Introduction
Pharmaceutical manufacturers enrolled in the Medicaid Drug Rebate Program (MDRP) operate within a complex pricing and compliance framework. They must report detailed pricing and product data to the federal government and pay separate rebates to state Medicaid agencies for each “strength” and “dosage form” of single-source and innovator multiple-source drugs. Yet despite the program’s significance, neither “strength” nor “dosage form” is defined anywhere in the MDRP statute, its regulations, or Centers for Medicare & Medicaid Services (CMS) guidance — leaving manufacturers to navigate compliance through reasonable interpretation.
This undefined legal landscape has now attracted renewed judicial and regulatory scrutiny. A landmark 2024 ruling from a California federal court and renewed enforcement priorities from the Department of Justice (DOJ) signal that how manufacturers define these terms will carry significant legal and financial consequences.
The MDRP Framework and Its Definitional Gaps
The Medicaid Drug Rebate Program provides pharmaceutical manufacturers access to Medicaid coverage in exchange for paying rebates to state Medicaid agencies. This arrangement benefits both parties: manufacturers gain a broader patient base with insurance coverage, while state programs pay reduced drug prices.
Under the program, manufacturers submit pricing and product data that forms the basis for rebate calculations. These rebates are computed separately for each “strength” and “dosage form” of qualifying products. Since different prices apply to different products, varying rebate obligations arise across a manufacturer’s portfolio.
The critical problem is that neither “strength” nor “dosage form” carries a statutory or regulatory definition within the MDRP. CMS has offered no formal guidance on how to interpret these terms, which means manufacturers must adopt reasonable internal interpretations when determining whether similar products qualify as the same or distinct products for MDRP reporting purposes. This interpretive freedom, however, comes with legal exposure.
The Lockwood Case: Defining “Strength” Under MDRP
The most significant case to address MDRP’s definitional ambiguity is United States ex rel. Lockwood v. Sanofi US Services, Inc. et al., decided in December 2024 by the U.S. District Court for the Central District of California.
In this False Claims Act (FCA) case, a physician-relator alleged that the defendant manufacturer improperly reported pricing and calculated Medicaid rebates separately for two products — a 10-ml vial and a 3-ml vial of the same drug. Both vials contained identical active ingredients and the same concentration, but differed in total volume and, therefore, total drug quantity.
The relator argued that because the two vials shared the same concentration, they had the same “strength” and should have been treated as a single product for MDRP purposes. Reporting them separately, the whistleblower contended, constituted a false claim under the FCA.
Court’s Reasoning: FDA Definition Applies
The court rejected the relator’s narrow interpretation. In granting the manufacturer’s motion to dismiss, the court acknowledged that “strength” is undefined in the MDRP statute, its implementing regulations, and CMS guidance. Faced with this gap, the court looked to external regulatory frameworks referenced within the MDRP structure.
Notably, the MDRP defines “single source drug” by reference to FDA regulations governing new drug approvals. Building on this connection, the court concluded that the FDA’s definition of “strength” for new drug applications — found in 21 C.F.R. § 314.3 — should apply. This definition states that strength refers to “the amount of drug substance contained in, delivered, or deliverable from a drug product,” encompassing both total quantity and concentration.
The court further supported this interpretation by noting that CMS itself uses Drugs@FDA to monitor MDRP compliance, reinforcing the relevance of FDA definitional standards. The court rejected narrower definitions from the U.S. Pharmacopeia, the Structured Product Labeling System, and FDA labeling guidance — all of which limit “strength” to concentration only — because none of those sources are used by CMS for MDRP monitoring.
Applying the broader FDA definition, the court ruled that two products with identical concentrations but different volumes could be legitimately reported as separate products, each with distinct Medicaid rebate liability. The case was dismissed for failure to state a claim under the FCA.
This was the second dismissal of the complaint. In an earlier ruling on a prior version, the court had also found the relator failed to adequately allege scienter — the intent required for FCA liability — because the manufacturer’s reporting was “entirely consistent with interpreting the relevant FDA regulations in good faith.”
DOJ Enforcement: A Growing Priority
This ruling arrives at a particularly consequential time for MDRP compliance. In July 2025, the DOJ renewed its DOJ-HHS False Claims Act Working Group, explicitly identifying “drug, device, and biologics pricing and price reporting” as a core FCA enforcement priority for the current administration. Over the past three decades, FCA enforcement in the drug pricing space has yielded billions of dollars in recoveries, and enforcement activity is expected to intensify.
Implications for Pharmaceutical Manufacturers
The Lockwood decision offers manufacturers a useful precedent — particularly those dealing with injectable drugs available in multiple vial sizes — but it remains a single district court ruling. CMS has not formally endorsed this interpretation, and the agency could issue guidance that diverges from the court’s reasoning. Manufacturers should closely monitor any forthcoming CMS rulemaking or guidance on “strength” and “dosage form.”
More critically, companies must recognize that even good-faith interpretations can be challenged by government enforcers and whistleblowers seeking FCA treble damages and statutory penalties. To protect against enforcement risk, manufacturers should maintain contemporaneous documentation of their pricing interpretation rationale, ensure consistency in applying those interpretations across their product portfolios, and work closely with regulatory counsel when making MDRP reporting decisions for new products.
Conclusion
The Lockwood case is a milestone in Medicaid drug rebate compliance, providing the first judicial definition of “strength” under the MDRP. The court’s application of the broader FDA standard — encompassing both concentration and total quantity — has meaningful implications for how manufacturers structure their MDRP reporting. As enforcement priorities escalate and definitional ambiguity persists, proactive compliance strategies and robust documentation are essential safeguards for any manufacturer participating in the MDRP.
