NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 17-1014

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UNITED STATES OF AMERICA; THE STATE OF CALIFORNIA;

THE STATE OF CONNECTICUT; THE STATE OF DELAWARE;

THE STATE OF FLORIDA; THE STATE OF GEORGIA; THE STATE OF HAWAII;

THE STATE OF ILLINOIS; THE STATE OF INDIANA; THE STATE OF 

LOUISIANA; THE COMMONWEALTH OF MASSACHUSETTS; THE STATE OF 

MICHIGAN; THE STATE OF MONTANA; THE STATE OF NEVADA; THE STATE 

OF NEW HAMPSHIRE; THE STATE OF NEW JERSEY; THE STATE OF NEW 

MEXICO; THE STATE OF NEW YORK; THE STATE OF NORTH CAROLINA; 

THE STATE OF OKLAHOMA; THE STATE OF RHODE ISLAND; THE STATE OF 

TENNESSEE; THE STATE OF TEXAS; THE COMMONWEALTH OF VIRGINIA; 

THE STATE OF WISCONSIN; THE DISTRICT OF COLUMBIA, ex rel.

RONALD J. STRECK

v.

ALLERGAN, INC.; AMGEN, INC.; ASTRAZENECA PHARMACEUTICALS LP; 

AZTRAZENECA LP; BIOGEN IDEC INC., BRADLEY PHARMACEUTICALS INC. 

n/k/a FOUGERA PHARMACEUTICALS, INC.; CEPHALON, INC.; EISAI, INC.; 

GENZYME CORPORATION; MALLINCKRODT INC. n/k/a MALLINCKRODT 

LLC; NOVO NORDISK, INC.; RELIANT PHARMACEUTICALS, INC; SEPRACOR 

n/k/a SUNOVION PHARMACEUTICALS INC.; UPSHER-SMITH LABORATORIES, 

INC.

 Ronald J. Streck,

 Appellant

_____________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civil No. 2-08-cv-05135)

District Judge: Honorable Eduardo C. Robreno

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2

Argued

April 12, 2018

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Before: CHAGARES, VANASKIE, Circuit Judges, and BOLTON,* District Judge

(Filed: August 16, 2018)

Daniel R. Miller, Esq. [Argued]

Joy P. Clairmont, Esq. 

Todd S. Collins, Esq.

Berger & Montague, P.C.

1622 Locust Street

Philadelphia, PA 19103

Timothy J. Peter, Esq.

Faruqi & Faruqi LLP

101 Greenwood Avenue

Suite 600

Jenkintown, PA 19046

Counsel for Appellant

Tacy F. Flint, Esq. [Argued]

Neil G. Nandi, Esq.

Richard D. Raskin, Esq.

Sidley Austin LLP

One South Dearborn Street 

Chicago, IL 60603

Counsel for Appellees Allergan Inc., Novo Nordisk, Inc., and Sepracor, Inc. n/k/a 

Sunovion Pharmaceuticals Inc.

Steven F. Barley, Esq. 

Hogan Lovells US LLP

100 International Drive

Suite 2000

Baltimore, MD 21202

Stephen A. Loney, Jr., Esq.

Hogan Lovells US LLP

1835 Market Street

29th Floor

Philadelphia, PA 19103

Counsel for Appellee Amgen Inc.
3

Margaret D. Hall, Esq. 

Leanna M. Anderson, Esq.

Dentons US LLP

2000 McKinney Street

Suite 1900

Dallas, TX 75201

Richard L. Scheff, Esq.

Montgomery McCracken Walker & Rhoads LLP

1735 Market Street

Philadelphia, PA 19103

Counsel for Appellee Bradley Pharmaceuticals Inc. n/k/a Fougera 

Pharmaceuticals Inc.

Ashley C. Parrish, Esq.

King & Spalding LLP

1700 Pennsylvania Avenue, N.W.

Suite 200

Washington, D.C. 20006

Counsel for Appellee Eisai Inc.

Jeffrey A. Lutsky, Esq.

Stradley Ronon Stevens & Young

2005 Market Street

Suite 2600

Philadelphia, PA 19103

Counsel for Appellees Mallinckrodt Inc. n/k/a Mallinckrodt LLC and 

Upsher-Smith Laboratories Inc.

Frederick G. Herold, Esq.

Dechert LLP

2440 West El Camino Real

Suite 700

Mountain View, CA 94040

Thomas H. Lee, II, Esq.

Dechert LLP

2929 Arch Street

18th Floor, Cira Centre

Philadelphia, PA 19104

Counsel for Appellee Reliant Pharmaceuticals Inc.
4

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OPINION**

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VANASKIE, Circuit Judge.

This appeal concerns allegations that several drug manufacturers underpaid 

Medicaid rebates to the States under the Medicaid Drug Rebate Program (“MDRP”), 42 

U.S.C. § 1396r-8, in violation of the False Claims Act (“FCA”), 31 U.S.C. § 3729, and 

its state counterparts. Specifically at issue in this qui tam action is whether Appellees 

knowingly violated the FCA by excluding certain credits they received from their 

customers in calculating a drug’s “Average Manufacturer Price.” Concluding that 

Appellees’ decision to exclude these credits from the calculation of a drug’s “Average 

Manufacturer Price” reflected a reasonable interpretation of the pertinent MDRP 

statutory provisions, we will affirm the District Court’s order granting the Appellees’ 

joint motion to dismiss. 

I. 

 As we write principally for the benefit of the parties, we recite only the essential 

facts and procedural history. The following facts are generally taken from the Fourth 

 

*The Honorable Susan R. Bolton, Senior District Judge, United States District 

Court for the District of Arizona, sitting by designation.

** This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 

does not constitute binding precedent.
5

Amended Complaint and are assumed to be true for the purposes of this opinion. See 

Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014) (citation omitted).

Appellees (the “Service Fee Defendants” or “SFDs”) consist of nine drug 

manufacturers.1

 All nine manufacturers participated in the MDRP during the relevant 

time period. The MDRP helps to offset the cost of prescription drugs dispensed to 

Medicaid patients. Participating manufacturers must pay the states a rebate for their 

drugs that are covered by a state’s Medicaid plan. A central component for calculating 

the amount of the rebate is the drug’s “Average Manufacturer’s Price,” or “AMP.” 

Under the applicable versions of the MDRP, AMP is generally defined as the price 

wholesalers pay participating manufacturers for drugs. The lower the AMP, the lower 

the rebate manufacturers must pay the states. 

Appellant Ronald J. Streck was the CEO of Rx Distribution Network, a network 

of regional drug wholesalers. While in this role, Streck became familiar with the 

agreements that the SFDs entered into with various wholesalers. Before 2004, 

wholesalers commonly engaged in a practice of “speculative buying,” stockpiling

inventory acquired from drug manufacturers at one price. Wholesalers would then sit on 

the extra inventory until manufacturers increased their drug prices, at which time they 

would sell off any extra inventory at the higher price and retain the profits. 

 1 These manufacturers are: Allergan, Inc., Amgen, Inc., Bradley Pharmaceuticals, 

Inc. n/k/a Fougera Pharmaceuticals, Inc., Eisai, Inc., Mallinckrodt, Inc. n/k/a 

Mallinckrodt LLC, Novo Nordisk, Inc., Reliant Pharmaceuticals, Inc., Sepracor, Inc.

n/k/a Sunovian Pharmaceuticals Inc., and Upsher-Smith Laboratories, Inc. 
6

In an effort to curb speculative buying, the SFDs negotiated clawback provisions

with their wholesalers that, in essence, deprived wholesalers of their stockpiling profits. 

Rather than taking the form of cash payments, however, the clawbacks were structured

as credits against service fees. Service fees, in turn, were payments owed by 

manufacturers to wholesalers under separate provisions of the agreements in exchange 

for services provided by wholesalers. Going forward, we will refer to the clawbacks as 

“price-appreciation credits.” Price-appreciation credits reduced the amount 

manufacturers had to pay to wholesalers for the services rendered by wholesalers on 

behalf of the manufacturers, such as product distribution services. Stated otherwise, 

price-appreciation credits increased the value manufacturers received for the drugs 

purchased by wholesalers.

From 2004 to 2012, the SFDs excluded price-appreciation credits from their AMP 

calculations, thus reducing their AMPs and the rebates owed the states. The parties 

dispute whether they were permitted to do so. Streck contends they were not and that 

this practice resulted in fraudulently lower AMPs, and ultimately, fraudulently lower 

rebates to state Medicaid programs—in other words, false claims. 

Streck initially filed this lawsuit in October 2008 on behalf of the United States 

and several states against two groups of defendants—the SFDs and several non-service 

fee drug manufacturers.2

 The United States and relevant states declined to intervene as 

to the SFDs. In December 2011, the SFDs jointly moved to dismiss Streck’s Fourth 

 2 The allegations against the other manufacturers involved a distinct scheme, not 

relevant to this appeal.
7

Amended Complaint (the “FAC”). The District Court granted the motion, concluding 

that Streck had failed to plead sufficient facts plausibly suggesting the SFDs had 

knowingly violated the FCA. Accordingly, the District Court dismissed all of Streck’s 

claims against the SFDs with prejudice. The District Court also dismissed all of the 

states’ claims against the SFDs with prejudice. However, the District Court dismissed 

all of the United States’ claims against the SFDs without prejudice. 

Streck and the remaining non-service fee defendants ultimately settled. At that

point, all of Streck’s claims against both the SFDs and the non-service fee defendants 

were finally adjudicated. Streck filed a Notice of Appeal with respect to the District 

Court’s order dismissing his claims against the SFDs. The Third Circuit Clerk 

remanded the case to the District Court to determine whether certification pursuant to 

Federal Rule of Civil Procedure 54(b) was required before we could exercise jurisdiction 

over the appeal. On remand, Streck filed a Rule 54(b) motion, which the District Court 

granted. 

II.

The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331, 1345, and

1367, and 31 U.S.C. § 3732. Although the parties do not dispute appellate jurisdiction, 

we must consider our jurisdiction sua sponte. In re Fosamax (Alendronate Sodium) 

Prods. Liab. Litig. (No. II), 751 F.3d 150, 156 (3d Cir. 2014). 

“The scope of our review concerning questions of our own jurisdiction is 

plenary.” Id. As we explained in In re Fosamax:
8

Pursuant to 28 U.S.C. § 1291, we have jurisdiction over 

appeals from final decisions of the district courts of the United 

States. Generally, an order which terminates fewer than all 

claims pending in an action or claims against fewer than all 

the parties to an action does not constitute a final order for 

purposes of 28 U.S.C. § 1291. However, under Rule 54(b) of 

the Federal Rules of Civil Procedure, a district court may 

convert an order adjudicating less than an entire action to the 

end that it becomes a final decision over which a court of 

appeals may exercise jurisdiction under 28 U.S.C. § 1291. 

Id. at 156 (internal citations and quotation marks omitted). Put somewhat differently, 

“[o]btaining a final judgment [via Rule 54(b) certification] cures the jurisdictional defect 

of an otherwise premature appeal.” Id. (citations omitted).

While it could be argued that Streck filed his Notice of Appeal prematurely, the 

District Court’s subsequent certification of the matter pursuant to Rule 54(b) cured any 

jurisdictional defect. See id. Thus, we have appellate jurisdiction to consider the 

District Court’s dismissal of Streck’s claims against the SFDs. 

III.

We now turn to the primary issue on appeal—whether the District Court properly 

dismissed the FAC for failure to allege the SFDs acted with the required mental state.

3

 

Our review of a decision granting motions to dismiss is plenary. United States ex rel. 

Schmidt v. Zimmer, Inc., 386 F.3d 235, 240 (3d Cir. 2004) (citations omitted). 

 3 We note that our reasoning applies equally to Streck’s claims brought under the 

federal FCA and the FCAs of the various states. Because we ultimately conclude that

Streck failed to plead that the SFDs acted with the required mental state, we need not 

reach the SFDs’ alternative argument that Streck waived appeal of his state-law claims. 
9

As a preliminary matter, the parties dispute whether Streck’s complaint should be 

governed by the pleading standard of Rule 8 or Rule 9(b). It makes no difference 

whether we assess Streck’s allegations under either standard. Although under Rule 9(b), 

scienter may be pled generally, Rule 8 still requires FCA plaintiffs to plead facts 

sufficient to raise a plausible claim of fraud. Cf. Ashcroft v. Iqbal, 556 U.S. 662, 686–87

(2009) (“Rule 9 merely excuses a party from pleading discriminatory intent under an 

elevated pleading standard. It does not give him license to evade the less rigid—though 

still operative—strictures of Rule 8.”) (citation omitted). 

The FCA imposes liability on any person who “knowingly” makes a false claim 

to the government. 31 U.S.C. § 3729(a)(1)(A). As relevant here, a defendant acts 

“knowingly” if he or she “acts in reckless disregard of the truth or falsity of . . . 

information.”4

 Id. § 3729(b)(1)(A)(iii). “Consistent with the need for a knowing 

violation, the FCA does not reach an innocent, good-faith mistake about the meaning of 

an applicable rule or regulation. Nor does it reach those claims made based on 

reasonable but erroneous interpretations of a defendant’s legal obligations.” United 

States ex rel. Purcell v. MWI Corp., 807 F.3d 281, 287–88 (D.C. Cir. 2015) (internal

 4 At oral argument, Streck’s counsel maintained that the FAC also contained 

allegations that the SFDs acted with deliberate ignorance. See Tr. 29:17–21; see also id.

§ 3729(b)(1) (explaining a defendant acts knowingly if he “acts in deliberate ignorance 

of the truth or falsity of . . . information”). We are not convinced. Allegations of 

deliberate ignorance demonstrate conduct and knowledge particularized to a given

defendant. For the most part, the allegations in the FAC do not shed light on each SFDs’ 

negotiations process. The one potential exception, which concerns the more specific 

allegations made against Eisai, Inc., was relinquished by Streck’s counsel at oral 

argument. See Tr. 11:1–18. 
10

citation omitted) (recognizing defense of reasonable, but erroneous, interpretation of 

ambiguous statute), cert. denied, 137 S. Ct. 625 (2017); cf. Safeco Ins. Co. of Am. v. 

Burr, 551 U.S. 47, 68–70 (2007) (recognizing similar defense to False Credit Reporting 

Act claim, which also requires showing of reckless disregard); Long v. Tommy Hilfiger 

U.S.A., Inc., 671 F.3d 371, 374–75 (3d Cir. 2012) (recognizing similar defense to Fair 

and Accurate Credit Transactions Act claim, which also requires showing of reckless 

disregard). 

Assuming the SFDs’ decision to exclude price-appreciation credits was 

erroneous, we ask whether doing so during the relevant time period was objectively 

unreasonable. Basing a defense on a reasonable, but erroneous, interpretation of a 

statute includes three distinct inquiries: (1) whether the relevant statute was ambiguous; 

(2) whether a defendant’s interpretation of that ambiguity was objectively unreasonable; 

and (3) whether a defendant was “warned away” from that interpretation by available 

administrative and judicial guidance. See Purcell, 807 F.3d at 288 (observing that, even 

if a term is ambiguous and a defendant’s interpretation of that term was reasonable, “a

jury might still find knowledge if there is interpretive guidance that might have warned 

[the defendant] away from the view it took”) (alteration in original) (citation and 

quotation marks omitted).

Applied here, we must first decide whether the MDRP’s definition of AMP was

ambiguous with regard to price-appreciation credits. This is a question of statutory 

interpretation, the principles of which are well-established. In Long, we explained:
11

Our role is to give effect to Congress’s intent, which we 

assume is expressed in the ordinary meaning of the statutory 

language. In analyzing whether the statutory language is 

unambiguous, we take account of the specific context in 

which that language is used, and the broader context of the 

statute as a whole. We also consider the overall object and 

policy of the statute, and avoid constructions that produce odd 

or absurd results or that are inconsistent with common sense.

671 F.3d at 374–75 (citations and quotation marks omitted).

At issue here are several versions of the MDRP’s definition of AMP. From 1997

through 2007, Congress defined AMP in the following way:

The term “average manufacturer price” means, with respect to 

a covered outpatient drug of a manufacturer for a rebate 

period, the average price paid to the manufacturer for the drug 

in the United States by wholesalers for drugs distributed to the 

retail pharmacy class of trade, after deducting customary 

prompt pay discounts.

42 U.S.C. § 1396r-8(k)(1) (1997) (current version at 42 U.S.C. § 1396r-8(k)(1)(A) 

(2018)). In 2007, Congress amended the definition of AMP as follows:

Subject to subparagraph (B), [which excludes customary 

prompt pay discounts from AMP,] the term “average 

manufacturer price” means, with respect to a covered 

outpatient drug of a manufacturer for a rebate period, the 

average price paid to the manufacturer for the drug in the 

United States by wholesalers for drugs distributed to the retail 

pharmacy class of trade.

42 U.S.C. § 1396r-8(k)(1)(A) (2007) (current version at 42 U.S.C. § 1396r-8(k)(1)(A) 

(2018)). Then, in 2010, Congress changed the statutory definition of AMP to read:

Subject to subparagraph (B), [which excludes, inter alia,

customary prompt pay discounts, bona fide service fees, 

reimbursements for unsalable goods, payments received from, 

and rebates or discounts provided to entities that do not 

conduct business as wholesalers or retail community 
12

pharmacies, and certain discounts provided by manufacturers

from AMP,] the term “average manufacturer price” means, 

with respect to a covered outpatient drug of a manufacturer 

for a rebate period, the average price paid to the manufacturer 

for the drug in the United States by—

(i) wholesalers for drugs distributed to retail community 

pharmacies; and

(ii) retail community pharmacies that purchase drugs directly 

from the manufacturer.

42 U.S.C. § 1396r-8(k)(1)(A) (2010) (current version at 42 U.S.C. § 1396r-8(k)(1)(A) 

(2018)).

Each version of the statute calls for calculation of a drug’s AMP as the average 

price paid by entities dealing directly with the manufacturer during the rebate period. 

Notably, each version of the statute recognized that certain matters could be excluded 

from the calculation of AMP, such as prompt pay discounts, thereby reducing AMP. No 

version of the statute addressed price-appreciation credits. The question here, then, is 

whether the statute unambiguously required price-appreciation credits to be added to the 

price paid by wholesalers. 

Black’s Law Dictionary defines “price” as “[t]he amount of money or other 

consideration asked for or given in exchange for something else; the cost at which 

something is bought or sold.” Price, Black’s Law Dictionary (10th ed. 2014). Per the

SFD agreements with their wholesalers, however, price-appreciation credits are not part 

of the initial value given for the acquisition of a supply of drugs. Rather, a priceappreciation credit is only triggered once a drug is distributed by a wholesaler to a third 

party after the manufacturer has increased the price of the drug above the amount paid 
13

by the wholesaler. Additionally, the value of a price-appreciation credit turns on the 

ultimate price the third party pays a wholesaler for a drug, not just the price a wholesaler

initially pays a manufacturer for a stock of drugs. 

Admittedly, a price-appreciation credit that remits value back to a manufacturer 

could be considered a component of the cumulative value a manufacturer receives for a 

drug. However, we note neither the word “initial” nor the word “cumulative” appears

before “price” in any of the applicable versions of the statute. The absence of such 

temporal language gives us pause before concluding that “price” unambiguously refers 

to the cumulative price paid, rather than the initial price paid. In short, while the statute 

could be interpreted to include price-appreciation credits in the AMP calculation, the 

statute is—as the District Court observed—susceptible to multiple interpretations, one of 

which excludes the price-appreciation credits. In other words, the statute is ambiguous. 

We next address whether it was objectively unreasonable to conclude that 

manufacturers could exclude price-appreciation credits from their calculations of AMP. 

The District Court determined that it was not. Specifically, the District Court reasoned 

that “price paid to the manufacturer” could be read as referring to the price initially paid 

to the manufacturer by the wholesaler. We agree. Once again, we are persuaded by the 

fact that the applicable versions of the statute lack temporal limitations when referring to 

“price.” 

We conclude by asking whether the SFDs were warned away from this 

interpretation by available guidance. In answering this question, we take judicial notice

of numerous pieces of administrative guidance issued between 1991 and 2012 on which 
14

the parties rely. See Spellman v. Am. Barge Line Co., 176 F.2d 716, 720 (3d Cir. 1949); 

see also Denius v. Dunlap, 330 F.3d 919, 926–27 (7th Cir. 2003) (collecting cases). 

Streck contends that the guidance available during the relevant time period should be 

read as imposing a continuing duty on a manufacturer to revise AMP to include any 

profits received throughout the course of the business relationship with a wholesaler. By 

inference, this would include a price-appreciation credit, which constitutes value 

obtained by a manufacturer after an initial sale. We disagree. Despite the fact that some 

of the guidance (such as Manufacturer Releases issued by the Centers for Medicare & 

Medicaid Services (the “CMS”) during the 1990s) could be read to support Streck’s 

interpretation, we cannot say that this guidance was so clear as to warn the SFDs away 

from an interpretation that excluded price-appreciation credits from AMP. Rather, we 

are convinced that the available scattershot guidance failed to articulate a coherent 

position on AMP and, specifically, price-appreciation credits.

We are particularly persuaded by two pieces of administrative guidance. First, in 

2005, the Office of Inspector General, Department of Health and Human Services (the 

“OIG”) was directed to “review the requirements for, and manner in which, AMPs

[were] determined,” and to “recommend appropriate changes” in AMP calculation 

guidelines to the Secretary of Health and Human Services (the “HHS Secretary”). 

Office of Inspector Gen., HHS, Determining Average Manufacturer Prices for 

Prescription Drugs Under the Deficit Reduction Act of 2005 (“OIG Report”) (2006), at i.

The OIG issued its report in 2006. While the OIG Report was not concerned with priceappreciation credits specifically, the OIG concluded that “[e]xisting requirements for 
15

determining certain aspects of AMPs are not clear and comprehensive, and 

manufacturers’ methods of calculating AMPs are inconsistent.” Id. The OIG went on to 

explain that, as far back as 1991, manufacturers used different methods to calculate 

AMP, such as “bas[ing] calculations on gross sales to wholesalers, net sales to 

wholesalers, or direct retail sales and retail sales reported by wholesalers.” Id. at 4. The 

OIG also compiled the concerns of industry groups regarding administrative and service 

fees, and in particular, whether these fees should be included in AMP. Accordingly, in 

its recommendations, the OIG suggested that the HHS Secretary direct the CMS to

“consider addressing issues raised by industry groups, such as: administrative and 

service fees . . . .” Id. at 12. In Appendix G to the Report, the CMS commented on a 

draft of the OIG’s findings:

The CMS acknowledges that the OIG has reported some 

confusion among drug manufacturers about what sales and 

price concessions must be included when calculating AMP. 

This is an extremely complex and technical topic that has been 

made more difficult due to changes in the chain of sales and 

the evolution of new entities, especially [pharmacy benefit 

managers]. For this reason, CMS had hoped that the OIG 

would have provided more specific recommendations for us 

to consider as we develop a proposed rule to address this topic. 

However, we appreciate the efforts of the OIG in the past, as 

well as this report, and we look forward to continuing to work 

with the OIG on this important issue.

Id. at App. G, 2. All told, the OIG Report suggests that there was significant confusion 

regarding what to include in AMP calculations, despite the existence of the 

administrative guidance from the 1990s on which Streck relies. The confusion appears 

to have been extensive enough to merit a recommendation that the CMS clarify the types 
16

of payments that were excludable from AMP—a concern seconded by the CMS itself in 

its response to the Report.

Second, the guidance proffered by the parties reveals that price-appreciation 

credits were not specifically addressed by the CMS until 2012. In 2012, the CMS 

proposed a rule intended to clarify how manufacturers should calculate AMP. See 

Medicaid Program; Covered Outpatient Drugs (“2012 Proposed Rule”), 77 Fed. Reg. 

5318 (proposed Feb. 2, 2012). The 2012 Proposed Rule explained that priceappreciation credits were likely not excludable from AMP as “bona fide service fees.” 

77 Fed. Reg. at 5332. This statement by the CMS, however, did not unambiguously

foreclose the possibility that price-appreciation credits could be excluded from AMP 

under a different theory.5

 5 We also note a distinction between the 2012 Proposed Rule and the final rule

issued by the CMS in 2016. See Medicaid Program; Covered Outpatient Drugs (“2016 

Final Rule”), 81 Fed. Reg. 5170 (Feb. 1, 2016). In response to comments challenging 

the position on price-appreciation credits taken by the CMS in the 2012 Proposed Rule, 

the CMS wrote:

We continue to believe that price appreciation credits would 

likely not meet the definition of bona fide service fee. Based 

on our experience with the program, it is our understanding 

that price appreciation credits are not issued for the purposes 

of payment for any service or offset for a bona fide service 

performed on behalf of the manufacturer, but rather are issued 

by the manufacturer to adjust (increase) the wholesaler’s 

purchase price of the drugs in such instances when the drugs 

were purchased at a certain price and are remaining in the 

wholesaler’s inventory at the time the manufacturer’s sale 

price of the drug increased. In such situations, these credits 

would amount to a subsequent price adjustment affecting the 

average price to the manufacturer and should be recognized 

for purposes of AMP in accordance with § 447.504(f).
17

In light of the OIG’s recognition of confusion regarding the calculation of AMP 

during the relevant time period and the CMS’s first express recognition of priceappreciation credits in 2012, we are convinced that Streck failed to plead that the SFDs 

were warned away from an interpretation of AMP that excluded price-appreciation 

credits. Although we are not prepared to say that this is the best interpretation of the 

statute, we nevertheless are confident that—at the very least—it was not objectively 

unreasonable to act in accordance with such an interpretation between the years of 2004 

and 2012. Because this reasonable interpretation of an ambiguous statute was 

inconsistent with the reckless disregard Streck was required to allege at this stage of the 

litigation, we will affirm the District Court’s dismissal of Streck’s claims.6

IV.

For these reasons, we will affirm the order of the District Court dated July 3, 

2012.

 

81 Fed. Reg. at 5228. The 2016 Final Rule, which strikes us as far clearer on the issue 

of price-appreciation credits, was obviously unavailable to the SFDs during the relevant 

time period. 

6 As an alternative ground for affirmance, the SFDs contend that Streck failed to 

satisfy the heightened pleading requirements of Rule 9(b) for stating a claim for fraud. 

Because we conclude that the District Court properly dismissed the FAC on the ground 

that Streck failed to plead a plausible violation of the FCA, we decline to reach this 

issue.