, the case “held that a
relator could bring a qui tam action based entirely upon information contained in an indictment
to which he had contributed nothing.” United States v. Bank of Farmington, 166 F.3d 853, 858
(7th Cir. 1999) overruled by Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir.
2009). “Congress amended the statute to preclude actions ‘based on evidence or information the
government had when the action was brought.’” Id.

19

government, or charges for unnecessary services, is a false claim for purpose of the FCA without
further inquiring whether the defendant violated a regulation or made a false certification.” Pl.
Mem. 24, ECF No. 369; Pl. Supp. 5, ECF No. 398. That is not an accurate characterization. In
Hess, 317 U.S. 537 (1943), the Supreme Court held that the FCA applied in the context of a bidrigging scheme that resulted in the submission of inflated claims because of the non-competitive
nature of the bids. Id. at 543 (“The government’s money would never have been placed in the
joint fund for payment to respondents had its agents known the bids were collusive.”). “[E]very
swollen estimate which was the basic cause for payment of every dollar paid by the [United
States] into the joint fund for the benefit of respondents. The initial fraudulent action and every
step thereafter taken, pressed ever to the ultimate goal—payment of government money to
persons who had caused it to be defrauded.” Id. at 543-44. The plaintiffs here say that Hess
stands for the proposition that “a fraudulent demand which inherently causes the government to
pay more than it should is a false claim under the FCA.” But there is no such thing as “inherent”
fraud; fraud requires a misrepresentation (whether affirmative or by omission). U.S. ex rel. Main
v. Oakland City Univ., 426 F.3d 914, 917 (7th Cir. 2005) (“fraud . . . requires more than breach
of promise: fraud entails making a false representation”).
Hess, which did not address this question, does not suggest otherwise. The Court did not
rely on the “inherent” fraudulent nature of bid-rigging; it relied on the fact that the defendants
had falsely implied that the bidding process was competitive. See Hess, 317 U.S. at 543 (“many
if not most of the respondents certified that their bids were ‘genuine and not sham or collusive.’);
539 n.1 (describing the collusive and “private” bidding scheme). In short, in Hess, the claims
submitted were fraudulent because the Court determined that they misrepresented by omission

20

that the bidding process was fair. See also United States ex rel. Blaum v. Triad Isotopes, Inc.,
104 F. Supp. 3d 901, 915 (N.D. Ill. 2015) (bid-rigging is a form of fraudulent inducement).
Thus, restraining competition in a competitive bidding process is fraudulent not because
it “inherently” raises costs, but because it involves a representation that there was competition
when in fact there was none. It is simply not true that the Hess Court did not care “whether the
defendant violated a regulation or made a false certification.” Under current law, Hess would be
considered an implied false certification case: the defendants misled the government by the
implication or certification that bidding competition occurred when in reality the process was
rigged. Escobar provides the framework for the evaluation of such claims.
The plaintiffs’ “direct nexus” theory, moreover, has no support in precedent from this
circuit and it is inconsistent with cases like Thulin v. Shopko Stores Operating Co., LLC, 771
F.3d 994, 999–1000 (7th Cir. 2014), where the Seventh Circuit affirmed the dismissal of FCA
claims concerning a scheme to overcharge Medicaid by billing Medicare at rates higher than
those paid to private insurers for the same drugs. In Thulin, as here, the claim was that
pharmacies systematically exploited price differentials to maximize their reimbursement from
Medicaid, but the Court of Appeals rejected the argument because, notwithstanding the fact that
Medicaid was overcharged by the scheme, there was no basis to conclude that any false
information had been included with the reimbursement claims and the defendant “was not
obligated to inform Medicaid of [the lower rates] and was permitted to bill in the fashion that it
did.” 771 F.3d at 999. See also, e.g., U.S. ex rel. Absher v. Momence Meadows Nursing Ctr.,
Inc., 764 F.3d 699, 709–10 (7th Cir. 2014) (overpayment for services did not give rise to FCA
liability; “a ‘diminished value’ of services theory” does not give rise to an FCA claim). Thulin’s
rationale (which the plaintiffs ignore in favor of non-binding and largely pre-Escobar authority)

21

cannot be squared with the plaintiffs’ “direct nexus” theory that anything that inflates the
reimbursement amount, causing unnecessary overpayment, is actionable as a “false claim.” See
Pls. Mem. 24-26, ECF No. 369.
The “anything” matters—for example, using a false AWP, as in United States ex rel.
Ven-A-Care v. Actavis Mid Atlantic LLC, 659 F. Supp. 2d 262, 271 (D. Mass. 2009). The AWP
capped reimbursements in this case, too, but here, unlike in Ven-A-Care, the plaintiffs do not
allege that the pharmacies or Par falsified the AWP or in any other way billed more for Par’s
drugs than the Medicaid regulations allowed. Cases cited by the plaintiffs regarding “up coding”
or “up charging” similarly miss the mark. Again, the falsity in such cases relates directly to
information represented on the claim form: e.g., that a certain type of provider performed
expensive services when he or she had not, or performed services that were not medically
indicated. The mere existence of a treatment with a lower reimbursement rate, in itself, does not
equate with a false claim, no matter what other law or regulation it might violate to provide the
more expensive one. Had the plaintiffs any binding authority for their contrary proposition,
certainly they would have highlighted it.
Notwithstanding their advocacy for a “direct nexus” theory of false claim liability, the
plaintiffs have consistently framed their claims in a way that cannot be meaningfully
differentiated from the implied false certification theory. The plaintiffs alleged in their
complaints and continue to contend that Par caused the pharmacies to submit claims for
reimbursement, which, while facially truthful with respect to the goods provided and their cost,
were false because the pharmacies had omitted the information that: (i) they had substituted
forms or dosages to maximize their profit; (ii) they had violated requirements that drugs to be
provided “economically”— i.e., at the lowest cost to Medicaid, according to the plaintiffs; and

22

(iii) the switch was not “medically necessary.” The fraudulent, or false, nature of the claims
results from the omission of information that is allegedly necessary to make the statement set
forth on the claim (essentially, “PHARMACY paid $X for Drug Y which was dispensed to
Customer Z on DATE”) not misleading. That claim is therefore “fraudulent” only by its alleged
implication that it was proper under the Medicaid regulations to dispense Drug Y to Patient Z.
The falsity, if any, lies only in the omission of information that would render the representations
about the dispensed drugs (the “goods or services provided”) misleading. See Pls. Resp. 38, ECF
No. 369. (“The point is that the fields that do exist on the claim forms, including National Drug
Codes (“NDCs”) identifying the Par Subject Drug, should not have been filled in with a Par
Subject Drug at all, as that choice was not medically necessary or economical.”). Thus, Escobar
provides the appropriate legal framework for assessing the merits of Par’s summary-judgment
motions on the FCA claims.
3.

Under Escobar the Claims at Issue Are Not Impliedly “False”

Careful not to put all their eggs in their “direct nexus” basket, the plaintiffs argue that
even if the Escobar test applies, their claims succeed under an implied false certification theory,
too. Under Escobar, the two conditions for an implied-certification claim are that, “first, the
claim does not merely request payment, but also makes specific representations about the goods
or services provided; and second, the defendant’s failure to disclose noncompliance with
material statutory, regulatory, or contractual requirements makes those statements misleading
half-truths.” 136 S. Ct. at 2001.
The plaintiffs first contend that the claim forms contained misleading half-truths because
they set forth the drug dispensed and the dosage form and strength but omitted the critical
information that “directly impacted payment,” namely that “the drug was originally prescribed in

23

a different dosage form or strength that could have been filled for much less money; and that the
claim was submitted as part of a systematic switching scheme, the purpose of which was to bill
the government for more money in direct violation of specific regulations requiring providers to
provide only goods and services that are ‘economical’ and ‘medically necessary.’” Pl. Supp. 8,
ECF No. 398. Second, the omission was material because it “went to the heart of the
government’s bargain” and any reasonable person would attach importance to the facts that
lower-cost drugs were available, that the switch was done with a profit motive, and that the
switch had been, at best, only superficially approved by a physician. Id. at 11.
Unsurprisingly, even though Par now acknowledges the implied-false-certification theory
as valid, it contends that the case against it fails the Supreme Court’s two-part test as a matter of
law. First, it contends that the claim forms were facially truthful and that no representations were
made at all beyond the accurate statement of what drug was dispensed and the amount owed, as
set by the Medicaid agencies themselves. Par Suppl. 6, ECF No. 399. Par argues that the
description of the drug dispensed is not a representation of compliance with any statutory
requirements, nor does it represent that the drug dispensed is the one originally prescribed. It
further contends that any representations on the claim form were not rendered misleading by the
pharmacies’ omission information that they had no obligation, under the regulations, to provide.
Par also argues that the record is devoid of evidence that any misrepresentation was material to
the government’s decision to pay the claims.
Par submitted further supplemental authority after Escobar. When the Supreme Court
remanded the Sanford-Brown case (which had rejected the implied false certification theory) to
the Seventh Circuit for reconsideration in light of Escobar, the Court of Appeals once again
affirmed the judgment against the relator. United States v. Sanford–Brown, Ltd., 840 F.3d 445

24

(7th Cir. 2016) (“Sanford-Brown II”). The relator had claimed that his former employer,
Sanford-Brown College and its corporate parents, submitted claims certifying compliance with
all applicable laws and regulations when in fact they had “violated provisions that: i) prohibited
them from paying incentive compensation to certain types of employees involved in admissions
and recruiting; ii) required them to maintain accreditation; iii) required them to refund to the U.S.
Department of Education portions of Title IV funds for certain students who failed to complete at
least 60% of a term; iv) prohibited them from harassing students to attend class; v) required
students who received Title IV funds to maintain a minimum GPA or other adequate progress
towards graduation; and vi) prevented them from admitting students with remedial needs into
accelerated programs.” United States v. Sanford-Brown, Ltd., 788 F.3d 696, 702 (7th Cir. 2015).
Applying the new rule of Escobar, the Seventh Circuit concluded that the relator failed to
establish either condition for a successful implied false certification claim. Sanford–Brown II,
840 F.3d at 447. First, there was no proof that any representations were made in connection with
the claims for payment; in other words, the defendants did nothing more than request a
disbursement. Second, the relator “offered no evidence that the government's decision to pay
SBC would likely or actually have been different had it known of SBC's alleged noncompliance
with Title IV regulations”; and indeed, the payer-agency had already examined SBC’s practices
multiple times and declined to impose any penalties. Id. (citing Escobar, 136 S.Ct. at 2003 for
the proposition that a representation is unlikely to be material where the government pays claims
with actual knowledge of regulatory violations). This discussion in Sanford-Brown II, though
brief, is highly instructive as to how Escobar applies in this case.

25

a.

Representations About the Goods or Services Provided

The first question is what “specific representations about the goods and services
provided,” if any, were made in the claims the pharmacies submitted for reimbursement for
dispensing Par’s subject drugs. The Supreme Court did not elucidate what it meant by a “specific
representation about the goods and services provided,” and as noted above, it expressly deferred
the question “whether all claims implicitly represent that the billing party is legally entitled to
payment.” Escobar, 136 S. Ct. at 2000 (emphasis added). But by way of example, in Escobar,
the facility “used payment codes corresponding to different services [than] its staff provided,”
and represented by way of National Provider Identification numbers that qualified practitioners
had provided the services, when in fact they lacked the credentials and licensing required by law.
136 S. Ct. at 1997. Therefore, the claim forms had made “specific representations about the
goods and services provided,” i.e., the codes corresponding to the service and the provider. In
Escobar, inclusion of the provider identification numbers meant that the claims effectively
stated: “for these specific services rendered by this kind of licensed professional, X amount is
due.” Therefore, the claims did “more than merely demand payment.” Id. at 2000.
So too in Presser. In that case (also on review of a motion to dismiss), the Seventh
Circuit concluded that the claims at issue represented, by way of a billing code on the forms, that
a “full psychological assessment[] by a therapist or an evaluation by a psychiatrist” had taken
place. In reality, the facility had discontinued psychiatric evaluations; furthermore, the code was
used by practitioners unqualified to perform the designated service. The Seventh Circuit
concluded that because the clinic billed Medicaid “for a completely different treatment” than
what was provided, the claims made express false statements, not just representations rendered
misleading by the omission of material information. 836 F.3d at 779. Although the Court of

26

Appeals did not treat it as an implied false certification case per se, Presser does elucidate the
Court’s view of what is meant by a “specific representation” under Escobar. As in Escobar, the
court looked not merely the existence of a claim for payment, but a representation about a good
or service provided in connection with the claim. Only after identifying such a representation—
the billing codes—did the court go on to evaluate whether that representation was a false
statement, expressly or implicitly.
By contrast, a simple demand for payment does not constitute a “specific representation
about the goods and services provided.” In Sanford Brown II, the Seventh Circuit reaffirmed the
denial of the plaintiff-relator’s summary judgment motion where he had “offered no evidence
that defendant Sanford Brown College (SBC) made any representations at all in connection with
its claims for payment.” 840 F.3d at 447 (emphasis added). In other words, the “claims for
payment” were not themselves “specific representations.” Even if the issue was simply the
plaintiff-relator’s failure to meet the burden of proof, the quoted statement makes clear that an
unadorned claim for payment is distinct from the “specific representation about the goods or
services provided” that Escobar requires.
In this case, the plaintiffs do not identify with precision any “specific representation” that
they claim was rendered a misleading half-truth by the omission of material facts. The closest
they come to pinning down a specific “representation” is to point to information on the claim
forms “including” the National Drug Codes. Pls. Resp. 38, ECF No. 369. The vague usage of
“including” is at odds with Escobar’s call to identify “specific” representations that implicitly
render a claim false, and the plaintiffs compound the problem when they argue that the claim
forms were misleading half-truths because they described the goods provided without providing
“critical information about their material noncompliance with certain statutory and regulatory

27

requirements.” Pls. Suppl. 8, ECF No. 398. Each claim form, they maintain, “omitted
information that directly impacted payment: that the drug was originally prescribed in a different
dosage form or strength that could have been filled for much less money; and that the claim was
submitted as part of a systematic switching scheme, the purpose of which was to bill the
government for more money in direct violation of specific regulations requiring providers to
provide only goods and services that are ‘economical’ and ‘medically necessary.’” Id. Thus, it is
clear that the plaintiffs are primarily concerned with the whether it was permissible to dispense
the subject drugs at all, not with whether there was a false representation about the drugs, their
cost, or the quantity dispensed.
That is a non-starter. Before Escobar, it was clear in this circuit that “it is not enough
to . . . prove that the pharmacy engaged in a practice that violated a federal regulation” because
“[v]iolating a federal regulation is not synonymous with filing a false claim.” United States ex
rel. Grenadyor v. Ukrainian Village Pharmacy, Inc., 772 F.3d 1102 (7th Cir. 2014) (emphasis
added); see also United States ex rel. Crews v. NCS Healthcare of Illinois, Inc., 460 F.3d 853,
858 (7th Cir. 2006). In Crews, the defendant submitted vouchers to the Department of Public Aid
for payment for drugs distributed to Medicaid patients; the dispensing of the drugs was “akin to
alleging the double-billing of the IDPA (and Medicaid) for drugs” because returned drugs were
(allegedly) redispensed and billed again by virtue of the defendants’ violations of numerous
regulations related to the storage and handling of the pills. Notwithstanding the potential for
double billing, these violations did not render the vouchers false claims because a voucher “[did]
not turn into a false claim under the FCA just because NCS stored or handled the drugs
improperly.” 460 F.3d at 858. There is no reason to think that Escobar changed this principle
somehow—to the contrary, it expressly declined to address it.

28

The government’s emphasis on the fact that, here, the regulatory violations directly
affected the payment amount does not make the claims at issue in this case any more “false” than
the ones addressed by the Seventh Circuit in Grenadyor and Crews. In Grenadyor, the Seventh
Circuit distinguished between a false claim and an unauthorized billing—something that would,
of course, “directly affect” the amount paid by Medicaid—and concluded that they are not the
same thing. 772 F.3d at 1005. Presser reaffirmed that this proposition retains its vitality postEscobar. Even assuming violations of the “medically necessary” and “economical” regulations
in this case, those violations might lead to “unauthorized billing,” but they do not, without some
“specific representation,” make the submitted claims “false.”
In this case, the claim forms, by law, are standardized; the federal and state agencies
require the same information and certification on their forms. Notably, that information does not
include any affirmation or statement that the claimant has complied with all applicable laws and
regulations. 8 Generally, the claim forms require certification by the pharmacy (or the prescriber)
that the form contains “true, accurate, and complete” information and that the pharmacy
8

It is true that as a condition of enrollment in the Medicaid program, the pharmacies
were required to certify that they would follow all applicable laws and regulations. But the
enrollment paperwork on which this certification is made is not a claim for payment and is not
the subject of the FCA claims here; the reimbursement forms are alleged to contain the
actionable false representations. True, an FCA claim can be premised on a two-step certification,
such as when a as a condition of participation in a government-reimbursement program, some
promise is made, and then a facially accurate claim is submitted after that promise has been
violated. See Main, 426 F.3d at 916 (explaining that a false statement “integral to the causal
chain leading to payment” can lead to liability even if the federal bureaucracy “apportion[s] the
statements among layers of paperwork.”). In such cases, a participant in a federal funding
program may be subject to liability if, at the time of enrollment, that participant certified that it
would comply with pertinent laws or regulations despite having no intention to do so. Id. at 917;
Grenadyor, 772 F.3d at 1105. But if the defendant intended to comply at the time of enrollment,
but later did not, it has not committed fraud; it has breached a contract. See Main, 426 F.3d at
917 (“A university that accepts federal funds that are contingent on following a regulation, which
it then violates, has broken a contract” and not committed an “actionable fraud.”).
Here, the plaintiffs do not advance a theory of fraudulent inducement.
29

“understand[s] that any payment made in satisfaction of this claim will be derived from federal
and state funds and that any false claims, statements, or documents, or concealment of material
fact may be subject to prosecution.” 9 See Pl. Response SOF ¶ 51, ECF No. 370; Pls. Mem. 3,
ECF No. 369.
If the statements in the certification block constitute “specific representations about the
goods or services provided” at all, none of them are the focus of the plaintiffs’ arguments, which
rest instead on the inflated cost of drugs that the plaintiffs say should not have been dispensed at
all. The plaintiffs do argue that “[t]he claim forms [require] the provider to certify that it has told
the entire truth and concealed nothing material about its claim from the government.” Pls. Mem.
39, ECF No. 369; see also p. 45 (“the providers falsely certified in the claim forms themselves
that they were telling the whole truth.”). But whether the pharmacies told the whole truth—
everything the FCA would require—is the entire question that is raised by Par’s motions
targeting the element of falsity, i.e., whether the providers falsely implied anything about the
goods or services provided or were required to provide more information.
b.

Representations as Misleading “Half Truths”

Absent any specific misrepresentation on the face of the claims, the plaintiffs must
identify omitted information that renders the description of the dispensed drugs misleading.
According to the plaintiffs, two things were omitted that directly impacted the payment: “that the
drug was originally prescribed in a different dosage form or strength that could have been filled
for much less money” and that “the claim was submitted as part of a systemic switching scheme,
the purpose of which was to bill the government for more money in direct violation of the

9

Again, Par does not take issue with the plaintiffs’ characterizations of the standard
certifications that appear on claim forms, and neither party asks the Court to focus on any
distinctions in wording among the federal and various states governments’ claim forms.
30

specific regulations requiring providers to provide only goods and services that are “economical”
and “medically necessary.”
There is little basis to infer that a pharmacy’s Medicaid reimbursement claim constitutes
a representation that the drug for which reimbursement is sought was the drug originally
prescribed for the patient. For starters, the claim form does not require the reporting of any
information about the form or dosage originally prescribed—only what was actually dispensed.
Nor does it require confirmation that the drug dispensed was the lowest cost alternative available
in the market—just the government’s reimbursement rate for the drug that was provided. That
the government claim forms do not require the submission of this information suggests that its
omission does not render the provision of the required information misleading. In Thulin, for
example, the Seventh Circuit considered and rejected FCA claims based on reimbursement forms
that did not require information about whether the patient was subject to a dual-copay, finding
the absence of a request for such data on the claim form to be “compelling evidence” that the
defendants “did not have an obligation to submit co-pay information to Medicaid. If they did,
one would think that such an obligation would have been incorporated into the billing protocol
that they were legally required to use.” 771 F.3d at 1000. If pharmacies were required to identify
whether the drug dispensed was the drug originally prescribed, one would expect that the
Medicaid agencies would require them to say so on their reimbursement forms. But they don’t.
“Omissions are actionable as implied representations when the circumstances are such
that a failure to communicate a fact induces a belief in its opposite.” Midwest Commerce
Banking Co. v. Elkhart City Ctr., 4 F.3d 521, 524 (7th Cir. 1993). Here, the claims at issue
provide no basis to infer that the drug dispensed was the drug originally prescribed. As Par
points out, given the plethora of state laws and regulations that govern the dispensing of

31

prescription medications, there may be many reasons why the drug actually dispensed may differ
from the drug originally prescribed. Dosage strength and form substitution are permitted upon
authorization of the prescribing physician, and there may be a variety of reasons pharmacies seek
such authorization, ranging from patient preferences for one form over another (e.g., tablets
versus capsules), promoting patient compliance with medication regimens by minimizing the
need to split doses or reducing the number of required doses to pharmacy inventory constraints.
See Par. SMF ¶¶ 9-11, ECF No. 364. And under some circumstances, state laws require
substitution of generic drugs where such substitution would lower the price of the drug. See, e.g.
Ind. Code § 16-42-22-10(a) (1999). In short, the possibility that the drug dispensed differs in
some fashion from the drug prescribed is pervasive; it exists for virtually every transaction
between pharmacy and patient. In that light, a pharmacy’s reimbursement claim cannot
reasonably be read as an affirmation that the drug for which reimbursement is claimed was the
drug originally prescribed and a pharmacy does not commit fraud by failing to affirmatively
report such substitutions when they occur. And, again, how would they make such reports when
the form required by state and federal Medicaid agencies does not even seek that information? 10

10

The plaintiffs identify no authority supporting their theory that simply listing the drug
dispensed implies that it was the precise form and dosage strength originally prescribed. They
might have cited, but did not, Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust
v. Walgreens Company, 631 F.3d 436 (7th Cir. 2011), which addressed a fraud claim in the
context of the very prescription-switching activity that is the subject of this case. Drawing from
the existing qui tam action against Walgreens, a third party payer (“TPP”) (in this case, the
functional equivalent of Medicaid) sued Walgreens under the Illinois Consumer Fraud and
Deceptive Business Practices Act (ICFA), arguing that it had overcharged the TPP by filling
prescriptions for ranitidine and fluoxetine with Par’s more expensive forms of those generics. As
summarized by the Seventh Circuit, “Each time it filled a prescription, the theory goes,
Walgreens represented to the [pharmacy benefits manager, a middleman in the transaction] that it
had received a prescription for the costly form of the drug; the PBM passed on the
misrepresentation to Pirelli, who then reimbursed Walgreens at the more expensive AWP price.”
Id. at 439. On review from the granting of a motion to dismiss, the appellate court described the
complaint as alleging that “Walgreens unlawfully and intentionally concealed from Pirelli’s
32

As to the failure to disclose the existence of a profit-driven switching scheme that
violates the medically necessary and economical treatment regulations, there is no basis to infer
that the submission of a reimbursement claim includes an implied representation that the drug
dispensed was the lowest-cost drug available that could adequately address the patient’s needs.
Even granting for the sake of argument that the regulations require providers to assure that
treatment services provided are the lowest cost available, that is a far cry from a requirement that
they certify that the treatment they provided was in fact the lowest cost available. How could
they? What the plaintiffs posit is, in the context of pharmacies dispensing drugs to thousands of
patients each day, and where reimbursement rates vary from state to state and are subject to
frequent changes, and where the pharmacies’ purchases of inventory may precede the dispensing
of drugs by weeks or months, a practical impossibility. Pharmacies do not set Medicaid
reimbursement rates and have no control over them; “[w]hether a particular drug is the dosage
form with the lowest Medicaid reimbursement on the market at any given time is subject to the
discretion of the state Medicaid agency, not that of the pharmacy.” Def. Suppl, 8, ECF No. 399.
They cannot be expected to stock the drug that may have the lowest reimbursement cost at any
given point in time, and so there can be no expectation, much less implicit certification, that the

PBM, or misrepresented to it, the form of the drug that was prescribed,” and then stated: “That is
fraud predicated on either a misrepresentation or omission.” Id. (emphasis added); see also id. at
446 (“[T]he practices alleged in Pirelli’s complaint constitute fraudulent activity.”).
The Seventh Circuit took as true the assertions quoted above, but this Court must rely on
proofs. Pirelli says nothing about how the pharmacies communicated a representation about “the
form of the drug that was prescribed”; the Court simply stated that the “theory” of the case was
that “fill[ing] a prescription” was a representation. See 631 F.3d 439. This Court consulted the
complaint in Pirelli, too, and could find no description of how, as a factual matter, the pharmacy
allegedly made a false representation or omission about the drug prescribed. Here, by contrast,
we have claim forms that represent what drug was dispensed, and the very question is whether
that statement is an implication about the particular form and dosage strength prescribed. As the
plaintiffs evidently recognized (they do not cite Pirelli for this proposition), that question was
not resolved by Pirelli.
33

drug actually dispensed carried the lowest reimbursement cap. The point is not that Medicaid
regulations don’t require the provision of the lowest cost treatment that is adequate for the
patient’s needs, but only that a drug reimbursement claim cannot reasonably be construed as a
representation by the provider about the relative cost of the drug dispensed to other drugs that
were also available options.
This is all the more apparent considering that the reimbursement claims in no way
concealed that the drugs dispensed were covered by higher reimbursement rates than other
variations. The FLUs and MACs are set by the Medicaid agencies, not by the pharmacies; the
agencies therefore know which drugs are subject to those caps and which are not. The
reimbursement claim forms neither include nor omit information in a manner that could mislead
the agencies about the reimbursement rate applicable to the drug dispensed. Indeed, and as
discussed further below, in arguing that the reimbursement claim forms were misleading, the
plaintiffs effectively concede that dispensing Par’s drugs was sometimes legitimate; the
argument that the reimbursement claims were misleading rests on the premise that the agencies
could not from the claims themselves discern the legitimate from the illegitimate. Had they all
been illegitimate, it would have been enough that they claimed reimbursement for Par’s drugs.
Undressed, the plaintiffs’ argument is simply that the pharmacies never should have
dispensed the subject drugs, and to the extent that they did, they were required to self-report
regulatory violations so that Medicaid would not be misled into paying them. That argument is
precluded by the case law above holding that violating underlying regulations (an “unauthorized
billing”) is not the equivalent of filing a false claim. Omitting information from the claim form
about the course of events that led to the dispensing of a particular drug, or about its relative cost,
does not go to the truth or falsity of the representations on the claim form itself, which, as noted

34

above, is limited to the claim for payment, at the government-set rate, for the actual drug
dispensed. The undisclosed regulatory violations do not render those factual statements
misleading.
Contrast this case with Escobar and Presser. The implied and express misrepresentations
in those cases went directly to the truth of what was on the claim forms—whether the listed
treatment was provided at all or whether the treatment was inaccurately described (by way of
material omission). In Escobar, it was false to claim reimbursement under a specific code for
counseling services because (as the claim forms failed to disclose), the practitioners who
performed those services were unqualified and unlicensed. Therefore, the use of the provider
code was an implied representation that the service prescribed by that code had been performed;
and billing under that code amounted to an implied false statement by omission about the service
provided. Similarly in Presser, it was not true that psychiatric evaluations had been provided
because, well, they had not been provided. Here, by contrast, whether or not underlying
Medicaid regulations had been violated by the dosage-form substitutions, the truth of the
information on the claim forms is not implicated. What the plaintiffs are really saying is that the
claim itself misrepresents that the pharmacy is legally entitled to payment, not that there is
anything on the claim form that is false expressly or by implication.
But that is where the Supreme Court stopped short in Escobar and the Seventh Circuit
would not go in Sanford Brown II. If the submission of a claim is construed to imply that the
submitter is entitled under the applicable regulatory regime to payment of the claim, then both
Sanford Brown II and Presser would have to have been decided differently. But both cases
rejected the notion that submitting a claim equates with representing a legal entitlement to
payment, leaving us with what the Supreme Court did endorse in Escobar: omissions can be a

35

basis for liability if they render the defendant’s representations misleading “with respect to the
goods or services provided.” 136 S. Ct. at 1031 (emphasis added). The FCA “focuses on the
submission of a claim, and does not concern itself with whether or to what extent there exists a
menacing underlying scheme.” United States ex rel. Kelly v. Serco, Inc., 846 F.3d 325, 333 (9th
Cir. 2017) (quoting United States ex rel. Aflatooni v. Kitsap Phys. Serv., 314 F.3d , 1002 (9th
Cir. 2002)). The pharmacies here sought payment for the goods they provided. Where the claim
is facially accurate about the treatment provided (unlike in Escobar or Presser), the question of
whether other dosages or forms should have been provided, see Pls. Mem. 38, ECF No. 369,
pursuant to various Medicaid requirements, or whether they took part in a “menacing underlying
scheme” with Par, is different.
In essence, even assuming that the pharmacies violated Medicaid regulations pertaining
to physician authorization, medical necessity, or economical treatment, the government at most
can establish on this record that the violations occurred. That’s a compliance issue, not evidence
of the falsity of claims for payment; it is a violation of a statutory and regulatory scheme that
carries its own penalties for violations, as Par points out in connection with its materiality
arguments. See Kelly, 846 F.3d at 333 (explaining that there must be an actual claim at issue, not
merely a scheme). If the government overpaid in these cases, it was not because the claim form
misled them about what drugs had been prescribed. If substituting drug forms and dosage
strengths is unlawful it is made so by Medicaid law 11 and might give rise to liability and
penalties under other provisions of law. But the FCA is not a blunderbuss to assure the
enforcement of regulations requiring the provision of only medically necessary treatment in an

11

See, e.g., 42 U.S.C. § 1320c-5, which creates a remedial administrative process for
noncompliance with Medicaid regulations. The primary penalty is exclusion from the program—
catastrophic in the case of national pharmacy chains.
36

economical manner. Unlike the defendants in Escobar and Presser, the pharmacies did not
expressly or impliedly mislead the government about what they provided or how much it cost.
Instead, as in Sanford-Brown II, all the plaintiffs have shown is that the pharmacies submitted
bills, which are not in themselves declarations of legal entitlement to payment. 12
c.

Materiality

Even if this Court had concluded that the claims at issue were false, the question would
remain whether the omitted information (the substitution and the alleged regulatory violations)
was material to the government’s decision to pay.
The government contends that any misrepresentation that inflates the amount charged to
the government is material. Although the mere fact of overpayment boosts the case for
materiality, post-Escobar this kind of per se conclusion is untenable; the Supreme Court
expressly prescribed a holistic, fact-based approach to determining materiality. Par believes it is
entitled to judgment under that approach, although it places special emphasis on a single factor—
that the asserted violations were not “conditions of payment.” Relatedly, it argues that Medicaid
has its own enforcement scheme, strongly implying that non-payment of reimbursement claims
is not the remedy for regulatory violations, and that the repeated payments of the claims at issue
suggests a lack of materiality.
This Court need not decide the materiality question in light of its conclusion that the
claims were not false within the meaning of the FCA as interpreted by Escobar. But, even

12

If they were, the burden of overseeing Medicaid compliance would shift from the
government sponsors to the providers under a system of mandatory self-reporting. Providers, of
course, must remain apprised of current regulations, but the plaintiffs do not explain what basis
there is to require self-reporting of regulatory violations; and despite the government’s best
efforts, the FCA itself cannot be stretched to impose this requirement.
37

without this holding, materiality is a fact issue that the parties effectively put into dispute, and
this Court could not decide the facts pertinent to materiality on the summary-judgment record.
B.

The Plaintiffs Failed to Adduce Evidence of Specific False Claims

Even if the premise of the plaintiffs’ position—that claims seeking reimbursement for
drugs dispensed due to Par’s prescription-switching scheme constitute false claims under the
FCA—is accepted for the sake of argument, their FCA cause of action would still fall short on
this record because the plaintiffs have failed to proffer evidence that any particular claim was, in
fact, the product of that scheme. As noted already, the starting point for proof of an FCA
violation is the existence of a false statement used to obtain money from the government.
Par maintains, and the summary judgment record reflects, that the plaintiffs have failed to
identify even one specific claim for reimbursement for a drug that was unlawfully switched—
that is, dispensed without an original prescription or physician approval for a substitution, and in
violation of regulations requiring all treatment to be medically necessary and economical. The
plaintiffs have identified the whole universe of claims in the relevant time period where one of
the subject drugs was dispensed, and the increased marginal cost to the government of the
subject drug. But what they have not shown for any specific claim is that (1) the dispensed Par
drug was in fact a substitute for a different drug; (2) if it was, the substitution was unauthorized;
(3) the treatment was not medically necessary within the meaning of the federal or State
Medicaid regulation applicable to that claim; or (4) the subject drug was not economical or costeffective within the meaning of the applicable regulation. The plaintiffs instead appear to assume
that every time a subject drug was dispensed during the relevant time period, it was because the
pharmacy unlawfully (under plaintiffs’ theory) switched a less expensive drug to a subject drug.
Thus they contend that they in fact “point to over a million false claims.” Pl. Mem. 2, ECF No.

38

369. This unsupported argument does not claim to answer the question whether it has evidence
that each of those million claims demonstrably violated the regulations on physician approval,
medical necessity, and cost-effectiveness. See also id. at 17 (“Walgreens and Omnicare
submitted hundreds of thousands of false claims to the Medicaid program.”); Pl. Additional SMF
¶ 53, ECF No. 371 (disputed by Par).
Par also notes that the subject drugs were, at times, subject to reimbursement caps that
were lower than those applicable to the more standard forms and dosages, and that claims
submitted in those circumstances would not give rise to liability even if the evidence established
that drug substitution had occurred unlawfully (that is, violation of governing Medicaid law).
And sometimes, the subject drug was originally prescribed, in which case no switching occurred
at all. Rather than rebutting these points by pointing to other specific claims where neither of
these things was true, the plaintiffs essentially concede the argument by explaining that they are
not seeking to recover for such claims; they are not included in the universe of “false” claims the
plaintiffs have defined. See Pls. Add’l SMF ¶¶ 74-75, ECF No. 371. The acknowledgement that
their FCA claim does not encompass occasions when Par’s drug was originally prescribed, or
when the reimbursement cap applicable to Par’s drug was actually lower, might streamline the
case were it to advance to a stage at which a damage computation was required. But the
plaintiffs’ concession that there are tens of thousands of exceptions to their theory of liability13
does nothing to remedy their failure to identify even one claim containing the implicit
representations the plaintiffs allege were false. Simply put: Where is a specific reimbursement

13

“Tens of thousands” is a fair characterization given the plaintiffs’ concession that
something on the order of 10 percent of reimbursement claims based on Par’s drugs were subject
to lower reimbursement caps. Pls. Add’l SMF ¶ 74, ECF No. 371. And this says nothing of the
number of occasions when Par’s drugs were originally prescribed or a substitution was
authorized for a legitimate medical reason.
39

claim as to which the plaintiffs have adduced sufficient evidence to support a jury’s reasonable
determination that a pharmacy sought reimbursement for dispensing a subject drug that it had
substituted for another, without physician approval, and where the subject drug was neither
medically necessary nor cost effective?
There is none. Instead, the plaintiffs turn the burden of proof inside out. They need not
affirmatively demonstrate falsity on a claim-by-claim basis, their thinking goes, so long as they
can show that, for example, “there is no evidence that Walgreens pharmacists actually sought
physician approval every time, or even most of the time.” Pls. Mem. 9, ECF No. 369. It is the
plaintiffs’ burden to show that there was at least one drug reimbursement claim submitted that
was false (according to their own definition of falsity), not Par’s burden to show that every time
a subject drug was dispensed, all regulatory requirements were satisfied. Crews, 460 F.3d at 857
(rejecting argument that difficulty proving element of offense due to defendant’s lack of records
justified shifting burden of proof to defendant; argument that defendant was required to prove
lawfulness of its claims “defies common sense and the plain language of the FCA”). The
plaintiffs confess the nonspecific nature of their evidence in arguing that “All claims for Par
Subject Drugs that caused government losses are recoverable under the FCA because they were
the result of Par’s scheme to induce the submission of claims for more costly dosage forms and
strengths, for no medical benefit.” Pls. Mem. 35 n.12, ECF No. 369 (emphasis in original). There
is no support for the proposition that “all” claims causing losses were a product of the scheme.
The plaintiffs have, to be sure, marshaled substantial evidence suggesting that Par worked
closely with Walgreens and Omnicare to maximize their mutual profit by switching prescriptions
to Par’s drugs to exploit a loophole in the mechanism for regulating drug reimbursement cost.
There is competing evidence about the pharmacies’ efforts to secure physician authorization for

40

drug switching generally, and were that the issue, Par’s motion would have to be denied. But the
issue here is not whether the pharmacies always had authorization to switch to Par’s drugs, but
whether the plaintiffs have adduced evidence that any particular claim, or claims, falsely
represented that a physician had authorized the dispensing of the drug for which reimbursement
was claimed. Even if it seems statistically a near certainty that the pharmacies did not always
have physician authorization to switch to Par’s drugs, it remains incumbent on the plaintiffs to
prove that they submitted at least one specific claim that was false. But they haven’t done so.
The plaintiffs’ contention that its burden to demonstrate the falsity of each claim is relevant only
to proving damages, see Pls. Mem. 35 n.12, ECF No. 369, is a dodge; they well know that a
crucial element of their FCA claim is that a pharmacy submitted a false claim.
It should have been easy enough, at the summary judgment stage and after years of
discovery, for the plaintiffs to meet their burden to identify and prove specific false claims. But
they have failed to adduce the evidence necessary even to create a fact dispute about the bona
fides of a single specific claim. The plaintiffs have not identified any claim for reimbursement
where Par’s drug was not the originally prescribed drug. They have not presented testimony from
a single physician with respect to why he or she prescribed Par’s drug or authorized a switch to
Par’s drug. They have not established that in any instance, a subject drug was not medically
necessary. They have not shown that the subject drugs were not economical within the meaning
of the relevant jurisdiction’s laws (not every jurisdiction requires a pharmacy to dispense only
the lowest-cost drug). (Indeed, the plaintiffs do not address anywhere the variance in the proof
needed to demonstrate regulatory violations in all of the different jurisdictions in which claims
were made.) What they have established is that a reasonable jury could conclude that Par and the

41

pharmacies made significantly more money by switching prescriptions from drugs with lower
costs to Medicaid to Par’s drugs.
That is not good enough. The Seventh Circuit has repeatedly jettisoned FCA claims that
failed to identify specifically any false claim submitted to the government. In Crews, for
example, the Seventh Circuit affirmed a grant of summary judgment in favor of the defendant
pharmacies which were alleged, among other things, to have double-billed state and federal
agencies for drugs dispensed to patients where the plaintiffs failed to prove that any specific
claim was in fact a second bill for the same drugs. 460 F.3d at 857. In so holding, the Court of
Appeals rejected the notion, expressly advanced by the plaintiffs in this case, that the statistical
likelihood that false claims were submitted would suffice to satisfy the plaintiff’s burden to
prove that at least one specific false claim was submitted. Id.; see also Pls. Resp. 35 n.12, ECF
No. 369. It is not enough to say “given this scheme, surely there were false claims submitted”;
the plaintiff is required to prove that to be the case. 14 Grenadyor provides another illustration of
the point. There, the Seventh Circuit reaffirmed that proof that a pharmacy had regularly
provided kickbacks to customers failed to state a claim under the FCA where the plaintiffs had
failed to identify even a single specific claim submitted for reimbursement for drugs dispensed to
a patient that had received a kickback. 772 F.3d at 1107. Even though the scheme violated

14

None of the cases cited by the plaintiffs in support of statistical sampling stand for the
proposition that a plaintiff may dispense with proof of some actually false claim in favor of an
inference drawn from the statistical likelihood that any particular claim was false. In Rogan, the
Seventh Circuit did reject the idea that the trial judge was required to make a finding of falsity as
to every individual claim at issue, noting that “[s]tatistical analysis should suffice.” And so it
should. But to do statistical sampling, there must be statistically reliable proof of the frequency
of false claims in the sample; that is, proof that some portion of a statistically relevant sample of
claims are actually false. Statistical sampling can of course be used to provide an estimate of
total loss, but the plaintiffs here cannot get to statistical sampling because they haven’t proved
that even one claim is actually false, much less that there is a representative rate of falsity from
which the number of false claims could be extrapolated.
42

antibribery regulations, the Court of Appeals held, “violating a regulation is not synonymous
with filing a false claim.” Id. As discussed above, see 28-29, supra, there must also be proof that
a false statement was presented to the government in connection with a claim that seeks to profit
from the alleged scheme. See also, e.g., U.S. ex rel. Fowler v. Caremark RX, L.L.C., 496 F.3d
730, 741–42 (7th Cir. 2007) overruled on other grounds by Glaser v. Wound Care Consultants,
Inc., 570 F.3d 907 (7th Cir. 2009) (rejecting FCA claim where plaintiff failed “to present any
evidence at an individualized transaction level to demonstrate that [defendant] failed to provide
an appropriate refund or replacement product for a returned prescription.).
The same result must follow here. Though the plaintiffs have adduced ample evidence to
support their allegations that Par colluded with the pharmacies to switch prescriptions to Par’s
drugs for the purpose of capitalizing on higher reimbursement rates, they have failed to respond
to Par’s summary judgment motion with proof sufficient to identify any specific claim that a jury
could reasonably conclude was false. Simply put, a False Claims Act claim requires evidence
sufficient to show that a false claim was made. The plaintiffs, for whatever reason, failed to
adduce such evidence on summary judgment.
e.

Conspiracy to Violate the FCA

The federal government separately alleges a conspiracy to violate the FCA under 31
U.S.C. § 3729(a)(1)(C), which renders it unlawful to “conspire[] to commit a violation” of the
substantive provisions of the FCA. See CSCA Count IV, ECF No. 231. This claim is based
primarily on two factual allegations: (i) “Par conspired with Walgreens and other pharmacy
providers to submit false and fraudulent claims for higher priced drugs to evade the federal and
state price limits,” see id. ¶¶ 20-21; and (ii) Par marketed its drugs based on the MACs and FULs
that applied to competitors, inducing Walgreens to switch prescriptions, but that when Walgreens

43

learned it was under investigation, it requested and Par agreed, that Par would provide Walgreens
with price reductions on future transactions so that Walgreens could recoup the lost profits from
the switching scheme, see id. ¶¶ 37-49.
The claim of conspiracy to violate the False Claims Act is governed by general
conspiracy principles. United States ex rel. Durcholz v. FKW Inc., 189 F.3d 542, 545 n.3 (7th
Cir. 1999). A civil conspiracy is simply a combination of persons or entities “acting in concert to
commit an unlawful act, or to commit a lawful act by unlawful means.” See Beaman v.
Freesmeyer, 776 F.3d 500, 510 (7th Cir. 2015). Thus, as with any conspiracy, the core burden is
to prove an agreement or meeting of the minds. Durcholz, 189 F.3d at 545–46. There must be a
common purpose for there to be an FCA conspiracy, as the Supreme Court explained with
respect to the pre-2010 version of the FCA:
Under § 3729(a)(3), it is not enough for a plaintiff to show that the alleged
conspirators agreed upon a fraud scheme that had the effect of causing a
private entity to make payments using money obtained from the
Government. Instead, it must be shown that the conspirators intended “to
defraud the Government.” Where the conduct that the conspirators are
alleged to have agreed upon involved the making of a false record or
statement, it must be shown that the conspirators had the purpose of
“getting” the false record or statement to bring about the Government's
payment of a false or fraudulent claim. It is not necessary to show that the
conspirators intended the false record or statement to be presented directly
to the Government, but it must be established that they agreed that the
false record or statement would have a material effect on the
Government's decision to pay the false or fraudulent claim.
Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 672–73 (2008) (emphasis
added). 15 In assessing whether defendants involved in allegedly conspiratorial conduct shared a

15

Again, the statute was substantively amended effective 2010; the conspiracy provision
no longer refers to a conspiratorial purpose of “getting a false or fraudulent claim paid or
approved,” and so Allison Engine was superseded by statute. See United States ex rel. Garbe v.
Kmart Corporation, 824 F.3d 632, 640 (7th Cir. 2016). However, the discussion remains
relevant. The intent that is now required is “to commit a violation” of the FCA. The Supreme
44

common goal, the conspiracy’s purpose should not be defined in “too narrow or specific terms.”
United States ex rel. Miller v. Bill Harbert Int'l Const., Inc., 608 F.3d 871, 900 (D.C. Cir. 2010).
Here, the relevant question is whether the plaintiffs have sufficient evidence of a
conspiracy between Par and the pharmacies to “commit a violation of” the FCA. 31 U.S.C.
§ 3729(a)(1)(C). “[T]he sine qua non of a conspiracy is not merely knowledge but an
agreement.” United States v. Lechuga, 994 F.2d 346, 358 (7th Cir. 1993). As one court has
explained, the “paradigmatic” false claim is “an incorrect description of the goods or services
provided or a request for reimbursement for goods or services never provided.” United States ex
rel. McBride v. Halliburton Co., 848 F.3d 1027, 1031 (D.C. Cir. 2017) (citations omitted); see
Presser 836 F.3d at 779 (distinguishing between false claims that described the correct treatment
but, incorrectly described because of the provider code, and claims that are false by expressly
billing for a treatment never given.).
Par argues, first, that there were no false claims at all, and it has been determined already
that the claims at issue were not false under the implied false-certification theory of the FCA, but
that in itself is not enough to defeat a conspiracy claim. As long as there was a common goal, a
conspiracy can be proved without respect to whether the goal was ever accomplished. “The
essence of conspiracy, after all, is the agreement to commit an unlawful act; it is therefore not
necessary to show that the conspiracy succeeded in its illicit aim.” United States v. Vallone, 752
F.3d 690, 697–98 (7th Cir. 2014). So, a conspiracy to violate the FCA by obtaining payment on
false claims could be proved whether or not the submitted claims were actually false within the
meaning of the FCA or were paid by the government.
Court’s statement that “it must be shown that the conspirators intended ‘to defraud the
Government’” is equally true where the statute says there must be intent to commit an FCA
violation—for violating the FCA is just another way of saying “defrauding the government” by
submitting a false claim.
45

Par also contends that the plaintiffs lack any evidence of an agreement between Par and
the pharmacies. The government responds that Par and the pharmacies agreed to defraud
Medicaid, by way of submitting false claims, for the purpose of increasing their revenues. It cites
evidence that, before the switching scheme was implemented, Par had expressly marketed its
drugs by pointing out the unfavorable MACs and FULs applicable to its competitors’
comparable drugs and had presented financial analyses to the pharmacies that “tout[ed] the
tremendous profit opportunities.” Pls. Br. 50, ECF No. 369. Par, the government further alleges,
also offered misleading information to the pharmacies about relevant laws on substitution and
failed to discuss the regulations on medical necessity and economical treatment. 16 It also
provided financial incentives, such as rebates and discounts, to perpetuate the pharmacies’
participation.
The Seventh Circuit, in another context, has already looked at allegations of a conspiracy
between Walgreens and Par. Piggybacking on Lisitza’s qui tam lawsuits against Walgreens and
Par, a non-governmental Third Party Payer—a union health benefits fund—alleged that
Walgreens and Par engaged in a RICO conspiracy under 18 U.S.C § 1962(d) (in addition to
asserting a claim under § 1962(c)). See United Food & Commercial Workers Unions &
Employers Midwest Health Benefits Fund v. Walgreen Co. et al., 719 F.3d 849 (7th Cir. 2013).
The Seventh Circuit affirmed the dismissal of claims under Rule 12(b)(6), taking as true all the
allegations in the complaint—which, down to the description of Par’s alleged marketing
practices and Walgreens’ alleged automatic switching system—very closely mirror the
allegations in this case (as they naturally would). The Seventh Circuit concluded that the

16

If Par provided false information to the pharmacies about the legality of the scheme, as
the plaintiffs argue, see Pls. Mem. 15, ECF No. 369, it is difficult to see how that is evidence of a
knowing agreement by the pharmacies.
46

complaint failed to plausibly allege the existence of the “enterprise” required by RICO because
of insufficient allegations pertaining to coordination between Walgreens and Par. See id. at 856.
This case, of course, is far beyond the pleading stage and is subject to a different
standard. The framework of the Seventh Circuit’s analysis, however, still suggests what a
plaintiff would be required to plead and, ultimately, prove to succeed on a conspiracy claim in
this context. Notably, the Court examined whether it would be reasonable to infer that Walgreens
could not have accomplished the scheme on its own “by simply purchasing expensive dosage
forms from Par and other manufacturers…and filling prescriptions with these expensive dosage
forms on its own initiative.” 719 F.3d at 856. Some cooperation “outside the bounds of the
parties’ normal commercial relationship” would be suggestive of improper collusion. Id. But
without an indication “how the cooperation in this case exceeded that inherent in every
commercial relationship between a drug manufacturer and a pharmacy,” both the substantive
RICO claim and the conspiracy claim failed. Id.
But unlike in United Food & Commercial Workers Unions & Employers Midwest Health
Benefits Fund, the plaintiffs here have established more than existence of a mutually beneficial
commercial relationship; it is a relationship forged over an agreement to bring about a common
purpose, namely to increase their profits by engaging in dosage-form substitution. A
conspiratorial agreement need not be express. “To be liable as a conspirator you must be a
voluntary participant in a common venture, although you need not have agreed on the details of
the conspiratorial scheme or even know who the other conspirators are. It is enough if you
understand the general objectives of the scheme, accept them, and agree, either explicitly or
implicitly, to do your part to further them.” Jones v. City of Chicago, 856 F.2d 985, 992 (7th Cir.
1988) (emphasis added).

47

Here, there is evidence that Par specially developed or acquired the rights to atypical
drugs and knowingly marketed them to pharmacies on the basis that, at least temporarily, they
would yield higher reimbursement rates. It then specifically and aggressively marketed these
drugs (which were not typically prescribed or dispensed) by encouraging pharmacies to routinely
switch to the subject drugs, solely for their own profit motive and without regard to whether the
switching was either medically necessary or economical. Par incentivized or rewarded the
pharmacies with financial benefits for swapping in Par’s drugs. Further, marketing materials
(including Par’s financial projections) and the testimony of witnesses from Par and pharmacies
show that there was nothing clandestine about the arrangement. It is true that the pharmacies
could have effected a switching plan on their own, just by purchasing Par’s atypical drugs and
engaging in dosage form substitution. But in this case the evidence shows that the pharmacies
did not act spontaneously, and that the prescription-switching scheme was, in essence, a joint
venture. The “agreement” element is certainly not lacking evidentiary support in the summaryjudgment record.
But the question remains whether what the parties agreed to completes the second
requirement of the conspiracy statute—agreement to violate the FCA—here, by causing the
presentation of a “false or fraudulent claim for payment.” See 31 U.S.C. § 3729(a)(1)(A). It is
often said (including earlier in this opinion) that the FCA is not a general anti-fraud statute;
neither is it a general anti-conspiracy statute. The object of the conspiracy must be to make false
or fraudulent claims. 17 Moreover, it is not self-evident, as the government seems to think, that a

17

As discussed further with respect to the common-law fraud claim, the United States
cannot—or certainly has not explained why it can—avail itself of the protection of state
common-law torts such as general “civil conspiracy.” Therefore this discussion as to the United
States is limited to the FCA anti-conspiracy provision. The state plaintiffs do not raise any
48

conspiracy to violate Medicaid law (as opposed to a conspiracy to make false claims) is covered
by § 3729(a)(1)(C). And, in this case, this is the only common purpose supported by the
plaintiffs’ evidence: an agreement to exploit loopholes in Medicaid’s MAC system for profit,
which (even assuming arguendo) violates Medicaid but is distinct from the intent to defraud the
government with false claims. The FCA punishes the knowing submission of false claims; abject
corporate profit-seeking is not in its purview.
So if the conspiracy here is not to violate the FCA, but to engage in a course of conduct
that violates some other substantive law such as the Medicaid laws and regulations, it falls
outside the FCA’s conspiracy provision. The Court finds no authority for the proposition that the
FCA conspiracy provision applies not only to a conspiracy to violate the substantive provisions
of the FCA but also to a conspiracy to violate some other statutory scheme. The plaintiffs point
to none. And the express language of the statute is to the contrary; there must be a “conspiracy to
commit a violation of subparagraph (A, (B), (D), (E), (F), or (G).” 31 U.S.C. § 3729(a)(1)(C). It
is also inconsistent with how courts construe other statutes that contain anti-conspiracy
provisions. For example, a conspiracy to violate the RICO statute requires an agreement to
participate in an endeavor that, “if completed, would constitute a violation of the substantive
statute.” DeGuelle v. Camilli, 664 F.3d 192, 204 (7th Cir. 2011) (quoting Goren v. New Vision
Int'l, Inc., 156 F.3d 721, 732 (7th Cir.1998)) (emphasis added). In this case, where the record
contains insufficient evidence that false claims were presented, the course of conduct that the
parties agreed to would not constitute a substantive violation of the FCA, but instead a violation
of the laws and rules of Medicaid. (The plaintiffs’ proof is consistent with an agreement to

arguments specific to their states’ common law of conspiracy, and therefore have forfeited any
argument for failure to develop it.

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participate in conduct that arguably18 violates Medicaid rules.) However, as discussed at length
above, the Seventh Circuit holds that violating a regulatory scheme is not one and the same with
submitting a false claim for the purposes of the FCA.
If there is some cognizable claim of conspiracy to violate Medicaid law, it is not found
under § 3729(a)(1)(C) of the False Claims Act, at least not as far as the plaintiffs have
established. 19 And the Court cannot read the plaintiffs’ pleadings and briefs to raise any other
theory of liability for conspiracy. See n. 7, supra. Therefore, Par has established that it is entitled
to judgment as a matter of law with respect to the claim that the scheme was an FCA conspiracy.
B.

Common Law Fraud

All of the plaintiffs allege fraud by Par. The United States, however, does not explain the
legal basis for its claim. This Court, of course has original jurisdiction over all civil actions
brought by the United States under 28 U.S.C. § 1345, but the jurisdictional statute does not
relieve the United States of bringing a cognizable claim. 20 With respect to its putative “common

18

The Court need not resolve the parties’ arguments about what the provisions requiring
treatment to be medically necessary and economical mean or what conduct they prohibit. In
resolving the conspiracy claim, the Court assumes without deciding that the prescription
switches violated one or both of those standards.
19

Indiana, for example, has asserted a claim of Medicaid fraud, and aiding and abetting
such fraud, under its state statutes.
20

See Volodarskiy v. Delta Airlines, Inc., 784 F.3d 349, 350 (7th Cir. 2015)
(notwithstanding federal jurisdiction, private right of action under EU law not cognizable or
“judicially enforceable”). Cf. Nat'l Farmers Union Ins. Companies v. Crow Tribe of Indians, 471
U.S. 845, 850–51 (1985):
Section 1331 of the Judicial Code provides that a federal district
court “shall have original jurisdiction of all civil actions arising
under the Constitution, laws, or treaties of the United States. It is
well settled that this statutory grant of jurisdiction will support
claims founded upon federal common law as well as those of a
statutory origin. Federal common law as articulated in rules that
are fashioned by court decisions are ‘laws’ as that term is used in
§ 1331. Thus, in order to invoke a federal district court's
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law” fraud claim, the United States does not point to any governing law, and there is no general
fraud cause of action in federal law. (With its conspiracy claim, the United States’ foothold was a
federal statute.) There are myriad federal anti-fraud statutes, such as the securities and tax laws,
the mail and wire fraud statutes, and of course, the False Claims Act. But from whence comes
the separate fraud common-law tort that the United States asserts here in Count IV of its
operative complaint? Its briefs are silent. Fraud is a state-law tort, and the United States’
jurisdictional statement invokes 28 U.S.C. § 1367 (supplemental jurisdiction), so presumably the
United States bases its “common law fraud” claim on state law, but it does not invoke the
common law of any one state as the legal predicate of Count IV. The case law it cites, see Pls.
Br. 51, ECF No. 369, hails from Illinois and Michigan, but it has not explained why it enjoys the
protections of the tort laws of these, or every, state.
But though there is reason to question on what basis the United States may assert an
Illinois (or Michigan, or Indiana) tort cause of action, Par, hoping to cut out all the fraud claims
in one fell swoop based on the absence of any “false” claim, does not differentiate between them
or examine the legal underpinnings of the United States’ common-law claim. It has, in other
words, forfeited any objection to considering the merits of the United States’ common law fraud
claim, so the Court will consider that claim along with the similar claims of Michigan and
Indiana.

jurisdiction under § 1331, it was not essential that the petitioners
base their claim on a federal statute or a provision of the
Constitution. It was, however, necessary to assert a claim arising
under federal law.

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All of the common law fraud claims can be examined, and dispatched, as a group,
because they fail for the same reason the FCA claims fail, namely the absence of false statement
or misleading representation. Under Indiana law, “[t]o prove fraud, a plaintiff must establish the
following elements: (1) a material misrepresentation of past or existing fact which (2) was
untrue, (3) was made with knowledge of or in reckless ignorance of its falsity, (4) was made with
the intent to deceive, (5) was rightfully relied upon by the complaining party, and (6) which
proximately caused the injury or damage of which the plaintiff complains. Angel v. Powelson,
977 N.E.2d 434, 445 (Ind. Ct. App. 2012) (citing Lawyers Title Ins. Corp. v. Pokraka, 595
N.E.2d 244, 249 (Ind. 1992)). Similarly in Michigan, the elements of the tort of fraud are “(1)
[t]hat defendant made a material representation; (2) that it was false; (3) that when he made it he
knew it was false, or made it recklessly, without any knowledge of its truth and as a positive
assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that
plaintiff acted in reliance upon it; and (6) that he thereby suffered injury.” Lawrence M. Clarke,
Inc. v. Richco Const., Inc., 489 Mich. 265, 283–84, 803 N.W.2d 151, 162 (2011) (citing Scott v.
Harper Recreation, Inc., 444 Mich. 441, 446 n. 3, 506 N.W.2d 857 (1993)).
The plaintiffs do not delineate the defendant’s purported false and material
misrepresentations in the single paragraph of their response brief that addresses the common-law
fraud claim. This Court therefore infers that that they base the claims upon the same
representations underlying their FCA claim (otherwise, they would have forfeited their fraud
argument for failure to develop it). The element of “falsity,” therefore, is again at the fore. And
the Court has already determined that the claims at issue did not contain representations that
were false or misleading either on their face or by omission. A common-law cause of action for
fraud that is based on the exact same representations cannot withstand that conclusion.

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C.

Theft, Offense against Property, and Unjust Enrichment Claims

The States assert other violations of their common law arising from Par’s role in the
pharmacies’ prescription-switching. Michigan and Indiana both assert that Par committed unjust
enrichment, and Indiana adds a theft claim. This Court discretionarily declines to exercise the
supplemental jurisdiction over those claims See 28 U.S.C. § 1367(c); United States ex rel.
Bogina v. Medline Indus., Inc., 809 F.3d 365, 367 (7th Cir. 2016). They are dismissed without
prejudice.
Michigan and Indiana, of course, allege that their own FCA-equivalent statutes were
violated. It is difficult to imagine how those claims could survive where the parties have agreed
that liability under the federal and state FCAs is coextensive. But, the courts of those states are
better positioned to address the nuances of their own statutes, to the extent preclusion doctrines
would permit them to be re-asserted in state court. Therefore, this Court declines to exercise
supplemental jurisdiction over the claimed violations of state false-claims statutes, too.
*

*

*

*

*

There is no doubt that the evidence in this case suggests a collaboration between Par and
the pharmacies to drive up their own profits by exploiting loopholes in the Medicaid
reimbursement system. Whether that endeavor is worthy of public approbation or opprobrium is
not the question presented here. It bears repeating, in the words of the Ninth Circuit, see p. 37,
supra, that the FCA “focuses on the submission of a claim, and does not concern itself with
whether or to what extent there exists a menacing underlying scheme.” The question presented
by Par’s motions for summary judgment is whether the reimbursement claims for the subject
drugs were false because they omitted information about the collaboration between Par and the
pharmacies and whether it violated Medicaid regulations. The plaintiffs failed to adduce

53

sufficient evidence to support a jury verdict that the reimbursement claims were false or
misleading for that reason, and on that basis, Par’s motions for summary judgment are granted.

John J. Tharp, Jr.
United States District Judge

Date: May 10, 2017

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