“AMP Means the Price Actually Realized”: Seventh Circuit Requires Inclusion of Wholesaler Clawbacks and Clarifies Objective Falsity Under the FCA

Introduction

In United States, et al., ex rel. Ronald J. Streck v. Eli Lilly and Company, Nos. 23-2134, 23-2216, 23-2958, 23-3035, 24-1352, & 24-1884 (7th Cir. Sept. 11, 2025), the Seventh Circuit affirmed a jury verdict in favor of whistleblower Ronald Streck against Eli Lilly under the False Claims Act (FCA). The case centers on how pharmaceutical “Average Manufacturer Price” (AMP) must be calculated for Medicaid rebate purposes under 42 U.S.C. §1396r-8. Specifically, it asks whether post-sale “price appreciation credits” (also called “clawbacks” or “price increase value”) that Lilly recouped from wholesalers must be included in AMP.

The decision delivers two core holdings with broad implications: first, as a matter of statutory text, contract, regulation, and common sense, AMP reflects the price actually realized by the manufacturer—including post-sale clawbacks—so excluding those amounts renders AMP submissions false. Second, in FCA cases, falsity is an objective question resolved by ordinary tools of interpretation; a defendant’s “reasonable interpretation” goes to scienter, not falsity. The court also upholds the jury’s findings on scienter and materiality, validates a simple, statutory-definition jury instruction on materiality, and declines to reach an unpreserved cross-appeal on how to count “violations” for penalties.

Summary of the Opinion

Falsity: The court holds as a matter of law that Lilly’s AMP calculations were false because AMP means the “average price paid to the manufacturer” and therefore includes subsequent clawbacks arising from price increases on wholesalers’ inventory. The bona fide service fee exclusion does not apply to these clawbacks.
Scienter: The jury reasonably found that Lilly acted at least with reckless disregard or deliberate ignorance. Highly probative facts included Lilly’s lack of contemporaneous documentation, CEO/CFO certifications despite no recall of basis, revenue recognition of clawbacks, and the mismatch between a candid “assumptions” letter sent through a channel CMS said it would not review and an opaque footnote when it knew CMS would read.
Materiality: AMP accuracy goes to the “essence of the bargain” in Medicaid. The misstatements led to over $60 million in underpaid rebates while Lilly reaped over $600 million in price-increase revenue. Continued government payment, even after notice, was not dispositive given the holistic Escobar standard and the realities of protecting beneficiaries.
Jury Instructions on Materiality: The district court properly instructed the jury using the FCA’s statutory definition (“natural tendency to influence or capable of influencing”), without reciting Escobar’s non-dispositive factors.
Damages/Counting Violations (Cross-Appeal): The court declines to decide whether each quarterly AMP entry is a separate “record or statement” violation under §3729(a)(1)(B) because the argument was not preserved. It confirms only that monthly AMPs cannot serve as violations in this case and that the trial proceeded on a quarterly-submission basis by stipulation.
Outcome: The verdict for $61,229,217 in damages (trebled to $183,687,651 under the FCA) is affirmed in full.

Analysis

Precedents Cited and Their Influence

Universal Health Services, Inc. v. United States (Escobar), 579 U.S. 176 (2016): The decision reaffirms Escobar’s demanding, holistic materiality standard and its insistence on rigorous scienter. The Seventh Circuit leverages Escobar’s “essence of the bargain” and rejects categorical rules tied only to continued payment.
United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023): SuperValu clarifies that scienter turns on the defendant’s subjective knowledge and beliefs, not whether its interpretation was “objectively reasonable.” The Seventh Circuit’s opinion adopts SuperValu’s framework: assess falsity objectively; reserve “reasonableness” fights for scienter.
United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013 (7th Cir. 1999): Lamers warned against penalizing “reasonable” legal interpretations under the FCA. The court distinguishes Lamers here: Lilly’s reading was not objectively reasonable given the statute, regulations, and contract, and thus cannot defeat falsity.
United States ex rel. Yannacopoulos v. General Dynamics, 652 F.3d 818 (7th Cir. 2011): The Seventh Circuit follows Yannacopoulos in treating falsity as a matter of interpreting governing texts (statutes, regulations, contracts) with ordinary interpretive tools.
United States ex rel. Heath v. Wisconsin Bell, Inc., 92 F.4th 654 (7th Cir.), aff’d and remanded, 145 S. Ct. 498 (2025): Used to analogize materiality: just as the “lowest-corresponding price” rule is essential to control government costs in the E-Rate program, accurate AMPs are essential to Medicaid’s cost control; thus, misstatements are material.
United States v. Molina Healthcare of Illinois, Inc., 17 F.4th 732 (7th Cir. 2021): Supports that large dollar impacts tied directly to statutory payment frameworks strongly evidence materiality.
Heckler v. Community Health Services, 467 U.S. 51 (1984): The duty to know and comply with the law when dealing with public funds undergirds the court’s scienter analysis (“ostrich” concerns).
United States ex rel. Durcholz v. FKW Inc., 189 F.3d 542 (7th Cir. 1999) and United States ex rel. Spay v. CVS Caremark, 875 F.3d 746 (3d Cir. 2017): Frame the limits of the “government knowledge” defense. Mere notice or silence is insufficient; explicit approval or collaborative engagement is typically required to undercut scienter.
United States v. Allergan, Inc., 746 F. App’x 101 (3d Cir. 2018) (unpublished): The Seventh Circuit expressly disagrees with an unpublished Third Circuit suggestion that “price” might mean only “initial price,” rejecting any artificial temporal limitation and adopting the ordinary, cumulative understanding of price as consideration that can be paid over time.

Legal Reasoning

1) Falsity: AMP Must Include Clawbacks; Bona Fide Service Fee Exclusion Does Not Apply

The statutory definition—“average price paid to the manufacturer for the drug … by wholesalers”—contains no temporal limitation and is reinforced by the MDRP agreement and CMS regulations requiring that AMP reflect prices “actually realized,” including adjustments from “cumulative discounts or other arrangements” that occur after the initial transfer. The court gives “price” its ordinary meaning: consideration for purchase, which in the commercial world can be paid over time and through subsequent adjustments.

Two additional anchors make exclusion unreasonable:

System coherence: Medicaid reimburses brand-name drugs based on pharmacies’ “usual and customary” (U&C) prices. AMP-based rebates are the manufacturer’s contribution to offset those government outlays. If manufacturers recoup higher post-sale prices yet report only initial, lower prices as AMP, the rebate mechanism is severed from the payment mechanism—contrary to the MDRP’s purpose of cost containment.
Anti-manipulation logic: Allowing post-sale clawbacks to be excluded invites manipulation. A manufacturer could charge a nominal initial price and then immediately “claw back” the rest—thereby keeping AMP low while collecting the true price, frustrating the rebate formula.

Lilly’s fallback—treat clawbacks as part of “bona fide service fees”—fails on the text and facts:

Pass-through bar: Bona fide service fees cannot be “paid by, or passed through to” retail pharmacies. The entire premise of the clawback is that wholesalers recover the higher value from pharmacies. That is a pass-through.
“Paid by manufacturer” requirement: Bona fide service fees are “paid by manufacturers to wholesalers.” Here, wholesalers paid Lilly the clawback, not the reverse. In the 2009–2016 period, Lilly even invoiced wholesalers for clawbacks in cash—flatly incompatible with calling the clawback a manufacturer-paid “fee.”

Because the texts are clear, Lilly was not entitled to invoke the “reasonable assumptions” safe harbor (which permits gap-filling consistent with the statute and contract). Even if gap-filling were available, excluding clawbacks was an unreasonable assumption contrary to the statutory scheme, the contract language (“prices actually realized”), and CMS’s stated understanding.

2) Scienter: Evidence Supported at Least Reckless Disregard or Deliberate Ignorance

Applying SuperValu, the Seventh Circuit considers Lilly’s knowledge and subjective beliefs. The court catalogs potent circumstantial evidence:

Documentation gap despite a contractual duty: The MDRP agreement required retaining “records … of the data and any other material from which the calculations of AMP … were derived,” including assumptions. Lilly had no contemporaneous documentation from 2005–2011 explaining why clawbacks were excluded.
Top-level certifications without recall of basis: Executives who certified AMPs could not recall reading the MDRP agreement or the rationale for excluding clawbacks, yet Lilly recognized clawbacks as revenue and presented their magnitude to senior leadership—often approaching $100 million per year during 2009–2016.
Inconsistent communications with CMS: After Streck’s 2011 lawsuit, Lilly sent CMS a detailed “reasonable assumptions” letter explaining its position via a channel CMS had publicly said it would not review. In contrast, Lilly’s 2013 response to a CMS audit—a channel it knew would be read—relegated clawbacks to a vague footnote, stating they were excluded “if” bona fide service fee criteria were met, while not disclosing that Lilly consistently treated clawbacks as such or the hundreds of millions of dollars at stake.
Failure to seek substantive guidance: Lilly had first-name, direct contact with CMS personnel but chose not to use those channels to discuss clawbacks when it mattered, relying instead on a known “dead letter.”

From this, a reasonable jury could find reckless disregard (failure to make reasonable inquiry) or deliberate ignorance (choosing not to confirm an obvious risk of falsity). The court underscores that participants in federal payment programs have a duty to know and comply with legal requirements.

3) Materiality: AMP Accuracy Is the Essence of the Medicaid Bargain

Materiality asks whether the misstatement naturally tends to influence the government’s payment decision. The Seventh Circuit analogizes to Wisconsin Bell: just as the “lowest-corresponding price” rule directly controls E-Rate costs, AMP directly calibrates Medicaid rebates. Here:

Core to program design: AMP is “foundational” to the MDRP; miscalculations reduce rebates and increase government spend. That is not minor or technical noncompliance.
Magnitude and linkage: The variance exceeded $60 million in underpaid rebates while Lilly took in over $600 million from price increases during the period—strong evidence of materiality.
Government knowledge is not dispositive: Continued payments do not defeat materiality per se. The government may need time to avoid harming beneficiaries; moreover, Lilly did not forthrightly disclose the financial consequences of its position. Materiality remains a holistic inquiry, and the record supported the jury’s verdict.

4) Jury Instruction on Materiality: Statutory Definition Suffices

The district court correctly instructed the jury using the FCA’s statutory definition (“natural tendency to influence” or “capable of influencing”). Escobar’s factors are non-dispositive considerations for courts, not mandatory talismans for juries. The “less is more” approach avoids confusion and aligns with long-standing pattern instructions across circuits.

5) Counting “Violations”: Issue Not Preserved; Open Question Remains

The relator’s cross-appeal sought per-AMP-entry penalties. The Seventh Circuit declined to decide the issue because the argument was not preserved and the record reflected only (i) a correct pretrial ruling that monthly AMPs are irrelevant to MDRP rebates and thus not violations here, and (ii) a trial stipulation to count quarterly submissions. The court notes an unresolved split in approach across circuits as to whether discrete line items can be separate “records or statements” under §3729(a)(1)(B).

Impact

1) AMP Compliance and Pricing Practices

Clawbacks must be in AMP: Price appreciation credits must be included in AMP calculations, even for periods predating CMS’s 2016 rulemaking. The court grounds the rule in the statute’s plain text and the parties’ MDRP agreement.
Bona fide service fee is narrower than some industry practices assumed: Payments must be made by the manufacturer to the wholesaler and cannot be passed through to pharmacies. “In-kind” constructs that ultimately recoup money from pharmacies will not qualify.
Documentation and governance: Manufacturers must retain precise, contemporaneous documentation of AMP methodologies and assumptions. CEO/CFO certification processes need robust foundations and legal oversight.

2) FCA Doctrine: Objective Falsity; Scienter Is Where “Reasonableness” Lives

Falsity is not a battle of reasonable interpretations: Courts will use ordinary interpretive tools to decide if a submission contradicts governing texts. “Reasonableness” arguments go to scienter in light of SuperValu.
Government knowledge defense is limited: Silence, non-responses, or footnoted disclosures are weak shields. Defendants should not expect CMS’s failure to respond to unsolicited “assumptions” letters to immunize them.
Materiality remains holistic: Continued payment does not doom FCA suits where the misrepresentation strikes at the heart of the program and the financial stakes are large.

3) Litigation Strategy and Trial Management

Instructions: Counsel should not insist on elaborate Escobar “factor lists” in jury instructions; the statutory definition of materiality is sufficient if the evidence is developed for the jury’s holistic assessment.
Counting violations: Parties must preserve precise arguments on what constitutes a “claim” versus a “record or statement” and build a clear record. The Seventh Circuit highlighted unsettled law; future litigants should frame and preserve this issue carefully.

4) Regulatory Practice and Agency Conduct

Informal channels and “no-review” disclaimers: The opinion criticizes CMS’s practice of telling manufacturers not to send assumptions while then not reacting to industry behavior—warning against “rulemaking by prosecution.” Expect agencies to feel pressure to clarify AMP issues and review methodologies more actively.
Inter-circuit posture: The Seventh Circuit explicitly disagrees with an unpublished Third Circuit view on “initial” versus “cumulative” price. While not a formal circuit split, the opinion’s clarity may prompt further alignment in other circuits or further guidance from CMS/HHS.

Complex Concepts Simplified

AMP (Average Manufacturer Price): The average price wholesalers pay the manufacturer for a drug during a quarter. It directly determines the size of Medicaid rebates owed by manufacturers. The Seventh Circuit says AMP includes amounts the manufacturer later recoups from wholesalers when it increases prices (clawbacks).
MDRP (Medicaid Drug Rebate Program): To have their drugs covered by Medicaid, manufacturers must pay quarterly rebates tied to AMP. This offsets government spending at the point of sale (pharmacies).
U&C (Usual and Customary): The price paid by the general public at pharmacies. Medicaid pays pharmacies based on U&C; rebates based on AMP are designed to correlate with those outlays.
Clawbacks / Price Appreciation Credits: When the manufacturer raises a drug’s price after a wholesaler buys it but before the wholesaler sells to a pharmacy, the wholesaler must remit the difference back to the manufacturer. These are part of the manufacturer’s realized price and must be included in AMP.
Bona Fide Service Fee: A genuine, itemized fee paid by a manufacturer to a wholesaler for services the manufacturer would otherwise perform (e.g., storage, packing). Such fees can be excluded from AMP, but only if paid by the manufacturer and not passed through to pharmacies. Clawbacks do not qualify.
Falsity vs. Scienter: Falsity asks whether a statement contradicts law or contract—an objective interpretation question. Scienter asks what the defendant believed or should have known—a subjective mental state question (actual knowledge, deliberate ignorance, or reckless disregard).
Materiality: Whether a misstatement has a natural tendency to influence the government’s payment decision. It is assessed holistically, considering program design, dollar stakes, and practical realities.

Conclusion

The Seventh Circuit’s decision in Streck v. Eli Lilly crystallizes a pair of critical, durable rules. First, “AMP means the price actually realized”: the manufacturer’s true price includes post-sale clawbacks from wholesalers, and such amounts must be incorporated into AMP. Attempts to exclude them under the “bona fide service fee” umbrella fail both textually and functionally because clawbacks are paid by wholesalers and passed through to pharmacies.

Second, the court clarifies the architecture of FCA analysis. Falsity is an objective question answered by ordinary interpretive tools; the defendant’s “reasonable interpretation” belongs at the scienter stage, which focuses on subjective knowledge and beliefs under SuperValu. Materiality remains a holistic, fact-intensive inquiry, and here AMP accuracy clearly went to the essence of Medicaid’s bargain. Government inaction or continued payment does not, by itself, negate materiality.

For manufacturers, the opinion is a compliance watershed. AMP methodologies must capture the price actually realized, including price appreciation credits. Documentation of assumptions is not optional; executive certifications must rest on concrete analyses; and communications with CMS must be forthright through channels the agency actually reviews. For FCA litigants, the decision underscores the limited power of “government knowledge” defenses absent explicit approval, validates concise materiality instructions, and flags an unresolved—and preservation-sensitive—question about how to count violations under §3729(a)(1)(B).

Above all, the court sends a clear message: complex statutory schemes do not license contrived interpretations that defeat common sense and statutory purpose. The Medicaid program’s rebate architecture depends on manufacturers telling the truth about the prices they actually receive. On this record, the jury’s verdict—and the district court’s judgment—stand.