There are none more regulated than those who receive funds directly from the government, including federally subsidized healthcare providers. It is no surprise, therefore, that the government and qui tam relators constantly push the boundaries of what “violates” applicable regulations and, they argue, the False Claims Act, 31 U.S.C. § 3729 et seq. (FCA). A recent decision from the Third Circuit reinforces the proposition that a reasonable interpretation of regulations cannot result in knowingly false claims. See United States v. Allergan, Inc., — Fed. App’x –, 2018 WL 3949031 (3d Cir. Aug. 16, 2018). Drug manufacturers sell their products to wholesalers. Those wholesalers pay a price for the drugs, of course, but also charge a “service fee” to the manufacturers. Some wholesalers engage in “speculative buying,” in which they stockpile drugs when their price is low and sell them later when the price rises. To counteract this practice, manufacturers began demanding “price appreciation credits” in the form of discounts from the service fees. Thus, strictly speaking, these credits did not affect the price of the drugs—they were paid through a different mechanism. The Allergan case revolved around how to calculate the Average Manufacturer’s Price (AMP) paid by the wholesalers. The AMP matters because, under the Medicaid Drug Rebate Program (MDRP), the manufacturers pay a rebate to the states in proportion to the AMP. The lower the AMP, the lower the rebates. The applicable law, 42 U.S.C. § 1396r-8(k)(1), went through three iterations during the time frame relevant to the case. None of those iterations spoke directly to the question of the “price-appreciation credits” had to be accounted for as the manufacturers calculated the AMP.
