Wednesday, March 18, 2026
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Ninth Circuit:
Lawsuit Asserting Public Fraud by Big Pharma Is Revived
Opinion Says California Health Group’s Qui Tam Action, Based on Allegations That Drug Makers Ripped Off Public Entitlement Systems by Overcharging Under Program Aimed at Protecting Poor, Was Wrongly Axed
By Kimber Cooley, associate editor
The Ninth U.S. Circuit Court of Appeals yesterday resurrected a qui tam lawsuit filed by a California-based health care provider against multiple pharmaceutical companies seeking damages allegedly due to the state and federal governments for what the plaintiff claims was a scheme to fraudulently overcharge for drugs to recoup inflated prices from entitlement systems while utilizing a program designed to keep charges down for low-income patients.
At issue is the so-called “Section 340B Program,” adopted in 1992 and codified at 42 U.S.C. §256b, which establishes a formula for determining pricing ceilings for medications sold by participating companies to safety-net hospitals that provide care regardless of ability to pay. Drug makers may opt into the system by signing an agreement with the secretary of Health and Human Services (“HHS”).
Yesterday’s decision concerns claims filed by a Section 340B health care provider under the False Claims Act (“FCA”), codified at 31 U.S.C. §3729 et seq., and state law counterparts, which prohibit the knowing presentation of a fraudulent claim for payment to a public agency and allow private parties to file qui tam actions to recover damages on the government’s behalf.
Under the FCA, defendants are liable to the government for between $5,000 to $10,000 for each false claim plus treble damages, and the relator is entitled to keep 25-30% of those proceeds.
Dressed-Up Claims
Circuit Judge Roopali Desai, writing for the court, declared that a judge erred in finding that the plaintiff’s claims were precluded by jurisprudence holding that §256b does not create a private right of action by participating providers to enforce the statutory formula. Rejecting the assertion that the plaintiff’s complaint amounted to an attempt to circumvent governing case law by “dressing up” §256b claims as ones asserted under the FCA, Desai remarked:
“[B]arring [the plaintiff’s] claims would undermine the FCA, a statute that courts interpret ‘broadly’ and that does not exempt qui tam actions by covered entities for alleged fraud against the government from the Section 340B Program.”
The question arose after Adventist Health System of West, a nonprofit headquartered in Roseville, filed a complaint on behalf of the U.S. and California, among other states, in May 2021, asserting that multiple drug manufacturers, including AbbVie Inc., AstraZeneca L.P., Novartis Pharmaceuticals Corporation, and others, engaged in a fraudulent scheme by signing up under the program but charging “unlawfully inflated prices.”
Prices Dropped Precipitously
According to Adventist, it discovered the purported fraud in January 2019, when the drug prices charged by the defendants allegedly “dropped precipitously to $0.01 per unit” after an HHS entity charged with overseeing the program issued a rule that imposed hefty civil penalties for non-compliance with the ceiling price formula.
On March 18, 2024, Senior District Court Judge Dale S. Fischer of the Central District of California granted the drug makers’ motion to dismiss, citing the 2010 U.S. Supreme Court decision in Astra USA Inc. v. Santa Clara County, in which the court held that a provider may not bring claims to enforce ceiling price contracts between manufacturers and HHS as Congress only provided for administrative review and did not create a private right of action in §256b.
Unpersuaded by the plaintiff’s attempt to distinguish the case because the operative pleading asserts claims under the FCA and similar state laws rather than challenging the pricing directly under §256b, Fischer wrote:
“[T]he FCA adds nothing substantive to a direct enforcement action under the statute other than that Defendants must have acted knowingly, recklessly, or with deliberate ignorance.”
Yesterday’s decision, joined in by Circuit Judges Consuelo M. Callahan as well as Ana de Alba, reverses the ensuing defense judgment.
Free-Standing Claims
Reasoning that “Adventist does not seek to enforce Section 340B directly” as it “is not seeking reimbursement for overcharges” on its own behalf, Desai remarked:
“Adventist brings claims under the FCA, which are free-standing and independent of Section 340B. Thus, it is of no import that Section 340B does not provide covered entities like Adventist a mechanism to bring suit.”
Continuing, she opined:
“Adventist does not ‘in essence’ seek to enforce Section 340B—it seeks to enforce the FCA. Indeed, Adventist brings a prototypical FCA action to remedy allegedly false or fraudulent claims resulting in financial loss to the government….This FCA action is categorically distinct from the action in Astra, a common law breach-of-contract suit to remedy alleged violations of Section 340B itself….Stated simply, Astra has no bearing on Adventist’s claims.”
The jurist added:
“Defendants also contend that [HHS’] price reporting and verification system ‘renders implausible’ Adventist’s allegations that each defendant failed to charge [proper] prices after [the new system was implemented on] January 1, 2019. But defendants raise a merits argument that requires further discovery and turns on factual disputes that we may not reach at this stage. We thus decline to affirm the dismissal on this alternative ground.”
She declared:
“We hold that Adventist asserts cognizable claims for relief under the FCA and has satisfied the necessary pleading requirements. We thus reverse the district court’s dismissal and remand for further proceedings.”
The case is Adventist Health System of West v. AbbVie Inc., 24-2180.
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