Suppressed v. Suppressed
Filing
374
MEMORANDUM Opinion and Order: For the reasons stated herein, the Court rules as follows: 1. Denies Defendant Eli Lilly's Motion for Summary Judgment (Dkt. No. 314); 2. Denies in part and grants in part Relator's Motion for Summary Judgement (Dkt. No. 311); and 3. Grants in part and denies in part the Motions to Exclude Expert Opinions and Testimony. (Dkt. Nos. 293, 295, 297, 299, 301.) Signed by the Honorable Harry D. Leinenweber on 2/28/2022:Mailed notice (maf)
Case: 1:14-cv-09412 Document #: 374 Filed: 02/28/22 Page 1 of 42 PageID #:24281
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES, ex rel.
RONALD J. STRECK,
Plaintiff,
Case No.
v.
14 C 9412
Judge Harry D. Leinenweber
TAKEDA PHARMACEUTICALS
AMERICA, INC., et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
Relator Ronald J. Streck, on behalf of the United States of
America and twenty-six states, brings a Partial Summary Judgment
Motion against Defendant Eli Lilly and Company. (Dkt. No. 311.)
The Relator argues the undisputed material facts show that
Defendant
Lilly
knowingly
submitted
false
statements
and
certifications to the United States and several states as part
of its Medicaid rebate program in violation of the False Claims
Act. Defendant Lilly moves for full summary judgment against the
Relator, arguing caselaw establishes affirmative defenses that
prevent liability. (Dkt. No. 314.) The parties also move, under
Federal
Rule
of
Evidence
702
and
Daubert
v.
Merrell
Dow
Pharmaceuticals, Inc., 509 U.S. 579 (1993), to strike various
experts that would otherwise be relied upon in trial. (Dkt.
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Nos. 293, 295, 297, 299, 301.) For the reasons stated herein,
the
Court
denies
Defendant
Eli
Lilly’s
Motion
for
Summary
Judgment, denies in part and grants in part Relator’s Motion for
Summary Judgement, and grants in part and denies in part the
Motions to exclude expert opinions and testimony.
I.
BACKGROUND
As discussed in the Court’s Memorandum Opinion and Order
denying the motion to dismiss (Dkt. No. 122), this lawsuit arises
from Lilly’s participation in the Medicaid Drug Rebate Program
(“MDRP”). The United States historically has been the single
largest payer of prescription drugs, primarily through the MDRP.
For a drug manufacturer to have the benefit of selling drugs to
patients enrolled in Medicaid, that manufacturer must pay a
rebate back to the state and federal government to lower the
cost of the program. The rebate computations are based on the
“Average Manufacturer’s Price,” or “AMP.” Congress defined the
AMP in the 1991 National Rebate Agreement as “the average unit
price paid to the Manufacturer for the drug in the [United]
States
by
wholesalers
for
drugs
distributed
to
the
retail
pharmacy class of trade.” (Relator’s Resp. to Def.’s Stmt. of
Facts
(“RSOF”)
¶
25,
Dkt.
No. 330.)
As
set
forth
in
the
definition, the AMP “must be adjusted by the Manufacturer if
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cumulative discounts or other arrangements subsequently adjust
the prices actually realized.” (Id.)
The 1991 National Rebate Agreement also stated that “[i]n
the absence of specific guidance in section 1927 of the Act,
Federal
regulations,
and
the
terms
of
this
agreement,
the
Manufacturer may make reasonable assumptions in its calculations
of AMP and Best Price, consistent with the intent of section
1927 of the Act, Federal regulations and the terms of this
agreement.” (Id. ¶ 30.) An early dispute in the history of the
program focused on whether fees paid by a drug manufacturer to
drug distributors should be incorporated as part of the AMP
calculations. Following a request from Congress, in 2007 the
Center for Medicare and Medicaid Services of the Department of
HHS (“CMS”) provided the following definition of “bona fide
service fees” and stated that these fees were exempt from the
AMP calculations:
fees paid by manufacturer to an entity; that represent
fair market value for a bona fide, itemized service
actually performed on behalf of the manufacturer that
the manufacturer would otherwise perform (or contract
for) in the absence of the service arrangement; and
that are not passed on in whole or in part to a client
or customer of an entity, whether or not the entity
takes title to the drug.
42 U.S.C. § 447.502 (2007).
Upon the passage of the Patient Protection and Affordable
Care
Act
of
2010,
CMS
removed
its
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definition
and
directed
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manufacturers to comply with the newly promogulated statute,
which had a similar provision excluding bona fide service fees.
In 2012, CMS proposed regulation that contained the preamble,
“retroactive
price
adjustments,
sometimes
known
as
price
appreciation credits, do not meet the definition of bona fide
service fee as they do not reflect any service or offset of a
bona fide service performed on behalf of the manufacturer.” 77
Fed. Reg. 5318, 5332 (Feb. 2, 2012). This advice was not formally
adopted,
however,
until
2016.
As
set
forth
under
the
2016
regulations, CMS stated in its preamble:
We continue to believe that price appreciation credits
would likely not meet the definition of bona fide
service fee. Based on our experience with the program,
it is our understanding that price appreciation
credits are not issued for the purposes of payment for
any service or offset for a bona fide service performed
on behalf of the manufacturer, but rather are issued
by
the
manufacturer
to
adjust
(increase)
the
wholesaler’s purchase price of the drugs in such
instances when the drugs were purchased at a certain
price and are remaining in the wholesaler’s inventory
at the time the manufacturer’s sale price of the drug
increased. In such situations, these credits would
amount to a subsequent price adjustment affecting the
average price to the manufacturer and should be
recognized for purposes of AMP in accordance with §
447.504(f).
81 Fed. Reg. 5170-01. Starting in 2017, Lilly began including
price increase value as part of its AMP submissions. (Def.’s
Resp. to Relator’s Stmt. of Mat. Facts (“DSOF”) ¶ 77, Dkt.
No. 334.)
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While perhaps counterintuitive, “service fee payments” paid
by the drug manufacturer to the drug distributer, if included in
the AMP calculations, would reduce the cost of the Average
Manufacturer’s Price. The service fee essentially offsets the
price of the drug product on paper, which would reduce the
“average price unit paid . . . by wholesalers for drugs” and
thus would decrease the amount due to the government. Prior to
CMS clarification, some drug manufacturers were using service
fees to artificially lower the AMP calculations, and as stated
above, CMS issued a regulation in 2007 to prevent unrelated
service fees from being bundled with the price of the unit to
manipulate AMP calculations to a lower price. When “service” or
“service-related” payments are made in the opposite direction,
i.e.,
by
drug
distributer
to
the
drug
manufacturer,
this
increases the “average price unit paid . . . by wholesalers” and
thus increases the amount of the rebate due to the government.
Defendant Eli Lilly has excluded all “service-related” payments
since 2005. (RSOF ¶ 57.)
Lilly is a pharmaceutical company based in Indianapolis,
Indiana. (RSOF ¶ 1.) In 2005, Lilly changed its contract with
its three major drug distributors. (RSOF ¶ 7.) Lilly refers to
the post-2005 contracts as “fee-for-service” or FFS Agreements.
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(Id.) The FFS Agreements had two provisions that are relevant to
the suit.
First,
the
FFS
Agreement
included
a
“service
fee”
or
“distribution fee” that Lilly paid the drug distributers. (Id.
¶¶ 9, 13.) This fee paid for distribution services, inventory
management services, and data reporting services. (Id. ¶ 9.) The
service fee was calculated “by multiplying Lilly’s quarterly
sales of Products . . . invoiced to the wholesaler, less Products
returned
by
Wholesaler
during
the
same
quarter,
by
the
appropriate Distribution Fee percentage.” (Id. ¶ 13.) In other
words, the more product that the distributors sold, the higher
the fee provided by Lilly.
The FFS Agreement also included a “price increase value,”
(“PIV”)
also
referred
to
in
the
Court’s
prior
opinion
and
throughout this opinion as a “price appreciation credit” or a
“PACs.” (Id. ¶ 11.) The PIV was an adjustment to the “price of
Products after Wholesaler has taken possession, but before such
Products are purchased by Customers.” (Id. ¶ 17.) The price
adjustment value would be multiplied by the number of products
in inventory to create the final PIV. (Id.)
The FFS Agreement combined (1) the distribution fee cost to
Lilly and (2) the price increase benefit to Lilly as follows:
Wholesaler shall receive the Distribution Fee through
a combination of (1) the value of any price increase
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by Lilly during the quarter for Products in
Wholesaler’s inventory (“Price Increase Value”) and
(2) a payment or credit by Lilly. The Price Increase
Value for a Product shall be calculated by multiplying
the price increase for the product by the amount of
inventory for such Product Wholesaler has on the date
of the price increase. … If the Price Increase Value
for all Products for a quarter is greater than the
total Distribution Fee, any excess shall be carried
forward and netted out of future quarterly payments.
(Id.) In this way, Lilly would not have to pay any distribution
fee unless the drug distributor’s sales of Lilly’s products were
relatively and consistently higher than any drugs remaining in
the inventory that were in the process of being “price adjusted”
by Lilly. As testified to by Lilly, this was setup was used to
prevent
wholesalers
who,
if
anticipating
price
increases,
“increased their stock of a particular drug at the lower, thencurrent price.” (Id. ¶ 5.) Lilly’s updated 2009 agreements had
a substantially similar structure, except Lilly was now entitled
to payment of the excess PIV by the drug distributors instead of
having the excess carried over onto future distribution fee
payments. (Id. ¶¶ 13—14.)
The 2016 FFS Agreements noted that the distribution fee and
the PIV were “administered together for efficiency.” (Id. ¶¶ 15—
22.) After netting the payments together, any excess in either
direction
was
to
be
paid
within
45
days.
(Id.)
Under
all
variations of the FFS Agreements, the “economic substance of the
transaction” remained unchanged. (Id. ¶ 23.)
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On September 7, 2018, Relator filed an Amended Complaint
alleging three counts under the federal False Claims Act, 18
U.S.C. §§ 3279(a)(1)(A) and (a)(1)(B) (Count 1), § 3729(a)(1)(D)
(Count 2), § 3729(a)(1)(G) (Count 3), and twenty-nine claims
under various state False Claims Acts. On September 7, 2021,
Relator filed a Motion to exclude the opinions and testimony of
Charlene Frizzera (Dkt. No. 293), the opinions and testimony of
Marcy Imada (Dkt. No. 295), certain opinions and testimony of
Heather Bates, (Dkt. No. 297) and the opinions and testimony of
Dr. Louis Rossiter. (Dkt. No. 301.) That same day, Eli Lilly
filed a Motion to exclude the testimony of Brian C. Becker. (Dkt.
No. 299).
On October 7, 2021, Relator filed a Motion for Partial
Summary Judgment (Dkt. No. 311) and Defendant Eli Lilly filed a
Motion for Full Summary Judgment. (Dkt. No. 314.) The Court now
decides all seven pending Motions.
II.
STANDARD
Summary judgment is appropriate when there are no genuine
issues of material fact, and the moving party is entitled to
judgment as a matter of law. FED. R. CIV. P. 56(a). A genuine
issue of material fact exists only if “the evidence is such that
a reasonable jury could return a verdict for the nonmoving
party.” Pugh v. City of Attica, 259 F.3d 619, 625 (7th Cir. 2001)
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(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986)). A court uses substantive law to “identify which facts
are material.” Anderson, 477 U.S. 248. Viewing the record in a
light
most
favorable
to
the
nonmoving
party,
a
court
then
determines whether there is a genuine issue for trial. Id. at
242.
Expert
testimony
is
permitted
under
Federal
Rule
of
Evidence 702. Under the Rules, “the trial judge must ensure that
any and all scientific testimony or evidence admitted is not
only relevant but reliable.” Daubert v. Merrell Dow Pharms.,
Inc., 509 U.S. 579, 589 (1993). As a result, a court reviews the
following requirements prior to admittance at trial: (1) the
witness must be “qualified as an expert by knowledge, skill,
experience, training or education,” and (2) “the subject matter
of the expert’s testimony must consist of specialized knowledge
that will be helpful or essential to the trier of fact in
deciding the case.” FED. R. EVID. 702; United States v. Lanzotti,
205 F.3d 951, 956 (7th Cir. 2000). “The party seeking to offer
expert
testimony
has
the
burden
of
establishing
that
the
pertinent admissibility requirements are met by a preponderance
of the evidence.” Rasmusen v. White, 970 F.Supp. 2d 807, 813
(N.D. Ill. 2013).
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III.
A.
1.
DISCUSSION
Motions to Exclude
Motion to Exclude the Opinions and
Testimony of Charlene Frizzera
Relator first moves to exclude the opinions and testimony
of Charlene Frizzera (“Frizzera”). Frizzera’s main qualification
is her long tenure at Centers for Medicare and Medicaid Services
(“CMS”), where she served, inter alia, as Executive Project
Officer of Health Care Reform, CMS Acting Administrator, and CMS
Chief Operating Administrator, Deputy Director, and Regional
Administrator of Philadelphia’s Regional Office. (Frizzera CV,
Frizzera Expert Report, Ex. B, Dkt. No. 294-1.) Frizzera proffers
three opinions, all of which Defendants seek to exclude:
1.
CMS did not issue any final rule or published
guidance clearly instructing manufacturers how to
treat price appreciation credits;
2. CMS charges manufacturers with making reasonable
assumptions on AMP calculations in the absence of
clear guidance, allowing for more than one reasonable
interpretation of AMP rules, including regarding price
appreciation credits; and
3. Information was available to CMS that would have
allowed CMS to take action if it wanted Lilly to change
its conduct.
(Frizzera Expert Report at 1, Mem., Ex. 1, Dkt. No. 294-1.)
Relator
improper
begins
legal
by
arguing
that
conclusions.
all
Allowing
three
an
opinions
expert
provide
witness
to
testify as to a legal conclusion creates a risk that a jury may
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“accord too much weight to that testimony” and use it as legal
guidance. Naeem v. McKesson Drug Co., 444 F.3d 593, 610 (7th
Cir. 2006). This is particularly true when the legal opinion
“determine[s] the outcome of a case.” Id. (quoting United States
v. Sinclair, 74 F.3d 753, 757–58 n. 1 (7th Cir.1996). When, as
here, the case hinges on a violation of statute, “an expert may
not offer opinion testimony as to whether a defendant violated
a statute or regulation.” Klaczak v. Consol. Med. Transp. Inc.,
No. 96 C 6502, 2005 WL 1564981, at *4 (N.D. Ill. May 26, 2005).
In support of his argument, Relator cites to Frizzera’s
testimony, where she asserts the following:
Q: In your report, you provide opinions about the
Medicaid Drug Rebate Program; is that fair?
A: I provide opinions about whether Lilly met the
requirements of the rules.
(Frizzera Dep. 65:20—24, Mem. to Exclude Frizzera, Ex. 2, Dkt.
No. 494-2.) To the extent that Frizzera intends to testify to
that
“Lilly
met
the
requirements
of
the
rules,”
the
Court
excludes her testimony. Frizzera cannot testify as to how the
jury should apply the statute and CMS rules to the case at hand.
On these grounds, the Court also grants the Motion to
Exclude Opinion 3 in its entirety. In the third section of the
report,
Frizzera
recounts
the
facts
involved
with
Lilly’s
communications with the Federal Government and determines that
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Lilly “appropriately sought guidance.” This applies the recited
facts to the case and reaches a legal conclusion as to Lilly’s
obligations. Building on this conclusion, Frizzera opined that
CMS is required to “take action” to create liability once Lilly
seeks the appropriate guidance. The Court finds this to be a
legal conclusion and, further, a legally unsound opinion. Under
the False Claims Act, the burden is on the individual submitting
claims to provide accurate information, not on the government
entity to act in response to other communications. Heckler v.
Cmty. Health Servs. of Crawford Cty., Inc., 467 U.S. 51, 63
(1984) (“[T]hose who deal with the Government are expected to
know the law and may not rely on the conduct of Government agents
contrary to law.”)
The first two opinions of Frizzera’s report, when read at
face value, do not necessarily reach a legal conclusion. An
expert who opines regarding the regulatory process for creating
(1) CMS guidance to drug manufacturers generally, and (2) CMS’s
requirement
that
drug
manufacturers
to
make
“reasonable
assumptions” as part of their submissions specifically, would be
useful at trial. As an employee of CMS for thirty years, Frizzera
has the background necessary to provide this information.
Relator next argues that Frizzera did not employ a reliable
methodology. When evaluating methodology, “the trial court is
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limited to determining whether expert testimony is pertinent to
an issue in the case and whether the methodology underlying that
testimony is sound.” Smith v. Ford Motor Co., 215 F.3d 713, 719
(7th Cir. 2000). The trial court does not evaluate the underlying
facts, but instead evaluates the test administered and the source
of information employed. Walker v. Soo Line R. Co., 208 F.3d
581, 587 (7th Cir. 2000).
Relator argues that Frizzera’s methodology was to review
whether a statute and agency regulation contained the words
“average manufacturer price,” “price appreciation credits” or
“bona fide service fees.” Frizzera then opined (1) that there
were
no
clearly
published
guidelines
on
price
appreciation
credits (Opinion 1), and (2) that there could be multiple valid
ways to interpret the guidelines as applied to price appreciation
credits (Opinion 2).
Relator has two arguments regarding Frizzera’s methodology.
First, Frizzera’s review of the regulations, i.e., searching for
“mentions” of the words in the text of the statute, is surfacelevel and ultimately insufficient to understand the obligations
of drug manufacturers. Second, Frizzera does not understand what
a “price appreciation credit” means, making her unable to analyze
the regulations. In support, Relator highlights the following
questions presented at the deposition:
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Q. To make that opinion, do you have to have some sort
of understanding of what price appreciation credits
are?
A. I have to have an understanding of what the CMS
rules and guidance were around price appreciation
credits.
Q. And to apply those rules and regulations to price
appreciation credits, do you need to know what price
appreciation credits are?
A. No. CMS didn’t issue any rules or guidelines about
price appreciation credits.
Q. Did you do anything to educate yourself about how
Lilly uses price appreciation credits?
A. I reviewed the documents that I reviewed -- I
reviewed the documents I had.
Q. Can you provide the jury with an explanation of how
Lilly’s price appreciation credits operate?
A. My opinion is that CMS didn’t issue any rules or
guidance instructing them how to deal with price
appreciation credits.
Q. I understand what you’re saying with respect to
CMS. Do you know sitting here today how Lilly’s price
appreciation credits function?
A. Can you repeat the question?
Q. Sure. Let me ask it in a more simple way. What is
a price appreciation credit?
A. CMS did not issue any rule or guidance regarding
price appreciation credits.
Q. Got it. I think I understand your opinion on that.
But my question is, what is an actual price
appreciation credit?
A. There is no definition of price appreciation
credits in the federal rules or guidelines.
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Q. How does Lilly use the term price appreciation
credits?
A. Lilly made reasonable assumptions about what price
appreciation credits were and how to use them.
(Frizzera Dep 103:21-106:5 (objections omitted).) In response,
Lilly
argues
that
Frizzera’s
methodology
consisted
of
“appl[ying] her experience to a series of agency documents and
statements.” (Resp. at 13, Dkt. No. 304.) Lilly also argues that
Relator is cherry-picking misleading deposition testimony, and
that Frizzera demonstrated her knowledge of price appreciation
credits from the following exchange:
Q. And why are bona fide service fees relevant to your
report?
A. Lilly -- the reason why bona fide service fees are
part of my report is because Lilly offset their bona
fide service fees by their price appreciation credits.
(Frizzera Dep. 118:1—6.)
The
Court
finds
that
the
methodology
employed
for
Opinion 1, while simplistic, is straightforward and logical.
Relator’s arguments about better methods go to the weight of the
testimony, and do not merit its exclusion.
Relator’s
appreciation
concerns
credits
about
are
Frizzera’s
less
about
knowledge
methodology
of
and
price
more
appropriately raised during the second prong of the test. In
addition to employing appropriate methodology, the Court must
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also determine whether the expert has specialized knowledge that
would be helpful for the trier of fact. Because Frizzera cannot
articulate any definition of “price appreciation credit,” the
Court finds that, for Opinion 2, Frizzera lacks the specialized
knowledge which is necessary for her to be an expert on price
appreciation credits. In Opinion 2, Frizzera states that there
is “more than one reasonable interpretation of . . . price
appreciation credits.” (Frizzera Rep. at 34.) The Court does not
see
how
any
appreciation
expert
can
credits
reliably
without
analyze
first
rules
for
price
understanding
how
price
appreciation credits work within the drug manufacturer’s pricing
system.
Lilly’s explanation in response is that Frizzera does not
need first-hand information to be an expert on price appreciation
credits. Lilly’s theory is that Frizzera is an expert through
her longtime experience with CMS, similar to, for example,
“experienced narcotics investigators [who] applied the knowledge
gained through years of experience and, essentially, described
for the jury what they knew about narcotics dealers.” United
States v. Conn, 297 F.3d 548, 556 (7th Cir. 2002). But if a
narcotics investigator, after describing his or her knowledge of
narcotics
dealers,
then
was
unable
to
provide
information
regarding a specific drug by name, the court would be remiss to
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think the investigator had enough specialized knowledge to opine
on the specifics of that drug. Here, Frizzera has worked for
thirty years at CMS, and can provide information about CMS’s
regulatory processes. Her knowledge, however, does not reach to
an understanding of “price appreciation credits,” making her
unable her to apply her experience to that term beyond her
impressions set forth in Opinion 1. The Court grants the Motion
to Exclude Opinion 2 and Opinion 3 in Frizzera’s report and
testimony and denies the Motion to Exclude Opinion 1. (Dkt. No.
293.)
2.
Motion to Exclude the Opinions and
Testimony of Marcy Imada
Relator next moves to exclude the opinions and testimony of
Marcy Imada (“Imada”). Imada holds two bachelor’s degrees and is
a long-time consultant in the life sciences and health care
industries. (Imada CV, Imada Expert Report, Ex. A, Dkt. No. 2961.) Imada sets forth three opinions:
A. Lilly’s exclusion of price appreciation credits
from is Average Manufacturer’s Price calculation
was a reasonable practice.
B. Manufacturers often apply regulations and subregulatory guidance in differing, but reasonable,
manners.
C.
Lilly’s repeated disclosures and engagements
with government agencies align with industry
leading practices.
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(Imada Expert Report at 16, 27, 29, Mem., Ex. 1, Dkt. No. 2961.) At the outset, the Court notes that Opinion A is a legal
conclusion, and specifically a legal conclusion that is at the
heart of this case. If Lilly’s price appreciation credits were
reasonably excluded, then Lilly did not make a false claim. As
a result, this expert testimony is inadmissible. Good Shepherd
Manor Found., Inc. v. City of Momence, 323 F.3d 557, 564 (7th
Cir. 2003) (“Expert testimony as to legal conclusions that will
determine the outcome of the case is inadmissible.”). The motion
to exclude Opinion A is granted.
Relator provides a similar argument in his Motion to Exclude
Imada’s Opinion B. Relator argues that Opinion B is only relevant
“if Lilly’s purported interpretation was in fact reasonable, and
for the reasons described above, Ms. Imada cannot provide this
opinion.” (Imada Mem. to Exclude at 11, Dkt. No. 296.) However,
while Imada cannot testify as to whether Lilly’s decision was
reasonable, she can provide information from which the jury
themselves can make that determination. As a result, Imada’s
expert testimony about regulations generally is relevant and
admissible.
In
the
alternative,
Relator
argues
the
testimony
is
inadmissible under Rule 403 because any probative value is
substantially
outweighed
by
unfair
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prejudice,
confusing
the
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issues, and wastes the jury’s time. The Court finds none of these
concerns in the proffered testimony. Imada provides examples of
different
calculations
between
drug
manufactures
under
CMS
regulations. In one example, some manufacturers calculate AMP
using “standard” Average Manufacturer’s Price, and some use the
“5i” Average Manufacturer’s Price. The jury can extrapolate
whether differences in calculations between AMPs are similar to
Lilly’s
decision
to
exclude
price
appreciation
credits,
or
whether there is a difference in scale or intent such that it
was not a reasonable decision. These are arguments that should
be presented for the jury.
Finally, Relator moves to exclude Opinion C. Relator argues
that Imada’s methodology regarding “industry leading practices”
is either impermissibly vague or nonexistent. Relator argues
that Imada does not provide enough basis for her opinion on
industry
standards.
For
example,
Imada
does
not
cite
to
publications or other sources on which she bases this conclusion
and does not provide examples of other companies who communicated
with government agencies in a similar manner.
In response, Lilly cites to Harms v. Laboratory Corporation
of America, 155 F.Supp. 2d 891 (N.D. Ill. 2001). In Harms, the
district court found that Randy Chapman, Operation Manager for
Defendant, and fact witness for the trial, could not testify
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regarding general standards of care, reasoning that industry
standards are “classic” expert testimony. Id. at 903. However,
Harms does not allow each and every expert witness to opine on
industry standards simply by being designated as experts. An
expert witness, even one qualified through experience such as
Imada, must explain the “‘methodologies and principles’ that
support [her] opinion; [s]he cannot simply assert a ‘bottom
line.’” Metavante Corp. v. Emigrant Sav. Bank, 619 F.3d 748, 761
(7th Cir. 2010) (quoting Minix v. Canarecci, 597 F.3d 824, 835
(7th Cir.2010)).
After
reciting
the
relevant
facts,
Imada’s
opinion
regarding industry standards is three short paragraphs. She
provides
one
principle,
explaining
that
“[o]utreach
to
government agencies not only allows the manufacturers to confirm
their interpretations or assumptions, but it can also direct the
agency’s attention to topics for which the rules are not clear
or further guidance is needed.” (Imada Expert Report at 35, Imada
Mem. to Exclude, Ex. 1, Dkt. No. 296-1.) To the extent that there
is a methodology, it is through Imada’s assertion that she has
“routinely advised [her] clients to reach out to regulators.”
(Id. at 34.) While this principle and this methodology, put
together, edges slightly beyond a bottom-line assertion rejected
by the Seventh Circuit, the Court finds even in the best light
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these
statements
fall
short
of
establishing
an
“industry
standard.” Ultimately, Imada’s opinion cannot be based solely on
her own personal prior practices and reasoning. By the nature of
the words “industry standards,” information beyond the ideas and
practices of one expert is required to be established as a
methodology.
The Court grants the Motion to Exclude Imada’s Opinion A
and Opinion C and denies the Motion to Exclude Imada’s Opinion
B. (Dkt. No. 295.)
3.
Lilly
has
Motion to Exclude Certain Opinions
and Testimony of Heather Bates
also
proffered
the
expert
Heather
Bates
(“Bates”), a managing director of a consulting group who holds
a bachelor’s degree in Economics. (Bates CV, Bates Expert Report,
Ex. A, Dkt. No. 298-1.) Bates offers a rebuttal opinion to
Relator’s damages expert, Eric Kimelblatt. Relator moves to
exclude Bates’ Opinion 5, which states:
Mr. Kimelblatt enumerated alleged damages to the
Federal government under the Medicaid program but did
not consider the impact of Relator’s proposed change
to Lilly’s treatment of PIV credits on Federal
government reimbursements under the Medicare and
Veteran’s Affairs (“VA”) programs.
(Bates Expert Report at 22, Mem., Ex. 1, Dkt. No. 298-1.)
Relator
first
counter-damages
objects
to
calculations,
the
admissibility
arguing
- 21 -
that
any
of
Bates’
benefits
to
Case: 1:14-cv-09412 Document #: 374 Filed: 02/28/22 Page 22 of 42 PageID #:24302
Government programs beyond Medicaid, such as Veteran’s Affairs,
are not relevant to this action. Under Seventh Circuit precedent,
damages under the False Claims Act should be calculated by “net
trebling,” as opposed to “gross trebling.” United States v.
Anchor Mortg. Corp., 711 F.3d 745, 749 (7th Cir. 2013). In other
words,
“[m]itigation
of
damages
is
almost
universal.”
Id.
Assuming the jury finds liability, the Federal Government is
entitled to damages offset by the benefits, and Lilly is entitled
to present evidence regarding the benefits of their calculations
to other government departments.
Relator provides a variety of other arguments, most of which
are speculations on how Bates’ calculations will affect the
state’s payments in relation to the Federal Government. The basis
of this suit is the failure to pay the Federal Government under
Federal law. The Court fails to see how speculations on how the
damages will be split constitutes any separation of power issues.
The other reasons in Relator’s Motion to Exclude do not attack
Bates’ methodology, but merely critique how her calculations
were made. These arguments are appropriate for Relator to bring
on cross-examination or in its own rebuttal report. The Court
denies the Motion to Exclude certain opinions and testimony of
Bates. (Dkt. No. 297.)
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4.
Motion to Exclude the Opinion and
Testimony of Brian C. Becker
Dr. Brian Becker (“Becker”) holds a PhD in applied economics
and currently works at an economics consulting firm. (Becker CV,
Becker Expert Report, Ex. A, Dkt. No. 300-1.) In his expert
report,
Dr.
Becker
provides
an
economic
framework
for
understanding financials associated with Lilly’s contract with
drug
manufacturers.
Dr.
Becker’s
opinion
states
that
the
economic difference between paying $100 initially and then a
single additional dollar is the exact same as requiring a payment
of
$101.
Lilly
argues
that
Dr.
Becker’s
opinion
should
be
excluded because it is not relevant and outside the scope of an
expert testimony.
Lilly argues that Becker’s opinion is not relevant because
Dr. Becker does not attempt to answer the question as to “whether
Medicaid regulations or statutes require price increase value to
be included in average manufacturer price.” (Mem. at 5, Dkt. No.
300.) However, the purpose of providing experts is not to advise
the jury the answer to the ultimate question. It is inadvisable
to submit expert testimony that advises on the final decision in
the case as it will likely be excluded. The purpose of expert is
to provide information which the jury can use to resolve the
factual dispute. As explained in Daubert, “[t]he study of the
phases of the moon, for example, may provide valid scientific
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‘knowledge’ about whether a certain night was dark, and if
darkness is a fact in issue, the knowledge will assist the trier
of fact.” 509 U.S. at 591. To extend the analogy, Lilly here
argues
that
the
expert
must
be
excluded
unless
the
expert
testifies that the night was dark. But Lilly’s requirement that
the ‘knowledge’ be applied by the expert to the factual issue is
wrong;
instead,
an
expert
should
be
providing
background
information from which the jury can deduce that the night was
dark.
Becker does exactly that in his report. Assuming the jury
learns
of
Lilly’s
obligation
to
provide
an
Average
Manufacturer’s Price to CMS from other testimony, the jury can
use Dr. Becker’s economic analysis of Lilly’s contract with drug
distributers to determine whether or not their “price increase
value” should be considered part of the Average Manufacturer’s
Price, or if it was reasonable for Lilly to exclude them.
Lilly
brings
the
Court’s
attention
specifically
to
Camelback Properties v. Phoenix Ins. Co., No. 10 CV 01467, 2013
WL
1568517
(N.D.
Ill.
Apr.
12,
2013).
In
Camelback,
the
magistrate court held that a party could not proffer an expert
on real estate industry standards to help interpret an insurance
contract. The magistrate court cited the lack of legal precedent
incorporating real estate standards, such as the “BOMA code,”
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into the separate body of insurance law, and noted that the
expert failed to claim that “BOMA standards are commonly used in
the
insurance
industry.”
Id.
at
*3.
For
this
reason,
the
magistrate court excluded the expert on the grounds of relevance.
The Court finds this precedent inapplicable. Dr. Becker is
not taking unrelated industry standards and applying them to the
contract. Economics is a field that is well-suited to analyze
the costs associated with the complicated financial transactions
in a wide variety of legal settings. The economic result of the
contract is useful information for the jury when resolving the
factual disputes in this case.
In the alternative, Lilly argues that Dr. Becker did not
apply
any
“scientific,
under
Federal
Rule
of
technical,
Evidence
or
702.
specialized
Lilly
argues
knowledge”
that
the
contract is straightforward, and Dr. Becker is not using any of
his Ph.D. economics skills besides reading the contract. This
argument is belied by the fact that Lilly actively disputes the
economics of the contract and in fact hired its own economics
professor
who
came
to
a
markedly
different
opinion
in
its
rebuttal of Dr. Becker’s expert report. The Court denies the
Motion to Exclude Dr. Becker’s Testimony. (Dkt. No. 299.)
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5.
Motion to Exclude the Opinion and
Testimony of Louis Rossiter
In response to Becker’s report, Lilly proffers expert Dr.
Louis Rossiter (“Rossiter”) in rebuttal. Dr. Rossiter is a
research professor at the public policy school at the College of
William & Mary and holds a Ph.D. in Economics. (Rossiter CV,
Rossiter Rebuttal Report, Ex. A, Dkt. No. 307-1.) Dr. Rossiter
offers three opinions in rebuttal to Becker’s economic analysis
of Lilly’s contract:
A. The introduction of FFS contracts, including their
PIV provisions, created a more efficient model for the
distribution of pharmaceutical products and eliminated
various inefficiencies and market distortions that
existed under the prior contracts;
B.
Dr. Becker’s opinion that the amount of PIV is
simply a “part of the price of the drug” fails to
consider and articulate the economic rationale and
genesis of the PIV provisions as a mechanism for
controlling wholesaler inventory levels, one of the
specifically enumerated services that wholesalers
provide to Lilly; and
C. Without the PIV provision of the FFS contracts,
wholesalers would have continued to engage in
speculative buying and received significant additional
compensation for performing the same set of services
they are compensated for under the FFS contracts. This
would
have
resulted
in
wholesalers
being
overcompensated for the services performed.
(Rossiter Rebuttal Report at 7—8, Resp., Ex. 1, Dkt. No. 3071.) Relator argues that the opinions do not stick to the same
subject matter as Dr. Becker’s economic analysis and thus are
outside the scope of a rebuttal opinion.
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Under
Federal
Rule
of
Civil
Procedure
26(a)(2)(D)(ii),
rebuttal evidence is permitted “if the evidence is intended
solely to contradict or rebut evidence on the same subject matter
identified by another party.” Relator reads the words “same
subject matter” narrowly and argues that Lilly’s rebuttal expert
cannot
rely
on
outside
information
in
rebutting
Becker’s
conclusions. The Court finds that Dr. Rossiter’s analysis to be
based on his own expertise as a health economics professor, and
as a result his analysis will differ in sources and conclusions.
See Andersen v. City of Chicago, 467 F.Supp. 3d 619, 631 (N.D.
Ill. 2020) (“[I]t is permissible for [rebuttal expert] Dr. Reich
to elaborate on how exactly his own practices and experience
informed his opinion.”) These differences are not a reason to
exclude a rebuttal opinion.
Relator’s remaining arguments are that Dr. Rossiter engages
in
flawed
methodologies
and
that
the
introduction
of
Dr.
Rossiter’s testimony would confuse the jury. However, Relator’s
arguments
are
ultimately
disagreements
with
Rossiter’s
conclusions. Relator states that Dr. Rossiter “ignores highly
probative evidence” without “a single citation to any evidence.”
(Mem., Dkt. No. 302.) These critiques are better suited to crossexamination before the jury than any premature exclusion. The
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Court denies the Motion to Exclude Dr. Rossiter’s rebuttal
report. (Dkt. No. 301.)
B.
Relator
Motions for Summary Judgment
alleges
violations
of
three
components
of
the
federal False Claims Act and a variety of state False Claims
Acts. The False Claims Act “prohibits the submission of false
and
fraudulent
claims
for
payment
to
the
government”
and
“authorizes private citizens (called “relators”) to file civil
actions on behalf of the government.” Glaser v. Wound Care
Consultants, Inc., 570 F.3d 907, 912 (7th Cir. 2009).
Count I alleges violations of 18 U.S.C. §§ 3279(a)(1)(A)
and (a)(1)(B). Under § 3279(a)(1)(A), a liable individual is one
who “knowingly presents, or causes to be presented, a false or
fraudulent
claim
§ 3279(a)(1)(B),
a
for
liable
payment
individual
or
is
approval.”
one
who
Under
“knowingly
makes, uses, or causes to be made or used, a false record or
statement material to a false or fraudulent claim.” Count II
alleges a violation of § 3729(a)(1)(D), which provides liability
for any individual who “has possession, custody, or control of
property or money used, or to be used, by the Government and
knowingly delivers, or causes to be delivered, less than all of
that money or property.”
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Count III alleges a violation of § 3729(a)(1)(G) which
creates liability for any individual who “knowingly makes, uses,
or causes to be made or used, a false record or statement
material to an obligation to pay or transmit money or property
to
the
Government,
or
knowingly
conceals
or
knowingly
and
improperly avoids or decreases an obligation to pay or transmit
money or property to the Government.” This is often referred to
“reverse false claim.” United States ex rel. Garbe v. Kmart
Corp., 73 F.Supp. 3d 1002, 1011 (S.D. Ill. 2014), as amended
(Jan. 12, 2015), on reconsideration in part sub nom. United
States v. Kmart Corp., No. 12-CV-0881-NJR-PMF, 2015 WL 11181733
(S.D. Ill. Jan. 9, 2015), aff’d in part, rev’d in part and
remanded, 824 F.3d 632 (7th Cir. 2016).
FCA civil claims require two primary elements: (1) scienter
and (2) falsity. United States ex rel. Schutte v. Supervalu Inc.,
9 F.4th 455, 463 (7th Cir. 2021). Falsity is found in the common
law meaning of fraud, either “express misrepresentations or
‘misrepresentations by omissions.’” Id. (quoting Univ. Health
Servs., Inc. v. U.S. ex rel. Escobar, 136 S.Ct. 1989, 1999
(2016)). Scienter requires the liable individual to mean “that
a person, with respect to information (i) has actual knowledge
of the information; (ii) acts in deliberate ignorance of the
truth or falsity of the information; or (iii) acts in reckless
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disregard of the truth or falsity of the information.” Id.
(citing § 3729(b)(1)(A)). It does not require “proof of specific
intent to defraud.” Id. (citing § 3729(b)(1)(B)).
In addition to these two essential elements, the plaintiff
“also must prove that the violation proximately caused the
alleged injury” and that defendant’s conduct meets “a strict
materiality requirement.” United States ex. rel. Prose v. Molina
Healthcare of Illinois, Inc., 17 F.4th 732, 740 (7th Cir. 2021).
In sum, the relator must establish (1) scienter, (2) falsity,
(3) causation, and (4) materiality.
In Lilly’s motion for summary judgment, Lilly argues that
that the Relator cannot meet either the scienter or falsity
elements of the claim. Relator cross-motions and asks the Court
to find summary judgment as to all four elements. Essentially,
Lilly argues that the Relator has a very high burden, and Relator
argues that the language is very clear. As is typical in summary
judgment motions, both parties make valid points. Relator’s
burden
is
very
high,
and
the
definitions
of
“Average
Manufacturer’s Price” and “bona fide service fees” are also very
clear. But while even high burdens are occasionally met, the
Court is unable, upon careful review, to find any reasonable
interpretation of the statute that would support Lilly’s partial
exclusion
of
the
price
of
its
- 30 -
drug
from
its
Average
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Manufacturer’s Price. For the reasons set forth below the Court
denies Lilly’s Motion entirely and denies in part and grants in
part Relator’s Motion.
1.
Lilly
argues
that
Scienter
Relator
cannot
pass
the
threshold
requirement for scienter set forth in United States ex rel.
Schutte v. Supervalu Inc., 9 F.4th 455, 463 (7th Cir. 2021). In
the
Schutte,
Seventh
Circuit
adopted
the
Supreme
Court’s
scienter standard for the Fair Credit Reporting Act from Safeco
Insurance Company of America v. Burr, 551 U.S. 47, 127 (2007),
and applied it to the False Claims Act’s scienter provision. Id.
In Safeco, the Supreme Court held that “[a] defendant who acted
under an incorrect interpretation of the relevant statute or
regulation
did
interpretation
authoritative
not
was
act
with
reckless
objectively
guidance
disregard
reasonable
cautioned
defendants
if
and
(1)
the
(2)
no
against
it.”
Schutte, 9 F.4th at 464. The Seventh Circuit held that this
requirement
reaches
all
three
scienter
terms
that
define
“knowingly” in the False Claims Act, and as such is a threshold
issue. Id. at 467.
Lilly argues that undisputed materials facts demonstrate
Lilly was not objectively unreasonable in its interpretation of
the MDRP requirements and that CMS provided no authoritative
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guidance to warn Lilly away from its incorrect views. As a
result, Lilly argues that the Relator cannot show any level
scienter that would make Lilly liable under the False Claims
Act.
The
Court
first
reviews
whether
Lilly
was
objectively
unreasonable in excluding “price increase value” from its AMP
calculations. “The objectively reasonable inquiry hinges on the
text of the statute or regulation that the defendant allegedly
violated and as such is a question of law.” Id. at 468. The
Average Manufacturer’s Price is defined as “the average unit
price paid to the Manufacturer for the drug in the [United]
States
by
wholesalers
for
drugs
distributed
to
the
retail
pharmacy class of trade.” The definition further states that AMP
“must be adjusted by the Manufacturer if cumulative discounts or
other
arrangements
subsequently
adjust
the
prices
actually
realized.” The Court then compares this text the definition of
a “price increase value” in Lilly’s FFS Agreements. A “price
increase
value”
is
the
difference
between
the
price
the
wholesaler originally paid for the drug and the current price,
multiplied by the number of units. Lilly cannot and does not
deny a “price increase value” or “price adjustment credit” was
an
“adjust[ment]”
“paid
to
the
Manufacturer”
and
“by
the
wholesalers” on a per unit basis. Instead, Lilly argues that the
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statute was unclear as to whether Lilly needed to include the
entire price or simply the initial price of the product in the
AMP.
As
already
explained,
the
definition
of
Average
Manufacturer’s Price states that subsequent price increases and
decreases must be included. For this reason, the explicit text
of the statute makes Lilly’s position unreasonable.
Nevertheless, Lilly argues that the words “price increase
value” are not present in the statute in that exact order and
therefore the legal landscape was ambiguous. Lilly argues that,
under the 1991 National Rebate Agreement, in the absence of
“specific guidance,” a drug manufacturer is permitted to “make
reasonable assumptions in its calculations of AMP.” This strains
the meaning of “specific guidance.” Under Lilly’s standard, any
creation and subsequent definition of a new phrase in a contract,
as present here, would allow drug manufacturers to avoid its
clear obligations under statute. Courts have recognized that
“[b]y requiring regulations to be too specific [courts] would be
opening up large loopholes allowing conduct which should be
regulated to escape regulation.” Freeman United Coal Min. Co. v.
Fed. Mine Safety & Health Rev. Comm’n, 108 F.3d 358, 362 (D.C.
Cir. 1997) (citing Ray Evers Welding Co. v. OSHRC, 625 F.2d 726,
730 (6th Cir.1980)). The Court declines to allow this loophole
reasonable under a plain reading of the statute.
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In the alternative, Lilly argues that the “price increase
value” could reasonably be considered part of its bona fide
service fees. In the FFS agreements drafted by Lilly, the price
increase value calculation is in the same paragraph as the bona
fide service fees calculation, and the transaction between the
two parties happens simultaneously. Lilly argues that CMS has
explicitly
rejected
bona
fide
fee
services
from
AMP
calculations, so Lilly was entitled to add “price increase value”
as part of the services fees and thus also exclude them from the
AMP.
By definition, bona fide service fees are “fees paid by
manufacturer to an entity . . . for a . . . service.” In contrast,
a “price increase value” is never paid by the manufacturer and
is never for a service. Therefore, the Court finds the proximity
of the words “price increase value” to the words “bona fide
service fee” in the FFS Agreements irrelevant to the Court’s
analysis. The history of the bona fide service fees in FFS
Agreements furthers this conclusion. As recounted by Lilly in
its briefing, CMS specifically rejected the bundling of “service
fees” with product pricing in 2007. As noted by Lilly, some drug
manufacturers tried to incorporate service fees with the full
price
of
the
product,
which
illegally
lowered
their
AMP
calculations and thus their payments to the government. Lilly,
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characterizing
itself
as
taking
“a
conservative
approach,”
decided to only bundle price adjustments with service fees.
(Mem., Dkt. No. 315.) However, there is nothing conservative
about an approach where two distinct transactions that were
explicitly not permitted to be coupled, the price of the product
and the service fees, are nonetheless combined to lower AMP
calculations. A fundamental truth in mathematics and law is that
$10(price) - $1(fee) is equal to $9(price) - $1(fee) + $1(price
adjustment). Although one uses more steps, they are the same
equation and create the same result. Lilly readily admits that
CMS
prohibits
the
first
equation
($10
-
$1)
because
it
artificially lowers the price of AMP. Therefore, it is decidedly
not reasonable for Lilly to assume that it may instead use second
equation ($9 - $1 + $1), simply because the steps take place a
different or more complicated order.
To support its position, Lilly draws parallels to the
findings in United States ex rel. Schutte v. Supervalu Inc., 9
F.4th 455, 463 (7th Cir. 2021). There, the Seventh Circuit found
that there were two reasonable ways to interpret the meaning of
the word “Usual and Customary Price.” Id. at 469. The Seventh
Circuit found that the definition of “Usual and Customary” might
mean the price that is “charged” most frequently for a drug, but
it could also indicate the retail rather than discount price.”
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Id. As
a
Supervalu
result,
did
the
Seventh
not
have
Circuit
an
found
that
objectively
Defendant
unreasonable
interpretation of the statute. Id.
The Court finds this precedent inapplicable. Lilly has not
proffered, nor has the Court been able to imagine, a reasonable
alternative
interpretation
to
both
the
mechanics
and
the
definition of “price increase value” to be anything other than
an adjustment of price and thus within the definition of Average
Manufacturer’s
Price.
Instead,
the
Court
agrees
with
the
district court in United States ex rel. Streck v. Bristol-Myers
Squibb Co., 370 F.Supp. 3d 491 (E.D. Pa. 2019), who found
“nothing ambiguous” in the definition of bona fide service fees
and agreed that Streck provided sufficient scienter, even under
the “objectively unreasonable” standard. 370 F.Supp. 3d at 497.
Having
determined
that
Lilly’s
interpretation
of
Average
Manufacturer Price is objectively unreasonable, the Court finds
that Lilly reaches the threshold requirement of Safeco and denies
the motion to grant summary judgment on the basis of scienter.
Relator, in response, moves for summary judgment in the
opposite direction. Relator argues that Lilly, at a minimum,
acted with reckless disregard or deliberate ignorance and thus
knowingly violated the False Claims Act. As part of electing to
participate in the National Rebate Agreement, Lilly has “a duty
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to familiarize itself with the legal requirements for cost
reimbursement.” Heckler, 467 U.S. at 64. For the False Claims
Act, reckless disregard holds liable “‘only those who act in
gross negligence,’ that is, those who failed ‘to make such
inquiry as would be reasonable and prudent to conduct under the
circumstances.’” United States v. King-Vassel, 728 F.3d 707, 713
(7th Cir. 2013) (quoting S. Rep. No. 99–345, at 20).
While the duty Lilly holds is clear, what Lilly did and the
intent with which Lilly did them is hotly contested in the
submitted Rule 56.1 statements of material fact. The Court finds
that there are insufficient undisputed facts on which the Court
can make a summary judgment determination and reserves this
question for the jury.
2.
Falsity
Lilly also argues that the Relator fails to meet the falsity
element of the False Claims Act. A statement may be deemed
‘false’ for purposes of the False Claims Act if the statement
represents “an objective falsehood,’” U.S. ex rel. Yannacopoulos
v. Gen. Dynamics, 652 F.3d 818, 836 (7th Cir. 2011), or “if it
is made in contravention of a statute, regulation, or contract.”
Thulin v. Shopko Stores Operating Co., LLC, 771 F.3d 994, 998
(7th Cir. 2014). There are several types of false statements,
including “a claim for payment which is itself literally false
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and fraudulent,” “fraud in the inducement,” and “implied false
certification.” Prose, 17 F.4th at 740.
Similar to its scienter argument, Lilly states there is no
statute or final regulation that contained the words “price
increase value” or “price appreciation credit” until 2016. As a
result, Lilly argues no jury could find a “clear obligation” of
duty
to
include
this
part
of
the
price
in
the
Average
Manufacturer’s Price. U.S. ex rel. Quinn v. Omnicare Inc., 382
F.3d 432 (3d Cir. 2004). Without this obligation, Lilly argues
the statute is ambiguous.
To demonstrate the ambiguous nature of the statute, Lilly
offers
the
following
alternative
interpretation
of
its
obligations under the 1991 National Rebate Agreement: “Congress
did not include any temporal limitations on ‘price’ in the AMP
statute,
and
so
one
reasonable
interpretation
is
that
the
undefined term refers to the “initial price” charged to the
wholesalers (i.e., excluding PIV).” (Mem. at 33, Dkt. No. 315.)
This interpretation is foreclosed by the AMP’s definition, which
explicitly
states
Manufacturer
if
that
the
cumulative
AMP
“must
discounts
or
be
adjusted
other
by
the
arrangements
subsequently adjust the prices actually realized.” The Court
finds
the
requirement
for
the
“price
actually
realized”
forecloses Lilly’s theory that it is a reasonable interpretation
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of the guidelines to submit an “initial price” for the ultimate
AMP calculations. The definition of the word “price,” states,
“the amount of money given or set as consideration for the sale
of a specified thing.” Price, Merriam-Webster Dictionary (2022)
(https://www.merriam-webster.com/dictionary/price).
The
fact
that Lilly tries to define “price” to mean “initial price” is a
contortion of the regular meaning of the word and an internally
inconsistent with itself.
Finally,
appropriate
Lilly
vehicle
argues
for
that
policing
the
“the
technical
FCA
is
not
compliance
an
with
administrative regulations.” U.S. ex rel. Lamers v. City of Green
Bay, 168 F.3d 1013, 1020 (7th Cir. 1999). Lilly argues that,
when there is a disputed legal issue as to the falsity of a
statement, the Court should avoid punitive payments of the FCA.
Because the Court finds, as a matter of law, that alternative
readings of the statute as proposed by Lilly are objectively
unreasonable, this argument also fails.
Relator’s motion for summary judgment asks the Court to
find
that
the
record
conclusively
demonstrates
that
the
statements were false in two respects. First, Relator argues
that they were factually false because the AMP and related
calculations were factually incorrect. Second, Relator ask the
Court to find that the AMP certifications were legally false,
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because
Lilly
certified
that
its
AMPs
were
calculated
in
compliance with the law, and they were not.
In response, Lilly presents the same arguments discussed,
and rejected, above. Lilly believes that the law was ambiguous,
and thus the statements could not be false. As pointed out by
the Relator, Lilly has essentially admitted through its actions
that the claims were false. Since 2017, Lilly has included “price
increase value” in its Average Manufacturer’s Price submissions.
Lilly does not intend to argue that these new submissions are
false, making it impossible to argue the prior ones were not
false, particular as the Court has determined as a matter of law
that
Lilly’s
interpretation
of
statute
was
objectively
unreasonable. For these reasons, the Court grants Relator’s
motion for summary judgment on falsity and holds that Lilly’s
AMP calculations and related certifications were factually and
legally false.
3.
Materiality and Causation
Under the False Claims Act, a false statement is material
is “a reasonable person would view the condition as important to
a choice of action in the transaction” or “the defendant knew or
had reason to know that the recipient of the representation
attaches importance to that condition.” Prose, 17 F.4th at 743.
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Relator does not seek to apply either of these materiality
standards in its briefing. Relator argues that, because Lilly’s
falsely lowered its Average Manufacturer’s Price, it paid less
money under the regulatory scheme, and thus materiality is
established as a matter of law. This is incorrect. “[S]tatutory,
regulatory, and contractual requirements are not automatically
material, even if they are labeled conditions of payment.”
Universal Health Servs., Inc. v. United States ex. rel. Escobar,
579
U.S.
176,
191
(2016).
Relator
must
prove
more
than
a
difference in payment to show materiality under the False Claims
Act.
In seeking summary judgment on causation, Relator does not
even
articulate
the
correct
standard
for
causation
in
his
briefing. The Court does not consider this to be a serious
argument. The Motion for Summary Judgment as to both materiality
and causation is denied.
IV.
CONCLUSION
For the reasons stated herein, the Court rules as follows:
1. Denies Defendant Eli Lilly’s Motion for Summary Judgment
(Dkt. No. 314);
2.
Denies in part and grants in part Relator’s Motion for
Summary Judgement (Dkt. No. 311); and
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Case: 1:14-cv-09412 Document #: 374 Filed: 02/28/22 Page 42 of 42 PageID #:24322
3.
Grants in part and denies in part the Motions to Exclude
Expert Opinions and Testimony. (Dkt. Nos. 293, 295, 297, 299,
301.)
IT IS SO ORDERED.
Dated: 2/28/2022
Harry D. Leinenweber, Judge
United States District Court
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