Corporate Counsel Daily, $183 million jury verdict against Eli Lilly affirmed in Medicaid MDRP rebate dispute, (Sep 18, 2025)

By Justin Marcus Smith, J.D.

The court affirmed that Lilly pocketed part of the rebates it owed to the government between 2005 and 2017.

The district court correctly entered summary judgment against Eli Lilly and Company (Lilly) in its ten-year long qui tam battle over the propriety of average manufacturer price (AMP) calculations reported to the government under the Medicaid Drug Rebate Program (MDRP), affirmed the United States Court of Appeals for the Seventh Circuit. Lilly’s disputed AMPs were false. The court also affirmed the jury’s scienter and materiality determinations. The qui tam relator, meanwhile, did not perfect an appeal about how to count the number of violations under the False Claims Act (FCA). Pre-trial and evidentiary motions did not decide the issue, the jury did not decide the issue, and consequently, there was no ruling to review ( U.S. ex rel. Streck v. Eli Lilly and Co ., Nos. 23-2134, et al. (7th Cir. Sept. 11, 2025)).

Background. Drug manufacturer Lilly participated in the MDRP program since 1991. Congress created the program so drug manufacturers would shoulder some of the cost to keep government spending manageable. When Medicaid covers a prescription drug, the manufacturer must pay a quarterly rebate to the Secretary of Health and Human Services (HHS). The rebates are the heart of the MDRP.

The rebate owed for a given drug is often a function of multiplying a percentage of the drug’s AMP by the quantity sold during that quarter. An increase or decrease in a drug’s AMP will have a corresponding effect on the rebate amount. The higher the AMP, the more the manufacturer will owe the Medicaid program.

In 2014, a relator filed a qui tam action against Lilly and 14 other drug manufacturers in the Northern District of Illinois. The relator alleged that Lilly falsely lowered the AMPs between 2005 and 2007 leading to $61 million in Medicaid rebate underpayments.

The relator and Lilly both moved for summary judgment. The court denied Lilly’s motion and granted the relator’s motion in part. The court reasoned Lilly’s AMP calculations were factually and legally false under the FCA. Questions about whether Lilly’s AMP statements to HHS were material or made with scienter went to the jury.

The relator made several evidentiary arguments about how to count the number of FCA violations at issue, but the district court denied the relator’s various pretrial and evidentiary motions. The parties chose not to put the violation counting question to the jury.

Lilly requested a jury instruction on materiality based on a Supreme Court decision, but the district court instead gave a jury instruction directly from the FCA text.

The jury returned a verdict in the relator’s favor of $61,229,217. The FCA trebled that to over $183 million. Lilly appealed to the United States Court of Appeals for the Seventh Circuit. Lilly challenged the district court’s summary judgment on falsity as well as the jury’s determination on scienter and materiality. The relator cross-appealed on the question of how to count the number of FCA violations.

Unreasonable calculations. On appeal, the Seventh Circuit held, first, that Lilly was unreasonable in excluding price increase values from its AMP calculations. Lilly would sell drugs to wholesalers, increase the prices after delivery, and then require the wholesalers to remit the difference. Lilly would pocket the remitted amount without including it in the AMPs it reported to HHS.

Only drugs that wholesalers sold to pharmacies became part of the AMP. The court acknowledged that some calls Lilly had to make in calculating the AMP were difficult, and the Centers for Medicare & Medicaid Services (CMS) did permit Lilly discretion for instances ambiguity. However, most of those instances of ambiguity had to do with whether or not certain entities were pharmacies The issue at bar was not which sales mattered. The issue was what revenue received from retail pharmacies counted as the price realized for the AMP.

The court said it could not follow Lilly’s logic on the revenue received. As a matter of basic math and economics, the price received after a Lilly price increase was what counted, but Lilly did not include that difference in the AMP reported to HHS. The court found the pertinent regulations were consistent on how to count the AMP. They did not distinguish between payments Lilly received in lump sum or over time, and there was no good reason to do that. The AMP had to include cumulative discounts or other arrangements. The plain text of Lilly’s contract with the government said the same thing. Lilly must adjust the AMP for post-sale arrangements ultimately affecting the price actually realized.

Fee test. Lilly countered that price increase values were part of bona fide services it provided to the wholesalers, but the court did not find any legal justification for Lilly to exploit the timing of wholesaler payments to manipulate its AMP. The clawbacks after price increases failed both elements of the bona fide services test: (1) the wholesalers passed the price increases to the retail pharmacies; and (2) they were not manufacturer payments. Lilly recouped the value of the prices retail pharmacies paid, whether by cash or credit. The fact that wholesalers paid Lilly the clawback value was another indication of failure to meet the bona fide services test.

The Seventh Circuit acknowledged it was diverging from an unpublished and non-precedential order from the Third Circuit. That court had qualms about whether the “price” lacked temporal limitations, but the Seventh Circuit was comfortable with prices being paid over time rather than in one lump sum.

Falsity. The court held the AMP submissions were false as a matter of law. Lilly attempted to cite the proposition that reasonable interpretations of a statute cannot be false as a matter of law, but even Lilly apparently acknowledged the interpretation must be reasonable. That was not the case here. Lilly’s interpretation was not reasonable.

The court rejected all variants of Lilly’s falsity argument. The statute, MDRP agreement, and regulations were all clear that Lilly’s AMP methodology was improper. Even if Lilly had discretion to make its own reasonableness assumptions, the decision it made to exclude the price increase clawbacks was “so far afield from the law that the assumption was unreasonable, and therefore [found] no refuge in the ‘reasonable assumptions’ framework.”

Scienter. Scienter was a closer call, but the jury was free to find Lilly acted with a culpable state of mind after comparing two Lilly AMP calculation representations over a period of time. Lilly knew CMS would read one, in connection with an audit, but not the other. Lilly’s objectively unreasonable interpretation of the law was also highly probative circumstantial evidence of a culpable state of mind. The interpretation condoned an egregious exploitation of the law. At trial, Lilly did not mount an advice-of-counsel defense. Lilly also knew how much the clawbacks were worth. They often approached $100 million per year.

Moreover, despite the AMP documentation requirement, Lilly could not produce one document through 2011 that even discussed the clawback feature, let alone why it was reasonable to exclude it from the AMP. Even if Lilly genuinely viewed the clawback provision as a bona fide service fee, that did not command reversal of the jury’s scienter finding.

The court faulted the government with not being more proactive, but merely showing government knowledge of falsity was not enough to undercut scienter. Apparent government acquiescence after Lilly’s 2011 letter was not enough, especially after CMS put everyone on notice it would not even read such submissions. There must be evidence of government cooperation and collaborative problem solving or explicit approval to undercut scienter. The jury could have viewed the evidence both ways, but it was entitled to view Lilly’s 2011 letter to CMS, in conjunction with its 2013 audit disclosures, as “continued efforts to hide the ball.” The latter disclosures cast the 2011 letter in a “decidedly damaging posture.” The stark change in tone was evidence of “ostrich-like” conduct. Only in 2016 did the evidence show Lilly directly told CMS it did not include clawbacks in the AMP.

Materiality. The court reviewed the jury’s materiality determination deferentially and found noncompliance with the law, causing large AMP differentials, materially conflicted with the very point of the MDRP framework. Even in 2016, Lilly did not fully explain how its clawback decision had hundred-million-dollar implications.

The materiality instruction to the jury was also accurate. It was a correct statement of law straight from the FCA text. Material means having a natural tendency to influence payment or receipt of money or property. Simple and succinct instructions like the one the district court gave are often better than complex ones. For all of the above reasons, the court did not find any error in the denial of Lilly’s summary judgment motion.

Cross-appeal. The court held the relator did not preserve the issue of how to count the FCA violations for appeal for the unusual reason that there was no argument or decision to address. The motion in limine did not decide the issue because the district court did not resolve the number of violations or settle the method for counting them. The motion for clarification similarly failed to capture the argument because it was about admission of evidence, and denial could not have swayed the jury. The jury did not decide the violations issue. At the charge conference, the relator reverted to a broad position rather than make his legal objection, and he confirmed that position in a post-trial stipulation. The Seventh Circuit suggested that maybe everyone thought there had been a ruling, but there was no ruling to review.

The cases are Nos. 23-2134, 23-2216, 23-2958, 23-3035, 24-1352, & 24-1884.

Judge: Kolar, J.

Attorneys: Robert J. Martin, IV (Martin Law P.C.) for Ronald J. Streck. Andrew A. Kassof (Kirkland & Ellis LLP) for Eli Lilly and Co.

Companies: Eli Lilly and Co.

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