Dan Miller, of the firm of Walden Macht & Haran
A federal appeals court says pharmaceutical company Eli Lilly must pay more than $183 million for allegedly reporting false drug costs to Medicaid under a drug rebate program, allegedly allowing the company to keep more than it should have.
More than 25% of that total may go to alleged whistleblower Ronald Streck, plus still more for the attorneys from the firm of Walden Macht Haran & Williams, of New York, who filed the lawsuit, nominally on behalf of the federal government under the federal False Claims Act.
A three judge panel of the U.S. Seventh Circuit Court of Appeals ruled on Sept. 11 in favor Streck and his legal team in their long-running court fight with Indianapolis-based Eli Lilly & Co.
The decision was authored by Judge Joshua P. Kolar; judges Candace Jackson-Akiwumi and Kenneth F. Ripple concurred.
Kolar and Jackson-Awikumi were appointed to the court by former President Joe Biden. Ripple was appointed by former President Ronald Reagan.
In the ruling, the judges noted Eli Lilly asserted "it did not mean to mislead the government," but instead relied on its best interpretations of a confusing government regulation - an interpretation which, they noted, never received pushback or raised questions from federal agencies, even when Lilly reportedly notified the government of its allegedly deceptive practices in a letter.
"We express our dismay at the government's lethargy, or perhaps regulatory capture," Kolar wrote, for the panel. "The government allowed companies to make reasonable assumptions. The incentives to abuse this disrection are as clear as the opening bell on the New York Stock Exchange.
"Yet the government says it would not so much as review a letter. That policy runs the risk of rule-making by regulatory prosecution.
"Moreover, the lack of industry-wide oversight likely cost taxpayers dearly. And, it made this case a close call demanding the expenditure of a great deal of judicial resources, both in the district court and on appeal," Kolar wrote.
Nonetheless, Kolar and his colleagues said a federal jury was not wrong to conclude "Lilly knowingly hid the truth" from the government, allegedly "amassing over $600 million in revenue," while it allegedly "deprived the government of over $60 million," allegedly as a result of the company's practices.
The appellate decision comes more than three years since a Chicago federal jury ruled in favor of Streck, and 11 years since Streck first lodged his complaint against Eli Lilly in Chicago federal court.
Streck and his legal team filed suit in 2014. The lawsuit was brought as a so-called qui tam action under the False Claims Act. Essentially, Streck claimed he, as a knowledgeable whistleblower, was bringing a lawsuit as a "relator" on behalf of the federal government, seeking to recover money allegedly not paid to the government or paid out by the government wrongly as a result of alleged fraud.
The lawsuit specifically targeted Eli Lilly for allegedly underreporting the price it charged for certain medications while participating in the Medicaid Drug Rebate Program.
Under the program's rules, drugmakers are required to report to Medicaid the average price of drugs included in the program.
However, in the lawsuit, Streck, identified as a former executive of a network of regional drug wholesalers, asserted Eli Lilly reported only the drugs' initial price, and did not include later price increases in the calculations.
That allegedly allowed Eli Lilly to "claw back" those price increases, allegedly forcing the government to pay more, while allowing the company to allegedly pocket hundreds of millions more in profit over the years.
According to court documents, Eli Lilly reportedly stopped the practice in 2017, shortly after formally and clearly notifying the federal government of its clawback practices.
The jury ordered Eli Lilly to pay more than $183 million in damages. In the verdict, the jury said Eli Lilly owed the government $61 million in miscalculated rebates. But that figure was then tripled - or "trebled," per the legal terminology - as allowed under the False Claims Act.
Under FCA qui tam actions, relators can receive 15-25% of any judgment or settlement, if the government elects to join the action as a co-plaintiff. However, in this case, the government in 2018 said it would allow Streck and his lawyers to proceed alone. So, Streck could now receive up to 30% of the judgment, or as much as $54.9 million.
The remainder would be paid to Medicaid.
Streck's lawyers could also collect a large chunk of Streck's portion of the judgment, but could also petition for additional fees above Streck's take.
In court, Eli Lilly and supporters, including the U.S. Chamber of Commerce, pushed hard against Streck's case, arguing at trial and in briefs filed on appeal that companies should not be punished because government agencies write rules and regulations that are unclear and open to differing interpretations.
They also noted Eli Lilly had provided enough information to the federal government, including in a letter to the Centers for Medicare & Medicaid Services - about its rebate program practices to prompt clarification, or at least questions, from the federal agency administering the program.
Yet, the company said, the federal government did nothing.
The judges said it also did not matter that the federal government in a 2014 audit said Eli Lilly's "reported methodology was 'generally' consistent with federal requirements..."
Rather, judges said they agreed with jurors, that Eli Lilly needed to do more to ensure they were explicitly following the rules.
"The substantial amount of money misrepresented (hundreds of millions of dollars), the (average price reporting's) centrality to the Medicaid program, and the importance of Lilly’s drugs to Medicaid all support the jury’s verdict," Kolar wrote.
The judges noted that they believed Eli Lilly's "stark turnabout in content and tone when it knew government officials were reading versus when it knew they were not" amounted to "ostrich-like conduct ... where corporate officers insulate themselves from knowledge of false claims submitted by lower-level subordinates."
"So too it is proof of the company 'burying its head in the sand and failing to make simple inquiries which would alert it that false claims are being submitted,'" Kolar wrote, citing language from a 2021 decision in a FCA case from the U.S. Eleventh Circuit Court of Appeals.
Attorney Dan Miller, of the Walden Mach & Haran firm, served as lead counsel for Streck.
According to a release from the Walden Mach & Haran firm at the time of the jury verdict, the award marked just the latest in a series of qui tam FCA actions lodged by Streck and attorney Miller against pharmaceutical companies.
Collectively, the firm said, Streck's lawsuits have generated more than $350 million in settlements and judgments.
