Supreme Court Declines to Review $220 Million Drug Pricing Judgment Against Eli Lilly

The Supreme Court of the United States recently denied certiorari in Eli Lilly & Co. v. Streck,¹ leaving in place a more than $220 million False Claims Act (FCA) judgment against Lilly for misreporting drug prices for the Medicaid Drug Rebate Program (MDRP). The case arose from a qui tam action that relator Ronald Streck filed against Lilly and other drug manufacturers in 2014 in the Northern District of Illinois. Goodwin previously reported on this case in 2022. The Court’s denial of certiorari comes amid ongoing judicial scrutiny of the constitutionality of qui tam litigation as stakeholders await the Eleventh Circuit’s forthcoming decision in Zafirov v. Florida Medical Associates,² a case that may have significant implications for the future of FCA enforcement. Given the substantial liability that may arise under the FCA for drug price reporting violations, which are most commonly asserted by qui tam relators, the Court’s denial of certiorari leaves in place considerable qui tam–based enforcement risk for these issues as well as all other potential FCA theories that could apply to those operating in life sciences and healthcare.

I. Background

As a participant in the MDRP, Lilly is required to pay a rebate for all drugs dispensed to Medicaid beneficiaries. The required rebate is set by statute and is intended to ensure the net price of a drug for Medicaid beneficiaries is equal to either (a) the “Best Price” for the drug available in the private market or (b) a percentage of the drug’s “average manufacturer price” (AMP) — whichever gives Medicaid the lowest price. Brand-name drugs require the greatest rebate and generics the lowest. The rebate is designed to insulate the Medicaid program from drug price increases that might outpace inflation. Certain fees paid to channel participants, such as wholesalers, to perform services on the manufacturer’s behalf, may be deemed “bona fide” and be excluded from AMP. To qualify for the bona fide service fee (BFSF) exclusion, the fee must: (1) represent fair market value; (2) be for a bona fide, itemized service actually performed on behalf of the manufacturer; (3) be for a service that the manufacturer would otherwise need to perform (or contract for) in the absence of the service arrangement; and (4) not be passed on, in whole or in part, to a client or customer of the entity (whether or not the entity takes title to the drug).³

Because the government relies on manufacturer-reported AMP and Best Price data to calculate the rebates it is owed, any inaccuracy in those reported figures, including through misclassification of fees as bona fide or improper exclusions from AMP, can result in the government receiving lower rebates than it is entitled to. Where inaccuracies are knowing or reckless, they can give rise to liability under the FCA, which imposes treble damages and per-claim penalties for the submission of false or fraudulent claims to the government.

In exchange for Lilly’s participation in the MDRP, the government is required to reimburse pharmacies for Lilly’s drugs dispensed to Medicaid beneficiaries. This reimbursement payment is the smaller of two numbers: the amount a pharmacy actually paid plus a dispensing fee or the “usual and customary charges to the general public” for the drug. This creates a deliberate symmetry in the Medicaid system: As a brand-name drug price rises, the government pays more. At the same time, that price increase should be captured by the AMP formula, increasing the AMP and the corresponding rebate for the government. According to the relator’s allegations, Lilly increased prices, made more profit, but did not increase the AMP. Thus, by misclassifying a pricing input as a BFSF, Lilly allegedly pocketed part of the rebate owed to the government.

II. Lilly Case and False Claims Act Judgment

a. Lilly’s Distribution Fee Model

In 2005, Lilly adopted a “fee-for-services” distribution model where Lilly paid the wholesaler directly for packing, storing, and distributing. Under this model, the wholesalers received their compensation through two components that worked in tandem:

• Component 1 — The Distribution Fee:
  • Wholesalers received a set “Distribution Fee,” calculated as a small portion of the cost of drugs they purchased from Lilly. This was a conventional payment by Lilly to the wholesalers for their services. Distribution Fees can often be deemed bona fide.
• Component 2 — The “Price Increase Value”⁴:
  • The wholesalers could receive their compensation in two ways: (1) ordinary cash payments and (2) “Price Increase Value.” Cash payments were simple: Lilly paid the wholesalers for the services. But Price Increase Value depended on how the price of a drug changed between the time Lilly sold a drug to the wholesalers and the time that the wholesalers sold the drug to pharmacies. If the price of the drug increased during that period, then the wholesalers would owe Lilly the difference in price for the drug it held in stock. That amount would be deducted from Lilly’s bill. This was designed, in part, to prevent wholesalers from stocking Lilly’s drug in inventory after buying it at a lower price and pocketing the difference.

b. BFSF Exclusion From AMP

Lilly excluded its entire “Distribution Fee” to wholesalers from its AMP during the 2005 to 2017 period, contending that the fee qualified as a BFSF. Critically, Lilly considered the Price Increase Value or clawback mechanism as part of its Distribution Fee subject to the AMP exclusion even though the money that funded Lilly’s inventory management “clawback” did not actually come from Lilly. Instead, it came from entities such as retail community pharmacies, who were charged the higher price by the wholesalers.

Lilly structured its contracts so that the wholesalers would claw back the price increase and pass it up to Lilly rather than keep it for themselves, but the wholesalers could only afford to do that because the pharmacies at the bottom of the chain were paying the higher price. Notably, Lilly abandoned this practice in 2017 and ceased excluding these clawbacks from its AMP calculations — a fact the Seventh Circuit identified as evidence undermining Lilly’s bona fide service fee argument.

The Price Increase Value component caused the Distribution Fee to fail two elements of the BFSF test. First, the fee was not paid by the manufacturer to the wholesalers; instead, the payment flowed in the opposite direction — from pharmacies, through the wholesalers, and ultimately up to Lilly. Second, the price increases were passed through to pharmacies rather than absorbed by the wholesalers. By treating the Distribution Fee and the Price Increase Value as a fee excludable from AMP, Lilly artificially lowered its AMP and thus lowered the Medicaid rebates Lilly owed the government.

c. Lower Court Holdings and Damages

Streck argued that Lilly’s false representations regarding its AMP led to $61 million in Medicaid underpayments and more than $600 million in additional revenue for Lilly. While the Department of Justice (DOJ) declined to intervene in the matter, Streck prevailed in the United States District Court for the Northern District of Illinois, where a jury returned a verdict in his favor in the amount of $61,229,217.⁵ Pursuant to the FCA, the award was trebled to $183,687,651, and with accumulated interest, that award now exceeds $220 million. Lilly appealed the judgment, and on September 11, 2025, the United States Court of Appeals for the Seventh Circuit affirmed the district court’s decision.⁶

III. Constitutional Challenges to FCA Qui Tam Provisions: Lilly’s Certiorari Petition and Pending Eleventh Circuit’s Zafirov Decision

As Lilly’s case progressed, FCA defendants began challenging the constitutionality of qui tam actions altogether. While Lilly’s appeal was pending before the Seventh Circuit, the United States District Court for the Middle District of Florida issued an opinion dismissing a plaintiff’s qui tam action in Zafirov v. Florida Medical Associates. There, the Florida District Court held that qui tam relators are unconstitutionally appointed “officers of the United States,” and as such, their authority to bring FCA claims where the government has declined to intervene violates the Appointments Clause of Article II of the Constitution. The relator in Zafirov has appealed that ruling to the Eleventh Circuit Court of Appeals, which heard oral argument in December 2025. 

Following the district court’s Zafirov opinion, which came out after Lilly’s Seventh Circuit appeal had been fully briefed and argued, Lilly petitioned the Seventh Circuit for rehearing en banc, raising for the first time the argument addressed in Zafirov — that FCA’s qui tam provisions are unconstitutional. The Seventh Circuit denied Lilly’s petition. The court’s order denying rehearing en banc noted that “all members of the original panel” that decided the appeal concluded that Lilly “forfeited if not waived its constitutional argument” by not raising the argument earlier in the litigation. The Supreme Court denied certiorari on May 18, 2026. As is the Supreme Court’s usual practice, the Court did not provide a reason for its denial, though the failure to preserve an argument below is a common basis for denying certiorari.

IV. Key Takeaways

FCA cases predicated on price reporting issues are not new.⁷ At the heart of these cases is the idea that a drug manufacturer has intentionally underreported, misreported, or neglected to report accurate and appropriate drug pricing data, as mandated by statute, and that the government overpaid for drugs for Medicare, Medicaid, and other government program beneficiaries as a result. The Supreme Court’s denial of certiorari in this case and the existing drug pricing litigation that remains ongoing suggest that manufacturers need to remain vigilant about staying up-to-date on price reporting compliance requirements — alleged reporting violations are most commonly asserted by relators in qui tam actions. Thus, as long as qui tam actions remain a viable option for uninjured private plaintiffs, the risk of litigation brought because of alleged noncompliance remains material, particularly given the treble damages that can be imposed upon an adverse jury verdict.

While the Supreme Court’s denial of certiorari in Streck — which left in place “one of the largest whistleblower recoveries against a pharmaceutical firm” — does not change the landscape for FCA whistleblowers, that ground could be shifting soon. The Eleventh Circuit could issue its opinion in Zafirov at any time. While other circuits have consistently upheld the constitutionality of FCA qui tam actions, an affirmance of Zafirov would have a massive impact on the qui tam landscape by limiting enforcement of FCA claims and possibly forcing the DOJ to intervene more frequently to pursue FCA claims that potentially have merit but are not so strong that the government would have intervened typically in the past. Additionally, an Eleventh Circuit affirmance could tee the issue back up for the Supreme Court. Justices Thomas, Barrett, and Kavanaugh already indicated their skepticism of the constitutionality of qui tam actions in concurring opinions in Polansky v. Executive Health Resources, Inc.,⁸ issued in 2024. Zafirov presents a cleaner record for Supreme Court review. If the Eleventh Circuit affirms the district court’s judgment, it could trigger seismic changes in the FCA qui tam risk environment for life sciences and healthcare companies.

V. Managing Price Reporting Risk 

There are a number of steps drug manufacturers can take in light of recent enforcement to ensure their price reporting practices are compliant and up-to-date:

• Develop and regularly reassess written policies and procedures that address current service fees and ensure that any new service fees meet the Center for Medicare and Medicaid Services and Veterans Affairs definition of which fees can be excluded.⁹
• Include regular government affairs updates on both federal and state drug pricing developments during Pricing Committee and Compliance Committee meetings.
• Conduct regular price reporting audits to ensure accurate reporting.
• Vet all market access contracts, rebate agreements, inflation agreements, and other similar types of agreements with counsel to ensure compliance with drug price reporting and calculation requirements.
• Routinely update internal Reasonable Assumptions documents and check in with any third-party price reporting vendors who assist with maintaining Reasonable Assumptions documentation.

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The Goodwin Healthcare team will continue to monitor legal and regulatory activity related to the False Claims Act and drug price reporting regulations. For more information on the issues discussed in this alert, please see the Goodwin Center for Market Access and Pricing as well as Goodwin’s False Claims Act practice. 

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