Before Brown, C.J., Neubauer, P.J., and Reilly, J.
Pursuant to Wis. Stat. Rule 809.61 (2009-10)[1] this court certifies the appeal in this case to the Wisconsin Supreme Court for its review and determination.
ISSUES
1. Was the State entitled to a jury trial under Wis. Stat. §§ 100.18 and 49.49?
2. Was the jury required to speculate in determining damages?
3. Was the trial court within its authority to reduce the number of Wis. Stat. § 49.49(4m)(a)2. violations found by the jury?
BACKGROUND
This case deals with the complex relationship between drug companies and the State when deciding how to reimburse pharmacies through the Wisconsin Medicaid program. In order to receive federal Medicaid funds, the State must show the federal government plans for reimbursing pharmacists for drugs dispensed to Medicaid recipients. A formula for reimbursement is usually set by the legislature and approved by the governor as part of the biennial budget process. One component of the formula for brand drugs and some generic drugs is AWP, which the State receives from First DataBank.
The parties disagree as to where First DataBank gets its numbers. Pharmacia presented evidence that First DataBank independently sets AWP, but the State presented evidence that Pharmacia itself “suggests” AWPs which are then published by First DataBank for Pharmacia’s drugs. The State alleges that Pharmacia violated Wis. Stat. §§ 100.18 and 49.49, which both have to do with making misleading statements, by causing First DataBank to publish inflated AWPs.
The record indicates that some state officials have known for a long time, based on office of inspector general (OIG) reports, that AWPs provided by First DataBank were actually higher than the average price pharmacists pay for drugs. However, the record also indicates that those studies were vigorously contested by the pharmacy lobby and other sources each time they were presented to the legislature. Thus, it is difficult to determine what was actually “known” by the legislature when it decided on a reimbursement formula. Based on its decision to set the formula at AWP minus a percentage, however, one can infer that the legislature knew that AWP was inflated to some degree.
The case eventually went to trial by jury over the
objection of Pharmacia, who argued that the State did not have a right to a
trial by jury for its claims. The jury
found that Pharmacia had violated both Wis.
Stat. §§ 100.18 and 49.49.
It awarded damages totaling $9,000,000.
The jury also found that there were a total of 1,440,000 § 49.49(4m)(a)2.
violations.
The State filed a postverdict motion for forfeiture
damages based on the jury’s finding of 1,440,000 Wis. Stat. § 49.49(4m)(a)2. violations. Pharmacia then filed a motion to change the
jury’s answer to the question about the number of violations. The
trial court reduced the number of violations based on the theory that, as a matter
of law, the jury’s number was too high.
It pointed out that the State’s closing argument had encouraged jurors
to fill in the number based on its expert’s testimony as to how many claims
were filed and reimbursed, when in fact the question was how many false
statements Pharmacia made or caused to be made.
In the trial court’s words, “rather than focus on the culpable conduct of the defendant, the
State argued that the jury should fill in a number that, in fact, measured
something different, i.e. the consequences
of the culpable conduct.”
Ultimately, the trial court found that 4578 violations were supported by the record and that each violation merited a $1000 forfeiture—or a $4,578,000 total forfeiture award. Pharmacia appeals several aspects of the judgment, and the State cross-appeals the trial court’s reduction of the jury’s finding on the number of forfeitures.
DISCUSSION
Right to Jury Trial
The State was allowed to try its case to a jury on both
the Wis. Stat. §§ 100.18 and
49.49 claims. The applicable test for
determining a party’s right to a jury trial was outlined in Village
Food & Liquor Mart v. H&S Petroleum, Inc., 2002 WI 92, ¶16, 254
Wis. 2d 478, 647 N.W.2d 177. A
party has a constitutional right to have a statutory claim tried to a jury when
“(1) the cause of action created by the statute existed, was known, or
recognized at common law at the time of the adoption of the Wisconsin
Constitution in 1848; and (2) the action was recognized as at law in 1848.” Village Food, 254
The parties focus their appellate arguments on whether Wis. Stat. §§ 100.18 and 49.49 meet the
first prong of the Village Food test, i.e., whether
they are similar enough to a common law cause of action to merit a trial by
jury. The question as it relates to § 100.18 is particularly
interesting because in State v. Ameritech Corp., 185
Pharmacia contends that the Ameritech holding as it
relates to the right to a jury trial in Wis.
Stat. § 100.18 cases is controlling. However, since Village Food held that
the Ameritech
test used to answer the § 100.18 question was too narrow, the
State argues that Ameritech is no longer controlling on that issue either. See Village Food, 254
Since Village Food, however, a handful of other cases have addressed the test to be used. In the most recent, Harvot v. Solo Cup Co., 2009 WI 85, ¶¶72-78, 320 Wis. 2d 1, 768 N.W.2d 176, the court walked through cases decided since Village Food and concluded that the Village Food test had been applied narrowly and that there is a right to a jury trial in cases where the current statute is an essential counterpart with a “similar purpose” to the 1848 claim.
So, for the Wis.
Stat. § 100.18 claim, we are left with the Ameritech holding that
there is no right to a jury trial under § 100.18, which is called into
question because it is based on a test that Village Food abrogated as
too narrow. Because of that, § 100.18
could arguably fall into the category of statutes that would pass the Village
Food test but fail the Ameritech test. The trial court found that it did fall into
that category. However, since Village
Food, that category has become even smaller because of Harvot’s
analysis that the Village Food test has been narrowly applied. See
Harvot,
320
As to Wis. Stat.
§ 49.49, which prohibits material false statements and misrepresentations
in the context of medical assistance claims, see § 49.49(4m)(a), Pharmacia asserts that it is too
dissimilar from common law fraud to pass the Village Food test. Specifically, it points out that there is no
requirement to find harm under § 49.49(4m)(a), which it argues is an
essential element of common law fraud.[3] In support of that argument, Pharmacia cites
to State
v. Schweda, 2007 WI 100, ¶42, 303
The State argues that Schweda cannot be interpreted to
mean that the elements must match every time because Village Food explicitly
rejected the idea that a current statute must be a codification of the common
law cause of action for the right to a jury trial to apply. See Village Food, 254
Interestingly, in Schweda, the supreme court specifically highlighted the significance of harm as an essential element of a common law nuisance action. It found that because harm was not an element of the modern environmental regulation statutes being analyzed, “the two [were] not sufficiently analogous to pass the first prong of the Village Food test.” However, it does not necessarily follow that the element of “harm” plays the same role in common law fraud as the court found it did in common law nuisance. In fact, the trial court in this case found that both common law fraud and Wis. Stat. § 49.49 require “scienter, intent to induce reliance and (where money remedies are sought) actual harm.” See § 49.49(1)(c) (“If any person is convicted … the state shall have a cause of action for relief … in an amount 3 times the amount of actual damages ….”).
Pharmacia also likens this case to Harvot, which addressed the right to a trial by jury in Wisconsin Family Medical Leave Act (WFMLA) cases. Harvot pointed out that the WFMLA is, at its core, a type of social legislation that did not exist in 1848. Pharmacia contends that because Wis. Stat. § 49.49 specifically deals with Medicaid fraud, Harvot’s social legislation reasoning applies. The State responds—and the trial court agreed—that unlike the WFMLA analyzed in Harvot, in § 49.49, Medicaid is merely the context in which the fraud happens. Therefore, it argues, the Harvot court’s reasoning does not apply to this case.
Jury Speculation
The second issue we certify deals with whether the jury
was required to speculate when determining damages. This issue is based on the process by which
Medicaid reimbursement prices are set.
As previously noted, Medicaid reimbursement formulas are generally part
of the biennial budget approved by the legislature and signed by the
governor. As a result, each time the
legislature considers lowering the formula for reimbursement, a political
tug-of-war ensues between the State agency overseeing Medicaid and the pharmacy
lobbyists. Pharmacia contends that
because the Medicaid reimbursement formula is set as part of the legislative
process, there is no way to know what the legislature and governor would have
done with a more accurate AWP estimate.
A jury’s damage award will be sustained so long as it is supported
by credible evidence. Tony Spychalla Farms, Inc. v. Hopkins Agric. Chem. Co., 151 Wis. 2d 431, 442, 444 N.W.2d 743
(Ct. App. 1989). Evidence must
demonstrate that the party was injured in some way and establish sufficient
data from which a jury could properly estimate amount of damages.
Since the standard of review is so deferential to the jury verdict, we will focus this section on the evidence used by the State to prove damages. First, the State presented some evidence that when the Department of Health and Family Services (DHFS) found out about inflated AWPs, it was able to reduce the reimbursement amount for those drugs. Carrie Gray, a Wisconsin Medicaid employee who works to handle claims from pharmacies, testified that in 2000, when it was discovered that some 400 drugs had inflated AWPs (47 of which were Pharmacia drugs), she worked with First DataBank to get the right numbers such that the State was no longer reimbursing at the inflated rate. Using this evidence, the State argues that it has already proven to the jury “that DHFS would have used true Pharmacia AWPs to reimburse at actual acquisition cost, not that the legislature would have changed the reimbursement rate. It was Pharmacia that tried to prove that … the legislature would have reacted by increasing the reimbursement rate to at least AWP + 7%.”
Pharmacia emphasizes evidence that the legislature knew that AWP was inflated based on OIG studies presented by the DHFS during biennial budget debates. It argues that because the legislature knew of those studies and chose not to reduce reimbursement as much as they suggested, the legislature must have intended to give pharmacies some profit in the formula for reimbursement. However, the State points out that even though the legislature was aware of some studies showing that the AWP was high, it was also subjected to intense lobbying efforts and shown at least one study contradicting those studies. So, while the legislature knew that reported AWP might be high, it had no way to know by how much because of conflicting information.
The State also presented evidence that the legislature would have been obligated to reduce the reimbursement amounts if accurate AWP was known. Deirdre Duzor, an employee of the Medicaid Bureau, testified that the center for medicare and medicaid services (CMS) must evaluate and approve state plans to “assure that state Medicaid programs paid for drugs in a way that was consistent with [federal regulation].” Duzor also testified as to her understanding that federal regulations require a state to reimburse based on an Estimated Acquisition Cost (EAC) plus a reasonable dispensing fee.[4] She acknowledged, though, that reimbursement would also have to be adequate to ensure Medicaid patients had access to pharmacies.
The State argues that because of federal regulations, if accurate AWP were available, the legislature would have to use it. State officials testified that their understanding of the regulation was that states would be required to use accurate AWP, if available, to limit possible reimbursement. The jury was instructed that it could assume that the legislature would act in accordance with the law absent evidence to the contrary.
Judicial Reduction of Forfeitures
As part of the special verdict, the jury was asked how many times Pharmacia violated Wis. Stat. § 49.49(4m)(a)2., which states that “[n]o person, in connection with medical assistance, may … knowingly make or cause to be made any false statement or representation of a material fact for use in determining rights to a benefit or payment.” The jury answered that question with the exact number requested by the State—1,440,000. The State had based that number on its expert’s testimony as to the number of reimbursement claims made by pharmacies and reimbursed using AWP during the applicable time period. In other words, the jury found a violation for every time AWP was used to determine the amount of reimbursement for a particular claim by a Medicaid recipient, rather than for every time Pharmacia suggested or set an AWP.
After the verdict, the trial court lowered the number of forfeitures from 1,440,000 to 4578, stating that the jury’s number was not supported by the record because the expert testimony on which it was based essentially counted the wrong thing. The trial court reasoned that Pharmacia should logically be punished for every time it “ma[de] or cause[d] to be made a false statement,” Wis. Stat. § 49.49(4m)(a)2., rather than every time a false statement was used by the State for reimbursement.[5] Resolution of this issue lies in the interpretation of § 49.49(4m)(a)2. If the trial court’s interpretation is correct, then the jury’s number was incorrect as a matter of law, as well as unsupported by the evidence, and the trial court was correct to reduce the jury’s answer. See Wis. Stat. § 805.14(5)(b) & (c). However, it was not necessarily appropriate to then insert another number based on a theory that was never argued to the jury.[6]
Forfeitures are penal in nature and must be strictly
construed. See Capt. Soma Boat Line, Inc.
v. City of Wis. Dells, 56
Pharmacia argues that “the plain language of [Wis. Stat. § 49.49(4m)] requires
that the focus of the forfeiture analysis be on the acts of the defendant, not
on subsequent acts by others.” It cites
to State
v. Menard, Inc., 121
As persuasive authority, Pharmacia cites to United
States v. Bornstein, 423 U.S. 303 (1976), which addressed forfeitures
in the context of the federal False Claims Act (FCA), 31 U.S.C.
§ 3729(a). In Bornstein, a
subcontractor sent three separately invoiced shipments of falsely labeled radio
kit components to a general contractor, who then billed the government in thirty-five
separate invoices. Bornstein, 423
The State responds that Bornstein is
distinguishable from this case because the FCA, while similar to Wis. Stat. § 49.49(4m) in some
respects, “does not impose a forfeiture ‘for each statement’ as does § 49.49(4m)(b)….” It also says this case is more like United
States v. Ehrlich, 643 F.2d 634 (9th Cir. 1981), another FCA case,
where the Ninth Circuit affirmed a
separate penalty for each inflated voucher a contractor caused a mortgagee to
submit. The Ehrlich court
distinguished that case from Bornstein on the basis that the
contractor in Ehrlich knew that mortgagees would submit the vouchers each
month, whereas the Bornstein general contractor’s submission of multiple invoices
was unrelated to the subcontractor’s conduct.
Ehrlich, 643 F.2d at 637-38.
The Ehrlich court stated:
[Language in Bornstein] strongly suggests that, if a person knowingly causes a specific number of false claims to be filed, he is liable for an equal number of forfeitures. In the absence of such knowledge, using the number of claims to determine the number of forfeitures would be arbitrary. Where such knowledge is present, however, it is consistent with the purposes of the Act to impose forfeitures based on the number of claims.
Ehrlich, 643 F.2d at 638. This case seems to lie somewhere in between Ehrlich and Bornstein—the precise number and frequency of inflated Medicaid payments based on AWP would be unknown to Pharmacia, but it is quite foreseeable that multiple claims would be made based on a single AWP submission. However, neither of those cases analyzed Wis. Stat. § 49.49, so their applicability to this case is limited. And they do not answer the question whether the trial court could replace the jury’s number with its own once it determined that the jury’s answer was incorrect as a matter of law and unsupported by the evidence.
CONCLUSION
This is a case that began in 2004. It is now 2011 and Pharmacia is the first defendant to reach the appellate stage of the process. The issues we here certify will determine the law of the case for the multiple remaining defendants. Because of that, the parties, their attorneys, and the public deserve timely and definitive resolution of these issues and all others brought by the parties. That can only come from this state’s highest court.
[1] All references to the Wisconsin Statutes are to the 2009-10 version unless otherwise noted.
[2] 4 William Blackstone, Commentaries on the Laws of England 156 (19th ed. 1836), available at http://books.google.com/books?id=LFJDAAAAcAAJ (last visited May 16, 2011), states that “[c]heating is another offence, more immediately against public trade; as that cannot be carried on without a punctilious regard to common honesty, and faith between man and man.”
[3] Pharmacia lists the elements of common law fraud as (1) a misrepresentation of fact, (2) that was untrue, (3) made by the defendant knowing the representation was untrue or recklessly without caring whether it was true or false, (4) with intent to deceive and induce the plaintiff to act upon it to the plaintiff’s pecuniary damage, and (5) that was believed and justifiably relied on by the plaintiff. See Wis JI—Civil 2401; see also Kaloti Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, ¶12, 283 Wis. 2d 555, 699 N.W.2d 205.
[4] The regulation actually requires the State to pay the lesser of an EAC plus a reasonable dispensing fee or the pharmacy’s “usual and customary charge.” 42 C.F.R. § 447.512(b) states:
(b) Other drugs. The agency payments for brand name drugs … and drugs other than multiple source drugs for which a specific limit has been established must not exceed, in the aggregate, payments levels that the agency has determined by applying the lower of the—.
(1) EAC plus reasonable dispensing fees established by the agency; or
(2) Providers’ usual and customary charges to the general public.
[5] The
trial court also found that under State v. Williams, 179
[6] The
trial court supported its decision to replace the jury’s number with its own by
citing to Reyes v. Greatway Ins. Co., 220
[7] As
the State points out, the issue in State v. Menard, Inc., 121