Full 4th Circuit to rehear allegations of Allergan unit Medicaid fraud

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A sign marks Allergan's offices in Medford, Massachusetts, U.S., July 31, 2017. REUTERS/Brian Snyder

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  • Earlier panel upheld dismissal of suit alleging intentional Medicaid overcharging by Allergan-acquired unit
  • Petition for en banc review says earlier decision ‘effectively neuters’ False Claims Act

(Reuters) - At the urging of the Biden administration and the nonprofit Taxpayers Against Fraud, the full 4th U.S. Circuit Court of Appeals agreed to rehear a case alleging that a company now owned by Allergan defrauded the federal government out of $680 million by deliberately reporting inaccurate drug-pricing data to Medicaid.

The 4th Circuit’s order on Tuesday did not give any reasons for granting the petition for en banc review filed by Deborah Sheldon, who is seeking to revive a lawsuit that her now-deceased husband filed under the False Claims Act in 2014.

Troy Sheldon, a former sales manager for Forest Laboratories, alleged that Forest intentionally excluded various discounts to customers when it reported the “best price” for its drugs to Medicaid between 2005 and 2014. That reduced the amount that Forest was obliged to rebate to participating states for the drugs, leaving the federal government to make up the difference.

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A federal judge in Baltimore dismissed the lawsuit in 2020. The 4th Circuit affirmed in January in a 2-1 split.

The majority said it didn’t matter if Forest actually intended to defraud Medicaid because the best-price rules are complicated and ambiguous, and the drugmaker’s stated interpretation of them was objectively reasonable.

Sheldon’s petition for en banc review - and the amicus briefs supporting it - echoed the dissent’s criticism that the majority “effectively neuter(ed)” the False Claims Act by eliminating liability for claims with an objectively reasonable rationale, even if they were made with actual knowledge or deliberate ignorance of their falsity. That's “a test that only the dimmest of fraudsters could fail to take advantage of,” the dissent said.

Joseph Callow Jr of Keating Muething & Klekamp, who argued the appeal for Sheldon, said they “appreciate the ruling ... and we look forward to the en banc argument in the near future.”

Allergan and its attorneys at Arnold & Porter Kaye Scholer did not immediately respond to requests for comment. The company acquired Forest Laboratories in 2014 and merged it into the Allergan brand.

Earlier in the appeal, Allergan drew amicus support from the Washington Legal Foundation and the U.S. Chamber of Commerce, joined by trade group Pharmaceutical Research and Manufacturers of America.

The case is United States ex rel Sheldon v. Allergan Sales LLC, 4th U.S. Circuit Court of Appeals, No. 20-2330.

For Sheldon: Joseph Callow and Gregory Utter of Keating Muething & Klekamp, Joel Hesch

For Allergan: John Elwood, Paula Ramer and Christian Sheehan of Arnold & Porter Kaye Scholer

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