In United States ex rel, Sheldon v. Allergan Sales, LLC, the relator claimed that defendant drug manufacturer had engaged in an allegedly fraudulent price reporting scheme under the Medicaid Drug Rebate Statute. Under the Rebate statute, drug manufacturers seeking to have drugs covered by Medicaid must enter into rebate agreements by which they provide quarterly rebates to states on sales of Medicaid covered drugs. The manufacturer reports the “Average Manufacturer Price” and the “Best Price” for covered drugs to CMS. CMS calculates the rebate amount. The relator alleged defendant failed to aggregate the discounts given to customers when reporting Best Price.
The Fourth Circuit found the scienter framework originally set forth by the Supreme Court with respect to the Fair Credit Reporting Act (FCRA) also applies to the FCA. See 24 F. 4 340 (4th Cir. 2022) applying Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007). Under this standard, a defendant cannot be liable under the FCA if (1) its reading of applicable statutory or regulatory requirements was objectively reasonable and (2) no authoritative guidance warned it away from that interpretation. This is the same decision that each circuit that has considered the applicability to Safeco standard to the FCA has reached. Id. at 348.
The Fourth Circuit further held that the drug manufacturer’s interpretation of the Rebate statute was objectively reasonable. The Court also noted there was no authoritative guidance to warn defendant away from this interpretation.
Key takeaway: a putative relator cannot simply point to a vague or conflicting regulation to establish a FCA case.
