Preview
5/14/2019 9:37 AM
Velva L. Price
District Clerk
Travis County
CAUSE NO. D-1-GN-16-005758 D-1-GN-16-005758
Sandra Henriquez
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THE STATE OF TEXAS ex rel. EXPRESS § IN THE DISTRICT COURT OF
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MED PHARMACEUTICALS, INC. §
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Plaintiffs, §
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v. §
§ TRAVIS COUNTY, TEXAS
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LUPIN LIMITED, §
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LUPIN INC., §
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LUPIN PHARMACEUTICALS, INC., §
ROBERT HOFFMAN, and §
VINITA GUPTA §
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§ 250th JUDICIAL DISTRICT
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Defendants. §
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REPLY BRIEF IN SUPPORT OF DEFENDANTS’
MOTION FOR SUMMARY JUDGMENT
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The State’s Response to Defendants’ Motion for Summary Judgment (“Response”)
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achieves its goal of demonstrating that genuine issues of material fact remain in this case. The
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problem for the State, however, is that none of those issues has anything to do with Defendants’
Motion. Indeed, the State’s arguments, supported by a distorted recitation of the evidence, are
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little more than distractions from the core issues before the Court on summary judgment.
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In response to Defendants’ materiality argument, the State does not seriously dispute that
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Texas Medicaid continued to utilize the prices LPI supplied on its Questionnaires and pricing
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updates during the “Subject Time Period” (January 1, 2005-February 29, 2012) despite knowing
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full well that they were not net prices. Instead, the State primarily seeks to obfuscate from the
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relevant issue—its own knowledge and conduct—by focusing on something that is decidedly not
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relevant—Defendants’ alleged conduct. The State also seeks to confuse the law, first by
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incorrectly contending that Defendants are raising affirmative defenses, which they are not, and
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also by suggesting that the Texas Medicaid Fraud Prevention Act (“TMFPA”) uses a different
“materiality” standard than the federal False Claims Act (“FCA”), which it does not. These
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arguments are unavailing. Put simply, the law does not permit the State to knowingly utilize
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Defendants’ prices for eight years before reversing course and claiming that Defendants
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committed Medicaid fraud. Consistent with a plethora of case law, the State is unable to
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establish the prima facie elements of materiality based on the undisputed record of its
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knowledge.
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On the independent issue of whether the State can prove falsity and scienter, the record
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demonstrates that Texas Medicaid’s Questionnaire and associated regulations—the regulatory
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basis for the State’s claim—were objectively vague and ambiguous throughout the Subject Time
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Period. In light of this ambiguity, the State cannot show that, by interpreting the Questionnaire
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to call for non-net Average Wholesale Price (“AWP”) and Wholesale Acquisition Cost (“WAC”)
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at the time of launch, LPI acted unreasonably. Rather than take on these issues, the State spends
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page-upon-page making the argument that LPI allegedly had net prices but failed to provide
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them to the State. This, of course, is not only factually wrong—no matter how much it would
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like to, the State cannot erase the fact that LPI separately supplied net prices directly to Texas
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Medicaid throughout the Subject Time Period—it entirely misses the point: because the
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Questionnaire was vague and ambiguous on its face, LPI’s interpretation of the Questionnaire as
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requesting non-net prices was objectively reasonable. Thus, regardless of the State’s baseless
claims that LPI failed to provide net prices, the State cannot prove the prima facie elements of
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falsity and scienter on the undisputed record before the Court.
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In sum, and as further explained below, the State’s effort to shift the focus onto LPI’s
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alleged conduct is wholly understandable, but ultimately futile. Defendants acknowledge that
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there are genuine issues of fact concerning their subjective intent and conduct that would need to
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be resolved at a trial. But this case should never get that far. The State must prove all elements
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of its claims, and the record evidence establishes that the State cannot prove at least three of
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them: materiality, falsity, and scienter.
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ARGUMENT
I. The State’s Concession That It Knew LPI Was Reporting Non-Net Prices Confirms
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That Summary Judgment Is Warranted.
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In their Motion, Defendants set forth ample facts demonstrating that Texas Medicaid
fully understood that the AWPs and WACs submitted by LPI were not net prices and knowingly
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elected to utilize them to reimburse pharmacies for LPI’s products. (Defs.’ Mot. at 16–20, 34–
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36.) The State does not dispute (or, for that matter, even respond to) these facts. That is
dispositive.
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Having knowingly elected to utilize LPI’s non-net prices, the State cannot prove that
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any statement made by LPI about its prices was “material” to Texas Medicaid or that the
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payments to pharmacies the State premised on LPI’s price submissions were “unauthorized.”
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(Id. at 18–22, 32–36.) 1
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The State cites a sweeping affidavit from Andres Vasquez that purports to compile and summarize evidence the
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State believes supports itspositions. (See Ex. F to Pls.’ Resp., Vasquez Aff.) Mr. Vasquez’s affidavit,
however, is not competent summary judgment proof and should be stricken for multiple reasons: it is
conclusory, speculative, contains unsubstantiated opinions and unilateral and subjective determinations of fact
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by an interested lay witness. See Ryland Group, Inc. v. Hood, 924 S.W.2d 120, 122 (Tex. 1996) (per curiam);
CA Partners v. Spears, 274 S.W.3d 51, 63 (Tex.App.--Houston [14th Dist.] 2008, pet. denied); MJS and
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Associates, L.L.C. v. Master, 501 S.W.3d 751, 759 (Tex. App.--Tyler 2016). It also contains a discussion of
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evidence and facts for which Mr. Vasquez clearly has no personal knowledge, (Ex. F to Pls.’ Resp. at ¶¶ 11,
17), and are based on inadmissible hearsay, (id. at ¶¶ 19, 20.)See Seaway Products Pipeline Co. v. Hanley, 153
S.W.3d 643, 654 (Tex.App.--Fort Worth 2004) (“To be competent summary judgment evidence, an affidavit
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must be based on personal knowledge, set forth facts admissible in evidence, and affirmatively show the
affiant’s competency to testify as to the matters stated therein.”) (citing Tex. R. Civ. P. 166a(f)).
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Moreover, the State isusing Mr. Vasquez’s after-the-factaffidavit to manufacture a disputed fact issue on
materiality by contradicting the undisputed facts Defendants cite in their Motion that establish that: (i) Texas
Medicaid knew it was not receiving net prices from LPI; and (ii) when LPI did submit net prices after the 2013
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regulatory changes, Texas Medicaid continued to utilize LPI’s list prices in making reimbursements, (Defs.’
Mot. at 16–19, 22, 34–36.) See Haynes v. City of Beaumont, 35 S.W.3d 166, 178 (Tex. App.--Texarkana 2000).
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Indeed, Mr. Vasquez’s affidavit inappropriately contradicts his own prior sworn testimony conceding that the
State was seeking non-net AWPs on the Questionnaire, (Defs.’ Mot. at 12 n.21.) See Burkett v. Welborn, 42
S.W.3d 282, 286 (Tex. App.--Texarkana 2001) (excluding portions of affidavitwhere it conflicts with prior
sworn testimony and reasoning that“an affidavitof [plaintiff]
was submitted in an attempt to demonstrate
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Unable to contest the evidence of its knowing utilization of LPI’s list prices, the State
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resorts to two legal arguments. Neither is availing.
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First, the State contends that LPI’s submissions were material because itwas allegedly
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“required” by law to set its reimbursements based on whatever pricing LPI submitted on its
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Questionnaires or supplied in pricing updates. That argument, however, is predicated on a
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misstatement of the law. The regulations that govern Texas Medicaid expressly provide that the
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Health and Human Services Commission, when determining “the need for a drug to be added to
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the Texas Drug Code Index and to determine the need for restrictions” may:
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return[] a questionnaire for any of the following reasons:
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(1) discovery of false, erroneous, or incomplete information or documentation on
the questionnaire; . . .
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(4) failure of the drug company to provide the Commission with current DEAC to
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a pharmacy, cost to a wholesaler, estimated wholesale cost to a pharmacy, or
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AMP.
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1 TEX. ADMIN. CODE § 354.1923(b)(1), (4) (version effective Nov. 16, 2003-Jan. 13, 2013)
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(emphasis added).2 Thus, far from being obligated to blindly utilize a manufacturer’s pricing,
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the regulations authorize Texas Medicaid to reject that pricing if it is false, erroneous, or
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incomplete. Despite this legal framework, the record demonstrates that Texas Medicaid freely
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chose to accept and rely upon LPI’s prices, knowing that they were not net prices.3 Indeed, the
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factual disputes” but “[n]umerous statements in this affidavit contradicted [plaintiff’s]prior deposition
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testimony.”).
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Likewise, the Questionnaire itself provides that the State can reject a manufacturer’s submission if the form is
altered. See Ex. 9 to Defs.’ Mot.
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The State’s argument that it was “required” to reimburse using the pricing LPI submitted is also contradicted by
the State’s own conduct—namely, the fact that the State has rejected other manufacturer’s submissions. See,
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e.g., Ex. 82, 5/12/2008 Letter from D. Valdes to R. Hartmann at Sandoz rejecting Questionnaire due to failure
to provide the pricing information required by providing undiscounted WACs and AWPs; Ex. 83, 5/14/2008
Letter from D. Valdes to G. Lempka at Watson rejecting Questionnaire due to failure to provide the pricing
information required by providing undiscounted WACs and AWPs.
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foregoing regulations only serve to reinforce the argument that the State cannot prove
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materiality.
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Second, the State vainly tries to salvage its case by suggesting that this Court should
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break from established U.S. Supreme Court precedent interpreting the analogous federal FCA.
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This is equally absurd. In Universal Health Sers. v. United States ex rel. Escobar, 136 S. Ct.
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1989 (2016), the Supreme Court held that when “the Government regularly pays a particular type
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of claim in full despite actual knowledge that certain requirements were violated, and has
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signaled no change in position, that is strong evidence that the requirements are not material.”
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Id. at 2003–04. In tacit recognition that the application of Escobar would lead to dismissal of the
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State’s TMFPA claim, the State argues that the holding of Escobar should not apply.4
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State does not and cannot offer a single case supporting the view that Escobar’s interpretation of
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the FCA’s materiality requirement is, or should be, inapplicable to the TMFPA.5
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The State also argues that AstraZeneca is irrelevant because the State does not need to prove “reasonable
reliance” under the TMFPA. (Pls.’ Resp. at 34–35.) While Defendants’ acknowledge that the AstraZeneca
ruling was premised on finding a lack of reasonable reliance, it is still relevant here.The facts that supported
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the Court’s reasonable reliance ruling—that the State Medicaid agency made a knowing decision to reimburse
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pharmacies based on allegedly “inflated” AWPs/WACs and never changed itsreimbursement methodology
even after challenging defendants AWPs/WACs—are equally relevant to the prima facie element of materiality
here.
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In fact, federal courts, including Texas, have continuously applied Escobar’s materiality standard in analogous
FCA cases in a wide variety of situations. See e.g., United States et al. v. Paramedics Plus LLC, No. 4:14-CV-
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00203, 2018 WL 620776, at *5-7 (E.D. Tex. Jan. 30, 2018) (“[T]he Government’s continued payment after
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discovery of a profit cap” is “the exact type of information” that is relevant to “the materiality element after
Escobar.”); U.S. ex rel. Harman v. Trinity Industries Inc., 872 F.3d 645, 665 (5th Cir. 2017), cert. denied sub
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nom. U.S. ex rel. Harman v. Trinity Industries, Inc., 139 S. Ct. 784 (2019) (holding that manufacturer’s alleged
failure to disclose changes to its guardrail end terminals was not material, as required to support FCA claim,
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because of “the ‘very strong evidence’ here of [the government’s] continued payment” and that it “was aware of
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all the charges of noncompliance”); Abbott v.BP Expl. & Prod., Inc., 851 F.3d 384, 388 (5th Cir. 2017)
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(affirming summary judgment in favor of defendant and holding that “[a]s recognized in Escobar, when the
DOI decided to allow the Atlantis to continue drilling after a substantial investigation into Plaintiffs’
allegations, that decision represents ‘strong evidence’ that the requirements in those regulations are not
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material.”); U.S. and State of Florida ex rel. Angela Ruckh v. Salus Rehabilitation, LLC et al., No. 8:11-cv-
1303, 2018 WL 375720, at *1 (M.D. Fla. Jan. 11, 2018) (In finding for the Defendants, the Court held that the
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relator offered “no meaningful and competent proof that the federal or the state government, if either or both
had known of the disputed practices…, would have regarded the disputed practices as material to each
government’s decision to pay the defendants, and consequently, that each government would have refused to
pay the defendants” as required under the Escobar materiality standard); United States ex rel. Se. Carpenters
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Lacking any relevant case law precedent, the State instead resorts to old tropes about
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cannons of statutory interpretation. But the State’s attempts to parse the language of the FCA
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and the TMFPA runs headlong into a body of decisions explaining the analogous nature of the
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statutes. (See Defs.’ Mot. at 25 n.69.) More critically, the TMFPA has been deemed compliant
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with 42 U.S.C. § 1396h, which allows the State to retain an increased share of TMFPA
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recovery.6 To be deemed compliant, as determined by the Inspector General of the Department
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of Health and Human Services and the Department of Justice, the TMFPA must contain a
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provision that “establish[es] liability to the State for false or fraudulent claims, as described in
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the Federal False Claims Act.”7 In other words, the added damages recovery requires that the
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TMFPA mirror or substantially overlap with the FCA.
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added benefits and then contend that the TMFPA is an entirely distinct creature of Texas law.8
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Reg’l Council v. Fulton Cnty., No. 1:14-cv-4071, 2016 WL 4158392, at *8 (N.D. Ga. Aug. 5, 2016) (ruling that
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relators had not shown that Davis-Bacon Act violations misrepresented matters “so central” to the contract that
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the government “would not have paid” the claims had it known of these violations). See also Defs.’ Mot. at 33
and 33 n.88.
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See Ex. 84, 4/17/2006 Letter from Texas Assistant Attorney General to United States Attorney General and
Inspector General requesting approval under the Deficit Reduction Act of 2005. See also Ex 85, 12/28/2016
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Letter from Inspector General to Texas Attorney General stating recent TMFPA amendments are in compliance
with Section 1909 of the Social Security Act, available at
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https://oig.hhs.gov/fraud/docs/falseclaimsact/Texas.pdf.
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U.S. Department of Health and Human Services, Office of Inspector General, “State False Claims Act
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Reviews,” available at https://oig.hhs.gov/fraud/state-false-claims-act-reviews/ (emphasis added). “The Office
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of Inspector General (OIG), in consultation with the Attorney General, determines whether States have false
claims acts that qualify for an incentive under Section 1909 of the Social Security Act. Those States deemed to
have qualifying laws receive a 10-percentage-point increase in their share of any amounts recovered under such
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laws. To qualify for the financial incentive, a State’s false claims act must: establish liability to the State for
false or fraudulent claims, as described in the Federal False Claims Act (FCA), with respect to Medicaid
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spending.” Id.
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The State asserts that Escobar’s standard for materiality is limited to the analysis of “implied false certification
claims.” (Pls.’ Resp. at 33–34.) This is not true. Federal courts have applied Escobar’s heightened standard
for materiality beyond simply “implied false certification claims” under 31 U.S.C. § 3729(a)(1)(A). For
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example, the Western District of New York held that Escobar’s materiality standard applies to all
§ 3729(a)(1)(A) claims “regardless of whether those claims were brought under a theory of implied false
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certification, express false certification, or fraudulent inducement.”United States v. Strock, No. 15-CV-0887-
FPG, 2018 WL 647471, at *12 (W.D.N.Y. Jan. 31, 2018), reconsideration denied, No. 15-CV-887-FPG, 2018
WL 4658720 (W.D.N.Y. Sept. 28, 2018). The Strock court also applied the Escobar materiality standard to
FCA claims brought under § 3729(a)(1)(B). Id. (“Additionally, because § 3729(a)(1)(B) also requires
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Indeed, while the State notes the definition of material as used in the TMPFA and FCA is
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not exactly the same, there is no meaningful substantive difference between the two, as the
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State’s own argument demonstrates. The FCA defines materiality as “having a natural tendency
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to influence, or be capable of influencing, the payment or receipt of money or property,” 31
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U.S.C. § 3729(b)(4), while the TMFPA simply defines it as “having a natural tendency to
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influence, or be capable of influencing,” TEX. HUM. RES. CODE § 36.001(5-a). But the rest of the
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relevant TMFPA provision provides that the material fact must “permit a person to receive a
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benefit or payment under the Medicaid program that is not authorized or that is greater than the
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benefit or payment that is authorized,” TEX. HUM. RES. CODE § 36.002(1), (2) (emphasis added),
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thus making clear that the misrepresentation must be material to the payment decision.
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For the same reason, the State’s attempt to rewrite the TMFPA to exclude the concept of
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materiality from §36.002(2) altogether fails. (See, e.g., Pls.’ Resp. at 11, 33.) In making this
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argument, the State focuses solely on the word “material,” but overlooks the language that
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requires the misrepresentation to have allowed a payment that was “not authorized or that is
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greater than the benefit or payment that is authorized.” TEX. HUM. RES. CODE § 36.002(1), (2)
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(emphasis added). If Texas Medicaid made payments to providers knowing that LPI’s reported
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prices were not net prices, then those payments were not “greater than the benefit or payment
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that is authorized.” The statute does not have to use the word “material” to clearly evince it
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materiality, Plaintiff’s claimsunder that subsection fail for the same lack of materiality as Plaintiff’s claims
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under subsection (A).”). Other courts have similarly held that Escobar’s materiality standard applies to
§ 3729(a)(1)(B). See United States ex rel.Hussain v.CDM Smith, Inc., No. 14-CV-9107 (JPO), 2019 WL
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1428360, at *13 (S.D.N.Y. Mar. 29, 2019) (granting summary judgment to defendants on FCA claims); United
States et rel. Lemon v. Nurses To Go, Inc., No. CV H-16-1775, 2018 WL 1898559, at *2 (S.D. Tex. Apr. 20,
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2018) (dismissing FCA claims for lack of materiality); United States ex rel. Branscome v. Blue Ridge Home
Health Servs., Inc., No. 7:16CV00087, 2018 WL 1309734, at *4 (W.D. Va. Mar. 13, 2018) (same). Courts
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have also applied Escobar’s materiality standard to FCA claims proceeding under the theory of promissory
fraud. See, e.g., United States v. Acad. Mortg. Corporation, No. 16-CV-02120-EMC, 2018 WL 4053484 (N.D.
Cal. Aug. 24, 2018), motion to certify appeal denied, No. 16-CV-02120-EMC, 2018 WL 6592782 (N.D. Cal.
Dec. 14, 2018).
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requires the statement or misrepresentation make a difference to the government’s payment
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decision. While the language may be slightly different, to prove all of the TMPFA violations it
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is asserting here the State must demonstrate it would not have made or authorized the payments
at issue had it known LPI’s prices were not net prices.9
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It cannot do so.
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Moreover, even if the TMFPA’s materiality definition were intended to be broader in
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some cases, the State’s only argument in this case is that LPI’s reported prices were material
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because its prices “were the basis for VDP’s reimbursement to pharmacies”—i.e., they were
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material to their payments to pharmacies. (Pls.’ Resp. at 28, 31.) Of course, the State continues
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to miss the point that the materiality question is not simply whether LPI’s reported prices were
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the basis for the VDP’s reimbursement payments—there
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issue is whether the alleged misrepresentation—i.e., that the prices were not-net—was material
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to the State’s payment decision. To prove that, the State must show it would have made a
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different payment decision had it known that LPI’s prices were not-net. But here, the State has
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effectively conceded that it did know LPI’s reported prices were not net prices, yet nonetheless
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continued to use the prices for reimbursement.
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In further support of its argument that the TMFPA should be applied differently than the
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FCA, the State also wrongly invokes the Texas Supreme Court’s In re Xerox Corp. decision.
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While the Texas Supreme Court did comment, in dicta, that the TMFPA differs in certain limited
respects from the FCA, the Court ultimately relied on case law interpreting the FCA in analyzing
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whether the TMFPA permitted an allocation of remedies. See In re Xerox Corp., No. 16-0671,
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2018 WL 3077704, at *13–16 (Tex. June 22, 2018). The Texas Supreme Court did not criticize
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or overrule, much less reject, the numerous courts that have relied on FCA case law for guidance
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§ 36.002(1) and (4) use the word “material”; § 36.002(1) and (2) also use the phrase that “permit[s] a person to
receive a benefit or payment under the Medicaid program that is not authorized or that is greater than the benefit
or payment that is authorized.”
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in interpreting the TMFPA.10 Indeed, the State’s own Response belies its assertion about Xerox:
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the State itself cites numerous cases interpreting the FCA, rather than the TMFPA, albeit only in
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instances where the State perceives some advantage to its position. (See, e.g., Pls.’ Resp. at 38.)
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And in an even greater hypocrisy, the State’s current argument is directly contradicted by
the position it has taken in earlier TMFPA cases.11
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In its Response to Par’s Motion for Summary
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Judgment in the Alpharma case, prior to the Supreme Court’s decision in Escobar, the State
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argued that the TMFPA materiality requirement was “conceptually inspired by the federal False
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Claims Act” and went on to apply the FCA test for materiality, supported by cases interpreting
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the FCA’s materiality requirement.12 The State’s present interpretation of the FCA should be
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seen for what itis: an opportunistic, and legally baseless,
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that reasonably govern its claims.
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II. The State Cannot Dispute That the VDP Reporting Requirements Were Objectively
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Vague and Ambiguous, Defeating the Elements of F
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5/14/2019 9:37 AM Velva L. Price District Clerk Travis County CAUSE NO. D-1-GN-16-005758 D-1-GN-16-005758 Sandra Henriquez e THE STATE OF TEXAS ex rel. EXPRESS § IN THE DISTRICT COURT OF ic MED PHARMACEUTICALS, INC. § Pr § Plaintiffs, § § L. v. § § TRAVIS COUNTY, TEXAS a LUPIN LIMITED, § lv LUPIN INC., § Ve LUPIN PHARMACEUTICALS, INC., § ROBERT HOFFMAN, and § VINITA GUPTA § k § 250th JUDICIAL DISTRICT er Defendants. § Cl ct REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT tri The State’s Response to Defendants’ Motion for Summary Judgment (“Response”) D is achieves its goal of demonstrating that genuine issues of material fact remain in this case. The . Co problem for the State, however, is that none of those issues has anything to do with Defendants’ Motion. Indeed, the State’s arguments, supported by a distorted recitation of the evidence, are is little more than distractions from the core issues before the Court on summary judgment. av In response to Defendants’ materiality argument, the State does not seriously dispute that Tr Texas Medicaid continued to utilize the prices LPI supplied on its Questionnaires and pricing y op updates during the “Subject Time Period” (January 1, 2005-February 29, 2012) despite knowing c full well that they were not net prices. Instead, the State primarily seeks to obfuscate from the l ia relevant issue—its own knowledge and conduct—by focusing on something that is decidedly not fic relevant—Defendants’ alleged conduct. The State also seeks to confuse the law, first by of incorrectly contending that Defendants are raising affirmative defenses, which they are not, and Un also by suggesting that the Texas Medicaid Fraud Prevention Act (“TMFPA”) uses a different “materiality” standard than the federal False Claims Act (“FCA”), which it does not. These e arguments are unavailing. Put simply, the law does not permit the State to knowingly utilize ic Pr Defendants’ prices for eight years before reversing course and claiming that Defendants L. committed Medicaid fraud. Consistent with a plethora of case law, the State is unable to a establish the prima facie elements of materiality based on the undisputed record of its lv knowledge. Ve On the independent issue of whether the State can prove falsity and scienter, the record k er demonstrates that Texas Medicaid’s Questionnaire and associated regulations—the regulatory Cl basis for the State’s claim—were objectively vague and ambiguous throughout the Subject Time ct Period. In light of this ambiguity, the State cannot show that, by interpreting the Questionnaire tri to call for non-net Average Wholesale Price (“AWP”) and Wholesale Acquisition Cost (“WAC”) is at the time of launch, LPI acted unreasonably. Rather than take on these issues, the State spends D page-upon-page making the argument that LPI allegedly had net prices but failed to provide . Co them to the State. This, of course, is not only factually wrong—no matter how much it would is like to, the State cannot erase the fact that LPI separately supplied net prices directly to Texas av Medicaid throughout the Subject Time Period—it entirely misses the point: because the Tr Questionnaire was vague and ambiguous on its face, LPI’s interpretation of the Questionnaire as y op requesting non-net prices was objectively reasonable. Thus, regardless of the State’s baseless claims that LPI failed to provide net prices, the State cannot prove the prima facie elements of l c ia falsity and scienter on the undisputed record before the Court. fic In sum, and as further explained below, the State’s effort to shift the focus onto LPI’s of alleged conduct is wholly understandable, but ultimately futile. Defendants acknowledge that Un there are genuine issues of fact concerning their subjective intent and conduct that would need to 2 be resolved at a trial. But this case should never get that far. The State must prove all elements e of its claims, and the record evidence establishes that the State cannot prove at least three of ic Pr them: materiality, falsity, and scienter. L. ARGUMENT I. The State’s Concession That It Knew LPI Was Reporting Non-Net Prices Confirms a That Summary Judgment Is Warranted. lv Ve In their Motion, Defendants set forth ample facts demonstrating that Texas Medicaid fully understood that the AWPs and WACs submitted by LPI were not net prices and knowingly k er elected to utilize them to reimburse pharmacies for LPI’s products. (Defs.’ Mot. at 16–20, 34– Cl 36.) The State does not dispute (or, for that matter, even respond to) these facts. That is dispositive. ct Having knowingly elected to utilize LPI’s non-net prices, the State cannot prove that tri any statement made by LPI about its prices was “material” to Texas Medicaid or that the D is payments to pharmacies the State premised on LPI’s price submissions were “unauthorized.” . (Id. at 18–22, 32–36.) 1 Co is 1 The State cites a sweeping affidavit from Andres Vasquez that purports to compile and summarize evidence the av State believes supports itspositions. (See Ex. F to Pls.’ Resp., Vasquez Aff.) Mr. Vasquez’s affidavit, however, is not competent summary judgment proof and should be stricken for multiple reasons: it is conclusory, speculative, contains unsubstantiated opinions and unilateral and subjective determinations of fact Tr by an interested lay witness. See Ryland Group, Inc. v. Hood, 924 S.W.2d 120, 122 (Tex. 1996) (per curiam); CA Partners v. Spears, 274 S.W.3d 51, 63 (Tex.App.--Houston [14th Dist.] 2008, pet. denied); MJS and y Associates, L.L.C. v. Master, 501 S.W.3d 751, 759 (Tex. App.--Tyler 2016). It also contains a discussion of op evidence and facts for which Mr. Vasquez clearly has no personal knowledge, (Ex. F to Pls.’ Resp. at ¶¶ 11, 17), and are based on inadmissible hearsay, (id. at ¶¶ 19, 20.)See Seaway Products Pipeline Co. v. Hanley, 153 S.W.3d 643, 654 (Tex.App.--Fort Worth 2004) (“To be competent summary judgment evidence, an affidavit c must be based on personal knowledge, set forth facts admissible in evidence, and affirmatively show the affiant’s competency to testify as to the matters stated therein.”) (citing Tex. R. Civ. P. 166a(f)). l ia fic Moreover, the State isusing Mr. Vasquez’s after-the-factaffidavit to manufacture a disputed fact issue on materiality by contradicting the undisputed facts Defendants cite in their Motion that establish that: (i) Texas Medicaid knew it was not receiving net prices from LPI; and (ii) when LPI did submit net prices after the 2013 of regulatory changes, Texas Medicaid continued to utilize LPI’s list prices in making reimbursements, (Defs.’ Mot. at 16–19, 22, 34–36.) See Haynes v. City of Beaumont, 35 S.W.3d 166, 178 (Tex. App.--Texarkana 2000). Un Indeed, Mr. Vasquez’s affidavit inappropriately contradicts his own prior sworn testimony conceding that the State was seeking non-net AWPs on the Questionnaire, (Defs.’ Mot. at 12 n.21.) See Burkett v. Welborn, 42 S.W.3d 282, 286 (Tex. App.--Texarkana 2001) (excluding portions of affidavitwhere it conflicts with prior sworn testimony and reasoning that“an affidavitof [plaintiff] was submitted in an attempt to demonstrate 3 Unable to contest the evidence of its knowing utilization of LPI’s list prices, the State e resorts to two legal arguments. Neither is availing. ic Pr First, the State contends that LPI’s submissions were material because itwas allegedly L. “required” by law to set its reimbursements based on whatever pricing LPI submitted on its a Questionnaires or supplied in pricing updates. That argument, however, is predicated on a lv misstatement of the law. The regulations that govern Texas Medicaid expressly provide that the Ve Health and Human Services Commission, when determining “the need for a drug to be added to k er the Texas Drug Code Index and to determine the need for restrictions” may: Cl return[] a questionnaire for any of the following reasons: ct (1) discovery of false, erroneous, or incomplete information or documentation on the questionnaire; . . . tri (4) failure of the drug company to provide the Commission with current DEAC to is a pharmacy, cost to a wholesaler, estimated wholesale cost to a pharmacy, or D AMP. . 1 TEX. ADMIN. CODE § 354.1923(b)(1), (4) (version effective Nov. 16, 2003-Jan. 13, 2013) Co (emphasis added).2 Thus, far from being obligated to blindly utilize a manufacturer’s pricing, is the regulations authorize Texas Medicaid to reject that pricing if it is false, erroneous, or av incomplete. Despite this legal framework, the record demonstrates that Texas Medicaid freely Tr chose to accept and rely upon LPI’s prices, knowing that they were not net prices.3 Indeed, the y op c factual disputes” but “[n]umerous statements in this affidavit contradicted [plaintiff’s]prior deposition l ia testimony.”). 2 fic Likewise, the Questionnaire itself provides that the State can reject a manufacturer’s submission if the form is altered. See Ex. 9 to Defs.’ Mot. 3 of The State’s argument that it was “required” to reimburse using the pricing LPI submitted is also contradicted by the State’s own conduct—namely, the fact that the State has rejected other manufacturer’s submissions. See, Un e.g., Ex. 82, 5/12/2008 Letter from D. Valdes to R. Hartmann at Sandoz rejecting Questionnaire due to failure to provide the pricing information required by providing undiscounted WACs and AWPs; Ex. 83, 5/14/2008 Letter from D. Valdes to G. Lempka at Watson rejecting Questionnaire due to failure to provide the pricing information required by providing undiscounted WACs and AWPs. 4 foregoing regulations only serve to reinforce the argument that the State cannot prove e materiality. ic Pr Second, the State vainly tries to salvage its case by suggesting that this Court should L. break from established U.S. Supreme Court precedent interpreting the analogous federal FCA. a This is equally absurd. In Universal Health Sers. v. United States ex rel. Escobar, 136 S. Ct. lv 1989 (2016), the Supreme Court held that when “the Government regularly pays a particular type Ve of claim in full despite actual knowledge that certain requirements were violated, and has k er signaled no change in position, that is strong evidence that the requirements are not material.” Cl Id. at 2003–04. In tacit recognition that the application of Escobar would lead to dismissal of the ct State’s TMFPA claim, the State argues that the holding of Escobar should not apply.4 tri But the State does not and cannot offer a single case supporting the view that Escobar’s interpretation of is the FCA’s materiality requirement is, or should be, inapplicable to the TMFPA.5 . D Co 4 The State also argues that AstraZeneca is irrelevant because the State does not need to prove “reasonable reliance” under the TMFPA. (Pls.’ Resp. at 34–35.) While Defendants’ acknowledge that the AstraZeneca ruling was premised on finding a lack of reasonable reliance, it is still relevant here.The facts that supported is the Court’s reasonable reliance ruling—that the State Medicaid agency made a knowing decision to reimburse av pharmacies based on allegedly “inflated” AWPs/WACs and never changed itsreimbursement methodology even after challenging defendants AWPs/WACs—are equally relevant to the prima facie element of materiality here. Tr 5 In fact, federal courts, including Texas, have continuously applied Escobar’s materiality standard in analogous FCA cases in a wide variety of situations. See e.g., United States et al. v. Paramedics Plus LLC, No. 4:14-CV- y 00203, 2018 WL 620776, at *5-7 (E.D. Tex. Jan. 30, 2018) (“[T]he Government’s continued payment after op discovery of a profit cap” is “the exact type of information” that is relevant to “the materiality element after Escobar.”); U.S. ex rel. Harman v. Trinity Industries Inc., 872 F.3d 645, 665 (5th Cir. 2017), cert. denied sub c nom. U.S. ex rel. Harman v. Trinity Industries, Inc., 139 S. Ct. 784 (2019) (holding that manufacturer’s alleged failure to disclose changes to its guardrail end terminals was not material, as required to support FCA claim, l because of “the ‘very strong evidence’ here of [the government’s] continued payment” and that it “was aware of ia all the charges of noncompliance”); Abbott v.BP Expl. & Prod., Inc., 851 F.3d 384, 388 (5th Cir. 2017) fic (affirming summary judgment in favor of defendant and holding that “[a]s recognized in Escobar, when the DOI decided to allow the Atlantis to continue drilling after a substantial investigation into Plaintiffs’ allegations, that decision represents ‘strong evidence’ that the requirements in those regulations are not of material.”); U.S. and State of Florida ex rel. Angela Ruckh v. Salus Rehabilitation, LLC et al., No. 8:11-cv- 1303, 2018 WL 375720, at *1 (M.D. Fla. Jan. 11, 2018) (In finding for the Defendants, the Court held that the Un relator offered “no meaningful and competent proof that the federal or the state government, if either or both had known of the disputed practices…, would have regarded the disputed practices as material to each government’s decision to pay the defendants, and consequently, that each government would have refused to pay the defendants” as required under the Escobar materiality standard); United States ex rel. Se. Carpenters 5 Lacking any relevant case law precedent, the State instead resorts to old tropes about e cannons of statutory interpretation. But the State’s attempts to parse the language of the FCA ic Pr and the TMFPA runs headlong into a body of decisions explaining the analogous nature of the L. statutes. (See Defs.’ Mot. at 25 n.69.) More critically, the TMFPA has been deemed compliant a with 42 U.S.C. § 1396h, which allows the State to retain an increased share of TMFPA lv recovery.6 To be deemed compliant, as determined by the Inspector General of the Department Ve of Health and Human Services and the Department of Justice, the TMFPA must contain a k er provision that “establish[es] liability to the State for false or fraudulent claims, as described in Cl the Federal False Claims Act.”7 In other words, the added damages recovery requires that the ct TMFPA mirror or substantially overlap with the FCA. tri The State cannot seek and obtain those added benefits and then contend that the TMFPA is an entirely distinct creature of Texas law.8 D is Reg’l Council v. Fulton Cnty., No. 1:14-cv-4071, 2016 WL 4158392, at *8 (N.D. Ga. Aug. 5, 2016) (ruling that . relators had not shown that Davis-Bacon Act violations misrepresented matters “so central” to the contract that Co the government “would not have paid” the claims had it known of these violations). See also Defs.’ Mot. at 33 and 33 n.88. is 6 See Ex. 84, 4/17/2006 Letter from Texas Assistant Attorney General to United States Attorney General and Inspector General requesting approval under the Deficit Reduction Act of 2005. See also Ex 85, 12/28/2016 av Letter from Inspector General to Texas Attorney General stating recent TMFPA amendments are in compliance with Section 1909 of the Social Security Act, available at Tr https://oig.hhs.gov/fraud/docs/falseclaimsact/Texas.pdf. 7 U.S. Department of Health and Human Services, Office of Inspector General, “State False Claims Act y Reviews,” available at https://oig.hhs.gov/fraud/state-false-claims-act-reviews/ (emphasis added). “The Office op of Inspector General (OIG), in consultation with the Attorney General, determines whether States have false claims acts that qualify for an incentive under Section 1909 of the Social Security Act. Those States deemed to have qualifying laws receive a 10-percentage-point increase in their share of any amounts recovered under such c laws. To qualify for the financial incentive, a State’s false claims act must: establish liability to the State for false or fraudulent claims, as described in the Federal False Claims Act (FCA), with respect to Medicaid l ia spending.” Id. 8 fic The State asserts that Escobar’s standard for materiality is limited to the analysis of “implied false certification claims.” (Pls.’ Resp. at 33–34.) This is not true. Federal courts have applied Escobar’s heightened standard for materiality beyond simply “implied false certification claims” under 31 U.S.C. § 3729(a)(1)(A). For of example, the Western District of New York held that Escobar’s materiality standard applies to all § 3729(a)(1)(A) claims “regardless of whether those claims were brought under a theory of implied false Un certification, express false certification, or fraudulent inducement.”United States v. Strock, No. 15-CV-0887- FPG, 2018 WL 647471, at *12 (W.D.N.Y. Jan. 31, 2018), reconsideration denied, No. 15-CV-887-FPG, 2018 WL 4658720 (W.D.N.Y. Sept. 28, 2018). The Strock court also applied the Escobar materiality standard to FCA claims brought under § 3729(a)(1)(B). Id. (“Additionally, because § 3729(a)(1)(B) also requires 6 Indeed, while the State notes the definition of material as used in the TMPFA and FCA is e not exactly the same, there is no meaningful substantive difference between the two, as the ic Pr State’s own argument demonstrates. The FCA defines materiality as “having a natural tendency L. to influence, or be capable of influencing, the payment or receipt of money or property,” 31 a U.S.C. § 3729(b)(4), while the TMFPA simply defines it as “having a natural tendency to lv influence, or be capable of influencing,” TEX. HUM. RES. CODE § 36.001(5-a). But the rest of the Ve relevant TMFPA provision provides that the material fact must “permit a person to receive a k er benefit or payment under the Medicaid program that is not authorized or that is greater than the Cl benefit or payment that is authorized,” TEX. HUM. RES. CODE § 36.002(1), (2) (emphasis added), ct thus making clear that the misrepresentation must be material to the payment decision. tri For the same reason, the State’s attempt to rewrite the TMFPA to exclude the concept of is materiality from §36.002(2) altogether fails. (See, e.g., Pls.’ Resp. at 11, 33.) In making this D argument, the State focuses solely on the word “material,” but overlooks the language that . Co requires the misrepresentation to have allowed a payment that was “not authorized or that is is greater than the benefit or payment that is authorized.” TEX. HUM. RES. CODE § 36.002(1), (2) av (emphasis added). If Texas Medicaid made payments to providers knowing that LPI’s reported Tr prices were not net prices, then those payments were not “greater than the benefit or payment y op that is authorized.” The statute does not have to use the word “material” to clearly evince it c materiality, Plaintiff’s claimsunder that subsection fail for the same lack of materiality as Plaintiff’s claims l ia under subsection (A).”). Other courts have similarly held that Escobar’s materiality standard applies to § 3729(a)(1)(B). See United States ex rel.Hussain v.CDM Smith, Inc., No. 14-CV-9107 (JPO), 2019 WL fic 1428360, at *13 (S.D.N.Y. Mar. 29, 2019) (granting summary judgment to defendants on FCA claims); United States et rel. Lemon v. Nurses To Go, Inc., No. CV H-16-1775, 2018 WL 1898559, at *2 (S.D. Tex. Apr. 20, of 2018) (dismissing FCA claims for lack of materiality); United States ex rel. Branscome v. Blue Ridge Home Health Servs., Inc., No. 7:16CV00087, 2018 WL 1309734, at *4 (W.D. Va. Mar. 13, 2018) (same). Courts Un have also applied Escobar’s materiality standard to FCA claims proceeding under the theory of promissory fraud. See, e.g., United States v. Acad. Mortg. Corporation, No. 16-CV-02120-EMC, 2018 WL 4053484 (N.D. Cal. Aug. 24, 2018), motion to certify appeal denied, No. 16-CV-02120-EMC, 2018 WL 6592782 (N.D. Cal. Dec. 14, 2018). 7 requires the statement or misrepresentation make a difference to the government’s payment e decision. While the language may be slightly different, to prove all of the TMPFA violations it ic Pr is asserting here the State must demonstrate it would not have made or authorized the payments at issue had it known LPI’s prices were not net prices.9 L. It cannot do so. a Moreover, even if the TMFPA’s materiality definition were intended to be broader in lv some cases, the State’s only argument in this case is that LPI’s reported prices were material Ve because its prices “were the basis for VDP’s reimbursement to pharmacies”—i.e., they were k er material to their payments to pharmacies. (Pls.’ Resp. at 28, 31.) Of course, the State continues Cl to miss the point that the materiality question is not simply whether LPI’s reported prices were ct the basis for the VDP’s reimbursement payments—there tri is no dispute about that. Rather the issue is whether the alleged misrepresentation—i.e., that the prices were not-net—was material is to the State’s payment decision. To prove that, the State must show it would have made a D different payment decision had it known that LPI’s prices were not-net. But here, the State has . Co effectively conceded that it did know LPI’s reported prices were not net prices, yet nonetheless is continued to use the prices for reimbursement. av In further support of its argument that the TMFPA should be applied differently than the Tr FCA, the State also wrongly invokes the Texas Supreme Court’s In re Xerox Corp. decision. y op While the Texas Supreme Court did comment, in dicta, that the TMFPA differs in certain limited respects from the FCA, the Court ultimately relied on case law interpreting the FCA in analyzing l c ia whether the TMFPA permitted an allocation of remedies. See In re Xerox Corp., No. 16-0671, fic 2018 WL 3077704, at *13–16 (Tex. June 22, 2018). The Texas Supreme Court did not criticize of or overrule, much less reject, the numerous courts that have relied on FCA case law for guidance Un 9 § 36.002(1) and (4) use the word “material”; § 36.002(1) and (2) also use the phrase that “permit[s] a person to receive a benefit or payment under the Medicaid program that is not authorized or that is greater than the benefit or payment that is authorized.” 8 in interpreting the TMFPA.10 Indeed, the State’s own Response belies its assertion about Xerox: e the State itself cites numerous cases interpreting the FCA, rather than the TMFPA, albeit only in ic Pr instances where the State perceives some advantage to its position. (See, e.g., Pls.’ Resp. at 38.) L. And in an even greater hypocrisy, the State’s current argument is directly contradicted by the position it has taken in earlier TMFPA cases.11 a In its Response to Par’s Motion for Summary lv Judgment in the Alpharma case, prior to the Supreme Court’s decision in Escobar, the State Ve argued that the TMFPA materiality requirement was “conceptually inspired by the federal False k er Claims Act” and went on to apply the FCA test for materiality, supported by cases interpreting Cl the FCA’s materiality requirement.12 The State’s present interpretation of the FCA should be ct seen for what itis: an opportunistic, and legally baseless, tri attempt to circumvent the standards that reasonably govern its claims. is II. The State Cannot Dispute That the VDP Reporting Requirements Were Objectively D Vague and Ambiguous, Defeating the Elements of F