Citations
- 276 F. Supp. 3d 779
Full opinion text
MEMORANDUM OPINION AND ORDER
John J. Tharp, Jr., United States. District Judge ¡
' In this qui tam action brought primarily under the federal False Claims Act and parallel state statutes, the plaintiffs—the United States, the State of Michigan, and the State of Indiana—allege that defendant Par Pharmaceutical Companies, Inc., caused national pharmacy chains to submit false claims for reimbursement from Medicaid by inducing them to fill prescriptions not with the generic drugs originally prescribed but with more expensive forms and dosages of those drugs manufactured by Par. The plaintiffs maintain that the pharmacies’ reimbursement claims were “inherently” false because the pharmacies “overcharged” the government, but that argument reads the requirement of a false or misleading statement out of the False Claims Act. The reimbursement claims were not “inherently” nor expressly false . simply because the government paid more for Par’s drugs than it would have paid for the form or dosage that was originally prescribed.
' The plaintiffs also maintain that the claims were false because they omitted information that the drug for which reimbursement was sought was not the originally prescribed drug but an alternate form ■ or dosage strength selected to circumvent the reimbursement cap that applied to the originally prescribed, drag, without regard for regulations requiring physician authorization and the dispensing of only medically necessary and economical treatments. The claims therefore implicate the Supreme Court’s recent decision in Universal Health Services, Inc. v. United States ex rel. Escobar, — U.S. -, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016), which addressed the scope of liability under the False Claims Act for “implied false certification,” that is, the submission of claims that omit material information about regulatory non-compliance. Par maintains, and the Court agrees, that under the standard established in Escobar, the reimbursement claims it submitted were not false or misleading.
Furthermore, . Par’s motion argues that the plaintiffs lack evidence of even one claim for reimbursement for a drag that was switched in a manner that arguably violated the law because there was no physician approval, no demonstration of “medical necessity,” and no proof that the drug dispensed was the most “economical” choice. The plaintiffs did not put proof of any such claim in the record; they refer to their expert witnesses’ identification of statistical trends instead, and argue that they have no burden until trial to show evidence of the false claims. But that is not how summary judgment works. The plaintiffs have not presented evidence sufficient to support a finding that any particular claim the pharmacies filed was false, even according to their own theory. Accordingly, Par’s summary judgment motions are granted.
I. BACKGROUND
This is the fourth of a related set of four qui tam FCA suits, the first dating from September 2001, which the relator Bernard Lisitza filed against the pharmacies Ómnicare, Walgreens, and CVS, respectively, and finally against Par and three other drug makers that are no longer defendants. All allege an unlawful prescription-switching scheme (ie., the unáutho-rized substitution of more expensive pills) that resulted in overcharging the Medicaid program and, therefore, violating the FCA. In this case, the United States and the states of Michigan and Indiana intervened and filed separate complaints. Many other states permitted the relator to litigate their claims for them. In the current motions Par seeks summary judgment on the merits against the United States, Michigan, and Indiana, arguing that it is entitled to. judgment as a matter of law because the plaintiffs cannot establish the falsity of the claims on which the lawsuit is based.
A. The Complaints
The operative pleading of the United States is the Corrected Second Amended Complaint of July 9, 2013, which names only Par as a defendant. See Corrected Second Amended Complaint (“CSAC”), ECF No. 231. Michigan and Indiana filed their own complaints, see Mich. Comply ECF No. 69; Ind. Am. Compl., ECF No. 148. Although the complaints are separate, and Par moved- against each plaintiff separately, the complaints are substantially similar and the United States, Michigan', and Indiana filed a joint opposition brief and joint statements of fact. Accordingly, except where necessary to distinguish between these governmental parties, this opinion will simply refer to all three of these governmental parties as “the plaintiffs.”
In general, the plaintiffs allege that Par orchestrated an illegal prescription-switching scheme by developing or acquiring the rights to manufacture and/or distribute widely available generic drugs, but in different dosage strengths or forms than those commonly offered by competitors, and then marketing its drugs to pharmacies based on their ability to obtain higher Medicaid reimbursements for Par’s products, which were not subject to standard reimbursement caps because they were so unusual. To effect the scheme, the pharmacies programmed their automated systems to automatically switch drugs to Par’s atypical versions of commonly prescribed medications. Specifically, this case pertains to the following so-called “subject drugs”: 10- and 20-mg tablets of fluoxetine (generic Prozac, an anti-depressant),. 150- and 300-mg capsules of ranitidine (generic Zantac, an antacid), and 7.5-mg tablets of buspirone (generic Buspar, an anti-anxiety medicine). Par’s drugs were alternatives to the fluoxetine capsules in the same strengths, ranitidine tablets in the same strengths, and buspirone tablets in a 15-mg strength—the dosage most commonly prescribed. This case relates only to the dispensing of the subject drugs by two pharmacies, Omnicare and Walgreens. More precisely, the1 complaint alleges that Par induced Omnicare to offer its fluoxe-tine and buspirone products, but not raniti-dine, the third subject drug. Walgreens is alleged to have dispensed all three subject drugs. ■
The plaintiffs assert that the subject drugs were dispensed without pliysician approval, were not “medically necessary,” and were not economical within the meaning of governing state and federal Medicaid regulations, and further that Par and the pharmacies acted solely based on a profit motive, ■ all- in violation of the False Claims Act because their actions violated the regulations and consequently inflated the costs to Medicaid. The plaintiffs also allege a conspiracy between Par and the pharmacies, as well as common-law fraud; finally, Michigan and Indiana separately allege state common-law torts of unjust enrichment (both), and theft and offense-against-property (Indiana only).
B. Par’s Motions
In seeking summary judgment on the merits, Par argues that the plaintiffs cannot meet their burden of establishing that Par caused the submission of claims that were false within the meaning of the FCA or the parallel state statutes. Par further argues that the other claims necessarily fail as .well, based on the absence of falsity. This opinion jointly addresses Par’s three motions.
Since the close of briefing, the parties have filed, with leave of court, supplementary briefs addressing the impact of the Supreme Court’s decision in Universal Health Services, Inc. v. United States and Massachusetts ex rel. Escobar and Correa (“Escobar"), — U.S. -, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016). See Pls. Suppl. Brief, ECF No. 398; Par Suppl. Br., ECF No. 399. That case pertains to the so-called “implied false certification” theory that, according to Par anyway, is the theory underlying the plaintiffs’ FCA claims.
In reviewing the motions for summary judgment, the Court must view the facts and draw reasonable inferences in favor of the non-moving parties, to the extent they are supported by the record. United States ex rel Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 823 (7th Cir. 2011). Under Local Rule 56.1(a)(3) & (b)(3), the parties must set forth, and respond to, proposed undisputed facts and provide support with admissible evidence. See also Fed. R. Civ. P. 56(c) & (e). They have done so here, albeit with a great deal of improper argument folded, in. The bulk of the factual disputes presented by the parties are not material to the resolution of these motions, which simply argue that the plaintiffs cannot prove falsity as a matter of law. The immaterial facts are omitted.
II. FACTS.
The Medicaid program, one type of government-sponsored insurance, is a Third Party Payor (“TPP”) that reimburses pharmacies for the cost of filling prescriptions dispensed to the program • participants; Under the Medicaid system, retail and institutional pharmacies (such as Om-nicare, which operates primarily in nursing homes) provide prescription medications to customers and then file claims for reimbursement from the relevant state or federal agency that- administers Medicaid arid sets the reimbursement rate. State and federal Medicaid agencies establish them reimbursement rates for- prescription drugs, which they cap in the form of a Federal Upper Limit (“FUL”) or, under state law, a Maximum Allowable Cost, or “MAC.” The Court will adopt the parties’ convention of referring to “MACs” as inclusive of all reimbursement caps. These MAGs are typically set with reference-to market conditions and the actual costs of the drugs. With certain drugs, however, the Average Wholesale Price determines the reimbursement rate; - this generally results in a much higher reimbursement rate because AWPs are benchmarks prices set by manufacturers with little or no relation to 'the drug’s cost, The AWP is used when there are .too few active sellers of a given drug to allow the TPPs to set reimbursement rates according to their market-based formulas. At various, times, Par’s drugs at issue in this case commanded reimbursement rates based upon the Average Wholesale Price method, in contrast to the same drugs in the market with different (and, at least initially, more common) dosages and forms, which were capped by MACs.
When a new generic drug comes to market, the Food and Drug Administration grants a 180-day exclusive, marketing period to the manufacturer, See 21 U.S.C. §• 355(j)(5)(B)(iv). MACs are not set until that period expires and other sellers enter (or do not enter) the market. No MAC is set unless other sellers materialize. A “new” drug under FDA regulations is not related solely to its active ingredient; each separate dosage strength. and format needs its own approval and is separately priced for. reimbursement. Thus, for example, 10-mg fluoxetine tablets are not regarded by the FDA as the same drug as' 10-mg fluoxetine capsules, and two 7.5-mg buspirone tablets are not the same as one 15-mg tablet.
The two pharmacies at issue in this case against Par, Walgreens and Omnicare, entered into Medicaid Provider Agreements with the federal government, and the states in which they operated; These agreements contained certain conditions of participation in the Medicaid program, most of which contain the following terms quoted here from the state of-Florida’s 2003 enrollment agreements, with immaterial differences:
The Provider agrees to participate in [Medicaid] under the following terms and conditions:
# * *
(2) Quality of Service. The provider agrees that services or goods billed to the Medicaid program must be medically necessary, of a quality comparable to those furnished by the provider’s peers, and within the parameters permitted by the provider’s license or certification.
(3) Compliance. The provider agrees to comply with local, state, and federal laws, as well as rules, regulations, and statements of policy applicable to the Medicaid program, including the Medicaid Provider, including the Medicaid Provider Handbooks issued by the [responsible Medicaid agency].
See Pl. Resp. SOF § ¶ 18, ECF No. 370. As relevant to part (3), every Medicaid jurisdiction in this case has some requirement that treatments be medically necessary and the most cost-efficient or economical (various terms are used) available. The conditions of enrollment are enforceable with penalties including suspension from the Medicaid program. The plaintiffs’ brief contains an addendum setting forth the applicable laws of every plaintiff state. See Addendum of Laws, ECF No. 369-1.
The pharmacies submitted reimbursement claims' to Medicaid after filling prescriptions with Par drugs, as they would do with any other drugs they dispensed. A standard form required the pharmacy to set forth: a provider number, a total amount billed, the name of patient, the National Drug Code for the drug' dispensed (not “prescribed”), the prescription number, and the date filled. Sample Claim Form, ECF 232-3. The forms typically were submitted electronically. All claim forms require a provider certification that “the foregoing information is true, accurate, and complete” PL Fact Resp ¶51, ECF No. 370. They further require ac-knowledgement that “payment and satisfaction of the claim will be from Federal and State funds, and that any falsification of claims, statements or documents, or concealment of material fact may be presented under applicable Federal or State laws.” Id. There are few claim forms made part of the summary-judgment record, but Par does not dispute that Walgreens and Omnicare sought reimbursement from Medicaid for hundreds of thousands of prescriptions for the subject drugs during the relevant time period, nor that the claim forms contained the quoted language or its substantial equivalent.
The premise of the complaints is that Par convinced Walgreens and Omnicare to offer its products, rather than the standard forms and dosages then prevailing in the market, by emphasizing the greater profitability of selling Par’s non-MAC-controlled products. The pitch was straightforward: sell Par’s products; receive higher reimbursements; make more profit. Some exceptions existed—Par notes occasions when its drugs had reimbursement rates that were equivalent to or lower than the MAC set for the competition—and we will come back to these later. But there is no' fundamental dispute that, over the course of the scheme, reimbursements for the subject drugs far exceeded what Medicaid would have paid if MAC-capped dosages and forms had been dispensed instead of the subject drugs.
Par marketed its subject drugs to Wal-greens and Omnicare based at least in part on the absence of MACs on its products, and it was Par that approached the pharmacies to market its atypical offerings (which is not to say who devised the prescription-switching scheme; that fact is disputed). Par was aware that FULs were not set for drugs without at least three active sellers, and that states had broader discretion over setting MACs. Par was generally aware of the reimbursement rates on ranitidine, fluoxe-tine, and buspirone, and it made assumptions' or predictions about limits that might be established, or modified, in the future. Par prepared financial projections highlighting the potential profitability of switching from the more common forms and dosage strengths; these projections were, at least, used as talking points for the marketing executives and might have been physically shared with the pharmacies’ purchasing executives. To suggest the legality of its proposal, Par also commissioned a “survey” of each state’s Board of Pharmacy. regarding policies relevant to dispensing generics’ (in this instance, fluoxetine); that survey as presented (or used in marketing presentations) to the pharmacies did not include the states’ requirements that Medicaid services be medically necessary and provided in a cost-effective, economical manner. The survey was prepared by a pharmacist, not a lawyer.
To persuade the pharmacies of the long-term benefits of switching, Par used its industry, knowledge to predict that it was unlikely that competition from other sellers would materialize in the future, after Par’s exclusivity rights expired. Beyond the benefit of greater reimbursements, Par offered other financial incentives to the pharmacies to switch to its drugs and to purchase them in large quantities;- these included rebates while the switching was ongoing. Later, Par offered price reductions on other products to offset the pharmacies’ profit losses once the switching scheme ended in 2004 due to government investigations.
■ The pharmacies grasped the opportunity to increase their profits through higher Medicaid reimbursements and aggressively sold the switching plan internally, all the way down to the retail pharmacists dispensing the drugs. They adjusted their computer systems to automatically suggest Par’s versions of the subject drugs, and over time, the pharmacies typically' dispensed Par’s subject drugs although there is no evidence that the frequency with which physicians actually prescribed the atypical dosage strengths and forms Par distributed increased at all, let alone exponentially.
As an example of the implementation of the scheme, in April 2001, the predecessor agency to the Centers for Medicare and Medicaid Services (CMS) issued a bulletin announcing the imminent issuance of FULs for 150 mg and 300. mg ranitidine tablets. Capsules were not mentioned. By August, Par was aware that fewer than three firms would actively sell capsules and it assumed, therefore, that no FUL would be set for capsules; this was confirmed when CMS issued the FULs for the tablets only. Par prepared a chart entitled “Walgreens Ranitidine ' Analysis (tablets vs. gelcaps)” that it used as part of its marketing of the subject drugs to Wal-greens. Par’s model also suggested that, based on certain assumptions, the cost to Walgreens of acquiring Par’s capsules could be higher than what it would pay for tablets (diminishing any price motive for the pharmacies if those assumptions held true). But Par also offered rebates and price reductions to customers who purchased the subject drugs in bulk to provide additional financial incentives for the pharmacies to switch.
Par approached Walgreens, including its Director of Pharmacy Marketing, Tom Lawlor, to pitch its ranitidine capsules, and in the process' suggested that Walgreens could make more money dispensing Par’s capsules because there was no MAC. The Par executives involved in marketing the ranitidine included Nick DiMaio, Julee Tredowicz, and Scott Tarriff, By July 2001, Walgreens had contracted with Par for purchases of ranitidine capsules and instituted a program in which its front-line pharmacists would dispense capsules instead of tablets (with physician approval, Par says). Internally, a Walgreens purchasing- executive, Bill Groth, explained that the switching was due to the MACs set for tablets and the potential to greatly increase profits with capsules.. Groth also referred to a lower acquisition cost for Par’s drugs. Lawlor sent an email instructing that store managers should explain to “staff’ (ie., pharmacists) that “MAC pricing on tabs (and no MAC on caps) plus rebates has forced our hand.” Walgreens programmed its computerized prescription-filling system to “suggest” capsules for any ranitidine prescription. Lawlor referred to this in a company-wide email as “automatically switching” the drugs. The system permitted pharmacists to override the suggestion, but neither party adduced evidence of the frequency with which they did so. Between July and October 2001, Walgreens earned up to $259,460 more in gross profit by dispensing Par’s capsules instead of tablets, based upon the plaintiffs’ models projecting the profits if Wal-greens had, hypothetically, dispensed the tablets and received the FUL reimbursement rate (as opposed to any particular states’ MACs). Over the period of 2000 to 2006, .the government estimates “differential losses” to, state and .federal governments of $14,028,549, just from Walgreens’ claims for reimbursement for Par’s raniti-dine capsules. In short, the profits were higher, as predicted by Par and hoped for by Walgreens. Par implemented its marketing scheme in much the same way with Omnicare and Walgreens as to the other subject drugs. It is not necessary to the disposition of these motions to set forth these transactions in the same , level of detail.
After the Illinois Department of Health sent a formal warning to Walgreens on July 25, .2001, that dosage-form switching to non-equivalent products required documented physician permission; Lawlor emailed all Walgreens pharmacies emphasizing this mandate. It is unclear whether the pharmacists, had previously been instructed on the issue, although Lawlor testified that to his knowledge, proper procedures were followed. Whether .because pharmacists were already obtaining permission or because they chose to ignore the warning, it did not abate the switching, which continued with the same frequency after the warning.
Over the course of the alleged scheme, due to fluctuations in the applicable MACs, there were some claims that Walgreens submitted for ranitidine' capsules that were reimbursed at the same or a lower rate than the more-common alternates; ' the plaintiffs estimate this to" have occurred about 10% of the time, and they do not seek to recover on such claims as part of this lawsuit. See PI. Stmt. Add’l Facts ¶ 74, ECF No. 371. The same phenomenon occurred with' the other subject drugs at times, and the plaintiffs also exclude those claims from the universe of allegedly inflated claims. Id, ¶ 75. '
DISCUSSION
Summary judgment “shall” be granted if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Yahnke v. Kane Cty., Illinois, 823 F.3d 1066, 1070 (7th Cir. 2016). In opposing á summary judgment motion, it is the plaintiffs’ burden to identify record evidence sufficient to support a jury verdict in their' favor. Yannacopoulos, 652 F.3d at 823 (in opposing summary judgment, a plaintiff must present evidentiary material sufficient to allow him to carry his burden of proof); United States ex rel. Kelly v. Serco, Inc., 846 F.3d 325, 330 (9th Cir. 2017) (“To survive summary judgment, the relator must establish evidence on which a reasonable jury could find for the plaintiff;”).- The underlying substantive law governs whether a factual dispute is material; irrelevant factual disputes do not preclude summary judgment. Carroll v. Lynch, 698 F.3d 561, 564 (7th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A factual dispute is genuine when “the evidence is such that a reasonable jury could return a verdict for the nonmovirtg party.” Id.
As relevant here, 31 U.S.C. § 3729(a) imposes liability on any entity that; (1) knowingly presents, or causes to be presented, a,false or fraudulent claim for payment or approval; (2) knowingly makes, uses, or causes to be made or used, a false record or statement “material to a false or fraudulent claim”; [or] (3) “conspires to commit a violation of’ any part of § 3729(a). There is no dispute here that the Medicaid reimbursement requests submitted by the pharmacies are “claims” within the definition of the FCA. 31 U.S.C. § 3729(b)(2)(A).
Par seeks judgment principally on the ground that the plaintiffs have not proved “the essential element of falsity.” Par Reply 2, ECF No. 375. More specifically, Par seeks summary judgment on the basis that the plaintiffs cannot prove that Walgreens or Omnicare submitted any “false” claim for reimbursement based on their dispensing any of Par’s drugs. Id. at 1. Par contends that the claims were not “false” under the FCA and that -the plaintiffs failed to adduce evidence of any particular claims that were submitted about drugs proven to have been switched to a Par subject drug without physician approval, medical necessity, and/or cost-effectiveness. Since Par expressly disclaims any other bases for summary judgment, none will be considered here. To survive Par’s summary judgment motion, then, the plaintiffs must be able to point to evidence from which a reasonable' jury could conclude that the pharmacies made a false statement in order to obtain reimbursement from the government for dispensing the subject drugs. United States ex rel. Sheet Metal Workers Int’l Ass’n, Local Union 20 v. Horning Investments, LLC, 828 F.3d 587, 592 (7th Cir. 2016). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (“Federal rules “mandate the entry of summary judgment,' after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential tó that party’s case, ánd on which that party will bear the burden of proof at trial.”).
A. The Reimbursement Requests Were Not “False Claims” Under the FCA
In arguing that the claims at issue in this case were not false as a matter of law, Par contends that the claim forms' contained no false or misleading representations. Par also challenges the evidentiary basis for the plaintiffs’ claims, arguing that there is no evidence that physician approval had not been obtained for the claims at issue, nor that the switching violated the regulations pertaining to medical necessity and cost-effectiveness.
1. Intervening change in the law governing the FCA
After Par’s motions were filed and briefing was under way, the legal landscape changed, significantly in this Circuit. The development pertains to two .theories of falsity under the FCA; false certification and implied false certification—in essence, falsity resulting from express misrepresentations or from misrepresentation by omission.
When Par first moved for summary judgment, the Seventh Circuit had not accepted the implied-false-certification theory of FCA liability, and before the plaintiffs filed their joint response brief, it rejected the theory outright. United States v. Sanford-Brown Ltd., 788 F.3d 696, 711-12 (7th Cir. 2015) (Sanford-Brown I). This was a boon to Par, to the extent that it had cast the plaintiffs’ legal theory as' implied false certification, and the plaintiffs’ response gave unduly short shrift to that new and controlling precedent from the Court of Appeals for this Circuit.
But Sanford-Browñ I was not-long for this world; its core holding that there is no implied false certification theory of FCA liability was rejected by the Supreme Court only a year later in Universal Health Services, Inc. v. United States and Massachusetts ex rel. Julio Escobar, — U.S. -, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016) (“Escobar”). The Supreme Court expressly recognized in Escobar the viability of a theory of implied false certification in FCA cases “in some circumstances.” Id. at 1999. Specifically, the Court held that “when ... a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements, those omissions can be a basis for liability if they render the defendant’s representations misleading with respect to the goods or services provided.” Id. (emphasis added). To embody this principle, the Court set forth two conditions for an implied-certification claim: “first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those statements misleading half-truths.” Id. at 2001. Addressing the concern of opening the flood gates to many more FCA claims by recognizing an implied falsity cause of action, the Court explained that its decision would keep claims appropriately cabined because the FCA still imposes “rigorous” requirements with respect to' scienter and materiality. Id. at 2002.
Escobar was decided at the pleadings stage and did not address the question of whether all claims for payment “implicitly represent that the billing party is entitled to payment” because it was clear on- the alleged facts of that case that the claimant did more than demand payment; it made certain representations about the services provided while omitting “critical qualifying information” about those services. Id. at 2000. Specifically, the mental health services facility in question was alleged to have violated the FCA by submitting reimbursement claims displaying codes for specific. services provided by specific types of qualified professionals, when in fact services (such as counseling and the prescribing of medications) were provided by unlicensed or unqualified personnel. The Court held that the claims submitted were not simply demands for payment but also included representations about what kind of provider performed the treatments for which payment was sought. Thus the omitted information—-that these providers were not appropriately trained and licensed to provide the treatment under Massachusetts Medicaid regulations—rendered those representations misleading half-truths, and therefore, “misrepresentations.” 136 S.Ct. at 2000-2001.
Escobar changed the framework of this case, first, by vitiating Par’s argument that no relief can be obtained under an implied false-certification theory in this Circuit. It also did away with Par’s argument that only an undisclosed- violation of “an express condition of payment” can be “material” the government’s decision to pay a claim. See, e.g., Par Mem. 19-23, ECF No. 359. The Court held, to the contrary, that “[wjhether a provision is labeled a condition of payment is relevant but not disposi-tive of the materiality inquiry.” 136 S.Ct. at 2001. (Accordingly this Court does not address that argument of Par’s any further.)
Despite these developments, the plaintiffs do not unabashedly embrace Escobar either. Having attempted to avoid primaiy reliance on a theory of implied false certification in their response brief (filed when Sanford-Brown I was good law), in their supplemental brief, the plaintiffs downplay the significance of Escobar to the element of falsity under their theory of the case, which they say is not one of implied false certification at all. The plaintiffs argue instead that the FCA is per se violated when a provider “overcharges” the government or “inflates” a claim by “select[ing] the more expensive treatment to increase government reimbursement, for no additional medical benefit to the patient,” Pls. Resp. 2, ECF No. 269. The plaintiffs say it is obvious that the government was defrauded if Par “intentionally and systematically caused claims to be submitted and paid by Medicaid for Par’s higher-reimbursed medications that offered no additional medical benefits than the dosage forms originally prescribed.” USA Resp. 34, ECF No. 369. In other words, the plaintiffs assert that a facially accurate and non-misleading claim is nevertheless false or fraudulent within the meaning of the FCA if there are underlying regulatory violations with a direct nexus to the government’s decision to pay the claim. As discussed immediately below, however, that is not what Escobar says. And prudently, the plaintiffs also argue that,, alternatively, their claims survive under the implied false certification theory. That battle is at least pitched on the correct field, but the outcome still favors the defendants.
2. The Plaintiffs’ “Direct Nexus” Theory of FCA Liability is Untenable
The plaintiffs’ argument that their case falls outside the. implied false certification framework is unpersuasive. See Pls. Suppl. 1, ECF No. 398. In arguing that Escobar has no effect on their core argument, they essentially request strict liability on the premise that charging more than the lowest possible rate is by definition a false claim because doing so “directly affects payment.” Id. at 6. The plaintiffs argue that, unlike here, implied certification was a necessary theory in Escobar because the regulatory violations in that case did not pertain to payment. Id. This argument is difficult to understand. The Court fails to see how this case is meaningfully different from the situation presented by Escobar, where violations of licensing regulations led to the provision of care for which no reimbursement should have been available. If that is not an “overcharge,” what is?
Notably, the plaintiffs provide no authority for drawing this untenable distinction. Moreover, their broad interpretation of the FCA, under which liability arises whenever there is a “direct nexus” between a fraudulent scheme and inflated payments by the government, Resp. at 24, ECF No. 369, is inconsistent with Escobar, which expressly reiterated what the Court had said before: “The False Claims Act is not ‘an all-purpose antifraud statute.’ ” 136 S.Ct. at 2003 (quoting Allison Engine, 553 U.S. at 672, 128 S.Ct. 2123). “[Ejven when a relator can prove that a defendant engaged in' fraudulent conduct affecting the government, FCA liability attaches only if that conduct resulted in the filing of a false claim for payment from the government.” United States ex rel. Booker v. Pfizer, Inc., 847 F.3d 52, 57 (1st Cir. 2017) (affirming grant of summary judgment against relator who offered only aggregate data to connect a fraudulent scheme to. bill for off-label (non-FDA approved) uses of drugs to the submission of false claims) (internal quotation marks omitted). The sine qua non of an FCA claim is the submission of a claim that is actually false. Id. And as one court has explained,, the “paradigmatic” false claim is “an incorrect description of the goods or services provided or a request for reimbursement for goods or services never provided.” United States ex rel. McBride v. Halliburton Co., 848 F.3d 1027, 1031 (D.C. Cir. 2017) (citations omitted); see also United States ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770, 779 (7th Cir. 2016) (identifying these forms of misdescription as causing claims to be false), Thus, to prove an FCA claim, a plaintiff “must show (1) that the defendant made a statement in order to receive money from the government; (2) that the statement was false; and (3) that the defendant knew the statement was false.” United States ex rel. Hanna v. City of Chicago, 834 F.3d 775, 778 (7th Cir. 2016). As Escobar teaches, the effect that a representation has on the government’s decision to pay a certain amount pertains' to the issue of materiality, rather than the falsity of the claims themselves. 136 S.Ct. at 2002. The plaintiffs’ “direct nexus” theory thus conflates two distinct elements of an FCA claim—falsity and materiality— into a single inquiry and in the process does away with the requirement of a false statement in connection with the claim.
Relying on Marcus v. Hess and non-precedential district court cases, the plaintiffs contend that “Courts have consistently held that a claim for payment that overcharges the government, or charges for unnecessary services, is a false claim for purpose of the FCA without further inquiring whether the defendant violated a regulation or made a false certification.” Pl. Mem. 24, ECF No. 369; Pl. Supp. 5, ECF No. 398. That is not an accurate characterization. In U.S. ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443 (1943), the Supreme Court held that the FCA applied in the context of a bid-rigging scheme that resulted in the submission' of inflated claims because of the non-competitive nature of the bids. Id. at 543, 63 S.Ct. 379 (“The government’s money would never have been placed in the joint fund for payment to respondents had its agents known the bids were collusive.”). “[Ejvery swollen estimate which was the basic cause for payment of every dollar paid by the [United States] into the joint fund for the benefit of respondents. The initial fraudulent action and every step thereafter taken, pressed ever to the ultimate goal—payment of government money to persons who had caused it to be defrauded.”' Id. at 543-44, 63 S.Ct. 379. The plaintiffs here say that Hess stands for the proposition that “a fraudulent demand which inherently causes the government to pay more than it should is a false claim under the FCA.” But there is no such thing as “inherent” fraud; fraud requires a misrepresentation (whether affirmative or by omission). U.S. ex rel. Main v. Oakland City Univ., 426 F.3d 914, 917 (7th Cir. 2005) (“fraud ... requires more than breach of promise: fraud entails making a false representation”).
Hess, which did not address this question, does not suggest otherwise; The Court did not rely on the “inherent" fraudulent nature of bid-rigging; it relied on the fact that the defendants had falsely implied that the bidding process was competitive. See Hess, 317 U.S. at 543, 63 S.Ct. 379 (“many if not most of the respondents certified that their bids were ‘genuine and not sham or collusive.’ ”); 539 n.1 (describing the collusive and “private” bidding scheme). In short, in Hess, the claims submitted were fraudulent because the Court determined that they misrepresented by omission that the bidding process was fair. See also United States ex rel. Blaum v. Triad Isotopes, Inc., 104 F.Supp.3d 901, 915 (N.D. Ill. 2015) (bidrigging is a form of fraudulent inducement).
Thus, restraining competition in a competitive bidding process is fraudulent not because it “inherently” raises costs, but because it involves a representation that there was. competition when in fact there was none. It is simply not true that the Hess Court did not care “whether the defendant violated a regulation or made a false certification.” ' Under current law, Hess would be considered an implied false certification case: the defendants misled the government by the implication or certification that bidding competition occurred when in reality the process was rigged. Escobar provides the framework for the evaluation of such claims.
The plaintiffs’ “direct nexus” theory, moreover, has no support in precedent from this circuit and it is inconsistent with cases like Thulin v. Shopko Stores Operating Co., LLC, 771 F.3d 994, 999-1000 (7th Cir. 2014), where the Seventh Circuit affirmed the dismissal of FCA claims concerning a scheme to overcharge Medicaid by billing Medicare at rates higher than those paid to private insurers for the same drugs. In Thulin, as here, the claim was that pharmacies systematically exploited price differentials to maximize their reimbursement from Medicaid, but the Court of Appeals rejected the argument because, notwithstanding the fact that Medicaid was overcharged by the scheme, there was no basis to conclude that any false information had been included with the reimbursement claims and the defendant “was not obligated to inform Medicaid of [the lower rates] and was permitted to bill in the fashion that it did.” 771 F.3d at 999. See also, e.g., U.S. ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699, 709-10 (7th Cir. 2014) (overpayment for services did not give rise to FCA liability; “a ‘diminished value’ of services theory” does not give rise to an FCA claim). Thumlin’s rationale (which the plaintiffs ignore in favor' of non-binding and largely pre-Escobar authority) cannot be squared with the plaintiffs’ “direct nexus” theory that anything that inflates the reimbursement amount, causing unnecessary overpayment, is actionable as a “false claim.” See Pls. Mem. 24-26, ECF No. 369.
The “anything” matters—for example, using a false AWP, as in United States ex rel. Ven-A-Care v. Actavis Mid Atlantic LLC, 659 F.Supp.2d 262, 271 (D. Mass. 2009). The AWP capped reimbursements in this ease, too, but here, unlike in Ven-A-Care, the plaintiffs do not allege that the pharmacies or Par falsified the AWP or in any other way billed more for Par’s drugs than the Medicaid regulations allowed. Cases cited by the plaintiffs regarding “up coding” or “up charging” similarly miss the mark. Again, the falsity in such cases relates directly to information represented on the claim form: e.g,, that a certain type of provider performed expensive services .when he or she had not, or performed services that were not medically indicated. The mere existence of a treatment with a lower reimbursement rate,, in itself, does not equate with a false claim, no matter what other law or regulation it might violate to provide the more expensive one. Had the plaintiffs any binding authority for their contrary proposition, certainly they would have highlighted it.
Notwithstanding their advocacy for a “direct nexus” theory of false claim liability, the plaintiffs have consistently framed their claims in a way that cannot be meaningfully differentiated from the implied false certification theory. The plaintiffs, alleged in their complaints and continue to contend that Par caused the pharmacies to submit claims for reimbursement, which, while facially truthful with respect to the goods provided and their cost, were false because the pharmacies had omitted the information that: (i) they had substituted forms or dosages to maximize their profit; (ii) they had violated requirements that drugs to -be provided “economically”—ie., at the lowest cost to Medicaid, according to the plaintiffs; and (iii) the switch was not “medically necessary.” The fraudulent, or false, nature of the claims results from the omission of information that is allegedly necessary to make the statement set forth on the claim (essentially, “PHARMACY paid $X for’ Drug Y which was dispensed to Customer Z on DATE”) not misleading. That claim is therefore “fraudulent” only by its alleged implication that it was proper under the Medicaid regulations to dispense Drug Y to Patient Z. The falsity, if any, lies only in the omission of information that would render the representations about the dispensed drugs (the “goods or services provided”) misleading. See Pis. Resp. 38, ECF No. 369. (“The point is that the fields that do exist on the claim forms, including National Drug Codes (“NDCs”) identifying the Par Subject Drug, should not have been filled in with a Par Subject Drug at all, as that choice was not medically necessary or economical.”). Thus, Escobar provides the appropriate legal framework for assessing the merits of Par’s summary-judgment motions on the FCA claims.
3. Under Escobar the Claims at Issue Are Not Impliedly “False”
Careful not to put all their eggs in their “direct nexus” basket, the plaintiffs argue that even if the Escobar test applies, their claims succeed under an implied false certification theory, too. Under Escobar, the two- conditions for an implied-certification claim are that, “first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those statements misleading half-truths.” 136 S.Ct. at 2001.
The plaintiffs first contend that the claim forms contained misleading half-truths because they set forth the drug dispensed and the dosage form and strength but omitted the critical information that “directly impacted payment,” namely that “the drug was originally prescribed in a different dosage form or strength that could have been filled for much less money; and that the claim was submitted as part of a systematic switching scheme, the purpose of which was to bill the government for more money in direct violation of specific regulations requiring providers to provide only goods and services that are ‘economical’ and ‘medically necessary.’ ” PI. Supp. 8, ECF No. 398. Second, the omission was material because it “went to the heart of the government’s bargain” and any reasonable person would attach importance to the facts that lower-cost drugs were available, that the switch was done with a profit motive, and that the switch had been, at best, only superficially approved by a physician. Id. at 11.
Unsurprisingly, even though Par now acknowledges the implied-false-certification theory as valid, it contends that the case against it fails, the Supreme Court’s two-part test as a matter of law. First, it contends that the claim forms were facially truthful and that no representations were made at all beyond the accurate statement of what drug was dispensed and the amount owed, as set-by the Medicaid agencies themselves. Par Suppl. 6, ECF No. 399. Par argues that the description of the drug dispensed is not a representation of compliance with any statutory requirements, nor does it represent that the drug dispensed is the one originally prescribed. It further contends that any representations on the claim form were not rendered misleading by the pharmacies’ 'omission information that they had no obligation, under the regulations, to provide. Par also argues that the record is devoid of evidence that any misrepresentation was material to the government’s decision to pay the claims.
Par submitted further supplemental authority after Escobar. When the Supreme Court remanded the Sanfordr-Brown case (which had rejected the implied false certification theory) to the Seventh Circuit for reconsideration in light of Escobar, the Court of Appeals once again affirmed the judgment against the relator. United States v. Sanford-Brown, Ltd., 840 F.3d 445 (7th Cir. 2016) (“Sanford-Brown 11”). The relator had claimed that his former employer, Sanford-Brown College and its corporate parents, submitted claims certifying compliance with all applicable laws and regulations when in fact they had “vio-láted provisions that: i) prohibited them from paying incentive compensation to certain types of employees involved in admissions and recruiting; ii) required them to maintain accreditation; iii) required them to refund to the U.S. Department of Education portions of Title IV funds for certain students who failed to complete atleast 60% of a term; iv) prohibited them from harassing students to attend class; v) required students who received Title IV funds to maintain a minimum GPA or other adequate progress towards graduation; and vi) prevented them' from admitting students with remedial needs into accelerated programs.” United States v. Sanford-Brown, Ltd., 788 F.3d 696, 702 (7th Cir. 2015).
Applying the new rule of Escobar, the Seventh Circuit concluded that the relator failed to establish either condition for a successful implied false certification claim. Sanford-Brown II, 840 F.3d at 447. First, there was no proof that any representations were made in connection with the claims for payment; in other words, the defendants did nothing more than request a disbursement. Second, the relator “offered ño evidence that the government’s decision to pay SBC would likely or actually have been different had it known of SBC’s alleged noncompliance with Title IV regulations”; and indeed, the payer-agency had already examined SBC’s practices multiple times and declined to impose any penalties. Id. (citing Escobar, 136 S.Ct. at 2003 for the proposition that a representation is unlikely to be material where the government pays claims with actual knowledge of regulatory violations). This discussion in Sanford-Brown II, though brief, is highly instructive as to how Escobar applies in this case.
a. Representations About the Goods or Services Provided
The first question is what “specific rep-resentátions about the goods and services provided,” if any, were made in the claims the pharmacies submitted for reimbursement for dispensing Par’s subject drugs. The Supreme Court did not elucidate what it meant by a “specific-representation about the goods and services provided,” and as noted above, it expressly deferred the question “whether all claims implicitly represent thát the billing party is legally entitled to payment.” Escobar, 136 S.Ct. at 2000 (emphasis added). But by way of example, in Escobar, the facility “used payment codes corresponding to different services [than] its staff provided,” and represented by way of National Provider Identification numbers that qualified practitioners had provided the services; -when in fact they lacked the credentials and licensing required by law. 136 S.Ct. at 1997. Therefore, the claim forms' had made “specific representations about the goods and services provided,” ie., the codes corresponding to: the service and the provider. In Escobar, inclusion of the provider identification numbers meant that the claims effectively stated: “for these' specific services rendered by this kind of licensed professional, X amount is due.” Therefore, the claims did “more than merely demand payment.” Id. at 2000. .
So too in Presser. In that case (also on review of a motion to dismiss), the Seventh Circuit concluded that the claims at issue represented, by way of a billing code on the forms, that a “full psychological assessment ] by a therapist or ah evaluation by a psychiatrist” had taken place.-In reality, the facility had discontinued psychiatric evaluations; furthermore, the code was used by practitioners unqualified to perform the designated service. The Seventh Circuit concluded that because the clinic billed Medicaid “for a completely different treatment” than what was provided, the claims made express false statements, not just representations rendered misleading by the omission of material information. 836 F.3d at 779. Although the Court of Appeals did not treat it as an implied false certification case per se, Presser does elucidate the Court’s view of what is meant by a “specific.representation”.under Esco-bar. As in Escobar, the court looked not merely the existence of a claim for payment, but a representation about a good or service provided in connection with the claim. Only after identifying such a representation—the billing codes—did the court go on to evaluate whether that representation was a false statement, expressly or implicitly.
By contrast, a simple demand for payment does.not constitute a “specific representation about the goods and services provided.” In Sanford Brown II, the Seventh Circuit reaffirmed the denial of the plaintiff-relator’s summary judgment motion where he had “offered no evidence that .defendant Sanford Brown College (SBC) made any representations at all in connection with its claims for payment.” 840 F.3d at 447 (emphasis added). In other words, the “claims for payment” were not themselves “specific representations.” Even if the issue was simply the plaintiff-relator’s failure to meet the burden of proof, the quoted statement makes clear that an unadorned claim for payment is distinct from the “specific representation about the goods or services provided” that Escobar requires.,
In this case, the plaintiffs do not identify with precision any “specific representation” that they claim was rendered a misleading half-truth by the omission of material facts. The closest they come to pinning down a specific “representation” is to point to information on the claim forms “including” the National Drug Codes. Pls. Resp. 38, ECF No. 369. The vague usage of “including” is at odds with EscobaPs call to identify “specific” representations that implicitly render a claim false, and the plaintiffs compound the problem when they argue that the claim forms were misleading half-truths because they described the goods provided without providing “critical information about their material noncompliance with certain statutory and- regulatory requirements.” Pls. Suppl. 8, ECF No. 398. .Each claim form, they maintain, “omitted information that directly impacted payment: that the drug was originally prescribed in a different dosage form or strength that could have been filled for-much less money; and that the claim was submitted as part of a systematic switching scheme, the purpose of which was to bill the government for more money in direct violation of specific regulations requiring providers- to provide only goods and services that are ‘economical’ and ‘medically necessary.’ ” Id. Thus, it is clear that the plaintiffs are primarily concerned with the whether it was permissible to dispense the subject drugs at all, not with whether there was a false representation about the drugs, their cost, or the quantity dispensed.
That is a non-starter. Before Escobar, it was clear in this circuit that “it is not enough to ... prove that the pharmacy engaged in a practice that violated a federal regulation” because “[vjiolating a federal regulation is not synonymous with fíling a false claim.” United States ex rel. Grenadyor v. Ukrainian Village Pharmacy, Inc., 772 F.3d 1102 (7th Cir. 2014) (emphasis added); see also United States ex rel. Crews v. NCS Healthcare of Illinois, Inc., 460 F.3d 853, 858 (7th Cir. 2006). In Crews, the defendant submitted vouchers to the Department of Public Aid for payment for drugs distributed to Medicaid patients; the dispensing of the drugs was “akin to alleging the double-billing of the IDPA (and Medicaid) for drugs” because returned drugs were (allegedly) re-dispensed and billed again by virtue of the defendants’ violations of numerous regulations related to the storage and handling of the pills. Notwithstanding the potential for double billing, these violations did not render' the vouchers false claims because a voucher “[did] not turn into a false claim under the FCA just because NCS stored or handled the drugs improperly.” 460 F.3d at 858. There is no reason to think that Escobar changed this principle somehow—to the contrary, it expressly declined to address it.
The government’s emphasis on the fact that, here, the regulatory violations directly affected the payment amount does not make the claims at issue in this case any more “false” than the-ones addressed by the Seventh Circuit in Grenadyor and Crews. In Grenadyor, the Seventh Circuit distinguished between a false claim and an unauthorized billing—something that would, of course, “directly affect” the amount paid by Medicaid—and concluded that they are not the same-thing. 772 F.3d at 1105. Presser reaffirmed that this proposition retains its vitality gost-Escobar. Even assuming violations of the “medically necessary” and “economical” regulations in this case, those violations might leád to “unauthorized billing,” but they do not, without some “specific representation,” make the submitted claims “false.”
In this case, the claim forms, by law, are standardized; the federal and state agencies require the same information and certification on their forms. Notably, that information does not include any affirmation or statement that, the claimant has complied with all applicable laws and regulations. Generally, the claim forms require certification by the pharmacy (or the pres-criber) that the form contains “true, accurate, and complete” information' and that the pharmacy “understand^] that any payment made in satisfaction of this claim will be derived from federal and state funds and that any false claims, statements, or documents, or concealment of material fact may be subject to prosecution.” See Pl. Response SOF ¶ 51, ECF No. 370; Pls. Mem. 3, ECF No. 369.
If the statements in the certification block constitute “specific representations about the goods or services provided” at all, none of them are the focus of the plaintiffs’ arguments, which rest instead op the inflated cost of drugs that the plaintiffs say .should not have been dispensed at all. The plaintiffs do argue that “[t]he elqim forms .[require] the provider to certify that it has told the entire truth and concealed nothing material about its claim from the government.” Pls. Mem. 39, ECF No. 369; see also p, 45 (“the providers falsely certified in the claim forms themselves that they were telling the whole truth.”). But whether the pharmacies told the whole truth—everything the FCA would require—is the entire question that is raised by Par’s motions targeting the element of falsity, ie., whether the providers falsely implied anything about thé goods or services provided or were required to provide more information.
b. Representations as Misleading “Half Truths”
Absent any specific misrepresentation on the face of the claims,- the plaintiffs must identify omitted information that renders the description of the dispensed drugs misleading. According to the plaintiffs, two things were omitted that directly impacted the payment: “that the drug was originally prescribed in a different dosage form or strength that could have been filled for much less money” and that “the claim was submitted as part of a systemic switching scheme, the purpose of which was to bill the government for more money in direct violation of the specific regulations requiring providers to provide only goods and services that are “economical” and “medically necessary.”
There is little basis to infer that a pharmacy’s Medicaid reimbursement claim constitutes a representation that the drug for which reimbursement is sought was the drug originally prescribed for the patient. For starters, the claim form does not require the reporting of any information about the form or dosage originally prescribed—only what was actually dispensed. Nor does it require confirmation, that the drug dispensed was the lowest cost alternative available in the market—-just the government’s reimbursement rate for the drug that was provided. That the government claim forms do not require the submission of this information suggests that its omission does not render ,the provision of the required information misleading. In Thulin, for example, the Seventh Circuit considered and rejected FCA claims based on reimbursement forms that did not require information about whether the patient was subject to a dual-copay, finding the absence of a request for such data on the claim form to be “compelling evidence” that the defendants “did not have an obligation to submit co-pay information to Medicaid. If they did, one would think that such an obligation would have been incorporated into the billing protocol that they were legally required to use.” 771 F.3d at 1000. If pharmacies were required to identify whether the drug dispensed was the drug originally prescribed, one would expect that the Medicaid agencies would require them to say so on their reimbursement forms. But they don’t.
“Omissions'are actionable as implied representations when the circumstances are such that a failure to communicate a fact induces a belief in its opposite.” Midwest Commerce Banking Co. v. Elkhart City Ctr., 4 F.3d 521, 524 (7th Cir. 1993). Here, the claims at issue provide no basis to infer that the drug dispensed was the drug originally prescribed. As Par points out, given the plethora of state laws and regulations that govern the dispensing of prescription medications, there may be many reasons why the drug actually dispensed may differ from the drug originally prescribed. Dosage strength and form substitution are permitted upon authorization of the prescribing physician, and there may be a variety of reasons pharmacies seek such authorization, ranging from patient preferences for one form over another (e.g., tablets versus capsules), promoting patient compliance with medication regimens by minimizing the need to split doses or reducing the number of required doses to pharmacy inventory constraints. See Par. SMF ¶¶ 9-11, ECF No. 364. And under some circumstances, state laws require substitution of generic drugs where such substitution would lower the price of the drug. See, e.g. Ind. Code § 16-42-22-10(a) (1999). In short, the possibility that the drug dispensed differs in some fashion from the drug prescribed is pervasive; it exists for virtually every transaction between pharmacy and patient. In that light, a pharmacy’s reimbursement claim cannot reasonably be read as an affirmation that the drug for which reimbursement is claimed was the drug originally prescribed and a pharmacy does not commit fraud by failing to a