Health Law Daily Relator gets another bite at the apple against Astellas and Eli Lilly
Friday, April 5, 2019

Relator gets another bite at the apple against Astellas and Eli Lilly

By Rebecca Mayo, J.D.

Where a qui tam action is voluntarily dismissed by the relator and brought a second time by the same relator, the second action is not barred by the first to file or previous public disclosure rules.

The first to file bar and previous public disclosure bar to the filing of False Claims Act (FCA) claims does not apply where the previous case was filed by the same relator and was dismissed not on the merits but for another reason. A district court denied motions to dismiss claims against Astellas Pharma US, Inc. and Eli Lilly and Company, after finding that granting the motions would in effect shield the companies from allegations that were never decided on the merits (U.S. ex rel. Streck v. Takeda Pharmaceuticals America, Inc., April 3, 2019, Leinenweber, H.).

Rebates. The Medicaid Drug Rebate Program (MDRP) was designed to offset the cost of prescription drugs dispensed to Medicaid patients. As part of the MDRP, manufacturers pay the government a rebate of a portion of the proceeds of their drug sales that are covered by a state’s Medicaid plan. The rebate is calculated based on the Average Manufacturer’s Price (AMP), which is the average price wholesalers pay manufactures for drugs. Under the applicable statute and regulation, service fees incurred by a manufacturer are not deductible from its sale price when calculating its AMP.

Discount defendant. Astrellas allegedly entered into agreements with drug wholesalers under which wholesalers would provide core services to Astellas which included contract administration, inventory and sales reports, returns processing, and inventory management. In return, Astellas would pay the wholesalers a payment of a percentage of gross purchases. Per the agreements, Astellas would account for these payments as discounts from its sales price which reduced its AMP and subsequent rebate under the MDRP.

Service fee defendant. Price-appreciation credits (PACs) were created to inhibit drug wholesalers from buying up and stocking drugs with the hope that the manufacturers would increase prices in the future and be able to sell extra inventory at a profit. Manufacturers began to insert clawback provisions in agreements with wholesalers which required wholesalers to return their profits to the manufacturer in the form of PACs where were used to offset the service fees the manufacturer paid to the wholesaler. Lilly allegedly lowered its service fees by deducting the PACs, thereby increasing profits without raising the AMP.

The claim. A former executive of a network of drug regional wholesalers filed a qui tam action in 2008 against a number of drug manufacturers, including Astellas and Lilly, alleging they falsely reported drug prices in order to defraud the government. The relator voluntarily dismissed Astellas, Lilly and some of the other defendants. In 2013 the relator filed a new lawsuit against a number of drug manufacturers, including Bristol-Myers Squibb Company (BMS), making similar allegations. The relator dismissed all of the manufacturers except for BMS.

In 2014, the relator filed again against various manufacturers, including Astellas and Lilly claiming that Astellas and Lilly improperly accounted for service fees paid to wholesalers, and in doing so, improperly reduce their AMPs, which in turn improperly reduced their rebate obligations. The relator further claimed that Astellas wrongfully treated all service fees it paid to wholesalers as deductions in computing its AMP, and Lilly wrongfully deducted price appreciation credits from the service fees it paid to manufacturers, improperly reducing its AMP. Astellas and Lilly filed motions to dismiss.

Decision. Astellas and Lilly argued that the new lawsuit was filed while the first lawsuit against them was still a pending action and therefore the new lawsuit was barred by the first to file bar and the public disclosure bar. The court found that Astellas and Lilly had been dismissed but not on the merits, therefore barring the claim now would in effect constitute a dismissal with prejudice and insulate the defendants from any future qui tam actions based on the schemes. A dismissal which was not on the merits should not act as a bar to a subsequent effort to recover funds for the government which may have been lost due to fraud.

The court further held that the prior public disclosure bar should be considered in the same context as the first to file claim. A possible claim under the FCA should not be dismissed with prejudice because the claim had been previously dismissed for reasons other than the merits. The relator here was the original source of the false claims alleged against Astellas and Lilly in the first lawsuit, and therefore would be the same original source in the new lawsuit—essentially the same case but with more detailed pleadings.

The case is No. 1:14-cv-09412.

Attorneys: Linda A. Wawzenski, U.S. Attorney's Office, for United States. Richard D. Raskin (Sidley Austin LLP) for Astellas Pharma US, Inc. Thomas M. Gallagher (Pepper Hamilton LLP) for Eli Lilly and Co.

Companies: Takeda Pharmaceuticals America, Inc.; Astellas Pharma US, Inc.; Eli Lilly and Co.; Bristol-Myers Squibb Company

MainStory: TopStory CaseDecisions CMSNews DrugBiologicNews FCANews MedicaidNews PrescriptionDrugNews QuiTamNews IllinoisNews

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