370 F. Supp. 3d 491
E.D. Pa.2019Background
- Medicaid rebates are calculated from Average Manufacturer Price (AMP); bona fide service fees paid to wholesalers may be excluded from AMP, lowering rebates.
- CMS regulations and the ACA define bona fide service fees as payments for itemized services actually performed on behalf of the manufacturer.
- Relator Streck alleges BMS used "price appreciation" clauses in distributor contracts (2014–2016) to recharacterize price increases as service fees, underreport AMP, and reduce state rebates.
- CMS issued a 2012 proposed rule and later restated in 2016 that price appreciation credits do not meet the definition of bona fide service fees.
- BMS continued excluding such credits from AMP after CMS’s guidance; Streck alleges the AMP reports and resulting rebate claims were false.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Falsity: Did BMS’s AMP reports violate a material statute/regulation? | Streck: CMS’s 2012 proposed rule and ACA/regulatory definitions show price appreciation credits are not bona fide service fees, so AMP reports were false. | BMS: A proposed rule cannot create a binding prohibition; absence of explicit statutory/regulatory reference to price appreciation credits permits exclusion. | Court: CMS’s proposed rule and its restatement read the ACA/regulation to exclude price appreciation credits; Streck plausibly pleaded falsity. |
| Scienter: Did BMS act with knowledge (or reckless disregard) of falsity? | Streck: Administrative guidance and prior judicial warning (Streck I) put BMS on notice that excluding price appreciation credits was improper. | BMS: Its interpretation was reasonable; proposed rule is not authoritative enough under Safeco to "warn away" a reasonable reading. | Court: Whether BMS was "warned away" is a factual question, but Streck alleged sufficient facts (administrative and judicial guidance) to plausibly show scienter. |
Key Cases Cited
- Pharm. Research & Mfrs. of Am. v. Walsh, 538 U.S. 644 (explains Medicaid drug rebate framework)
- United States ex rel. Petratos v. Genentech, Inc., 855 F.3d 481 (3d Cir.) (elements of FCA claim)
- United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295 (3d Cir.) (falsity requirement under FCA)
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (Standards for "warned away"/knowledge inquiry)
- Purcell v. MWI Corp., 807 F.3d 281 (D.C. Cir.) (three-factor test for scienter where defendant claims reasonable interpretation)
- Streck v. Allergan, Inc. (Streck I), 894 F. Supp. 2d 584 (E.D. Pa.) (earlier judicial warning about treatment of price appreciation credits)
- United States ex rel. Streck v. Allergan, [citation="746 F. App'x 101"] (3d Cir.) (addresses whether defendants were warned away by administrative guidance)