Whistleblower’s claim that Eli Lilly shortchanged Medicaid will go to jury

An Eli Lilly and Company pharmaceutical manufacturing plant is pictured at 50 ImClone Drive in Branchburg, New Jersey, March 5, 2021. Picture taken March 5, 2021. REUTERS/Mike Segar

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(Reuters) - A federal judge in Chicago on Monday rejected Eli Lilly’s bid to end a whistleblower lawsuit that accused the drug manufacturer of shortchanging the Medicaid Rebate Program between 2005 and 2016.

U.S. District Judge Harry Leinenweber denied Lilly’s motion for judgment and said the plaintiff, Ronald Streck, had cleared the first of four hurdles under the False Claims Act by establishing that Lilly had made false statements to the Centers for Medicare and Medicaid Services about the prices it charged distributors for its drugs.

Lilly argued that the pricing rules were ambiguous until CMS issued guidance on it in 2016, but “the explicit text of the (Affordable Care Act) makes Lilly’s position unreasonable,” Leinenweber said.

A jury will still need to decide whether Lilly’s actions were intentional, material and caused a loss to the federal government and Medicaid agencies in 26 states, the judge added.

Even so, the ruling will have a “huge impact,” said Streck’s lead lawyer, Daniel Miller of Walden Macht & Haran.

“The foundation of Lilly’s defense is that its interpretation of the law was reasonable,” so “most of Lilly’s arguments are now legally irrelevant,” Miller said.

Lilly and its lawyers at Kirkland & Ellis and other firms did not immediately respond to requests for comment. It is the last remaining defendant in the lawsuit, which was filed in 2014.

Streck, a lawyer and pharmacist with a long background in negotiating drug distribution agreements, has filed and settled several other suits on the government’s behalf against drug manufacturers for allegedly shortchanging the Medicaid Rebate Program.

Drugmakers who want their products covered by Medicaid must agree to rebate part of the government insurer’s cost. CMS calculates the rebate based on each drug’s Average Manufacturers Price (AMP), the amount the drugmaker receives from its distributors. The higher the AMP, the higher the rebate obligation.

Prior to 2017, Lilly reported the “initial” AMP but not any price increases it charged distributors on unsold units in stock. It argued that the increases were taken as adjustments to distribution charges it would otherwise owe, and distribution charges have no role in the AMP calculation.

However, the law clearly requires manufacturers to adjust AMP to reflect any “arrangements” that “subsequently adjust the prices actually realized”; and since Lilly had not done so, its “AMP calculations and related certifications were factually and legally false,” the judge concluded.

The case is U.S. ex rel. Ronald Streck v. Takeda Pharmaceuticals America Inc et al, U.S. District Court for the Northern District of Illinois, No. 14-9412.

For Streck: Daniel Miller and Jonathan DeSantis of Walden Macht & Haran; Daniel Hergott and Michael Behn of Behn & Wyetzner

For Eli Lilly: Andrew Kassof and Diana Watral of Kirkland & Ellis; Joel Hammerman of Faegre Drinker Biddle & Reath and Thomas Gallagher of Troutman Pepper

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