On December 2, the U.S. District Court for the Western District of Virginia granted a motion to dismiss a False Claims Act (FCA) lawsuit brought by the United States and the Commonwealth of Virginia, which alleged that a Walgreens clinical pharmacy manager falsified hepatitis C drug prior authorization submissions to Virginia Medicaid. See United States v. Walgreen Co., 2021 WL 5760307 (W.D. Va. Dec. 3, 2021).

Reasons for Dismissal

In dismissing the case, the district court reasoned that the prior authorization requirements were not “material” to payment as required to state an FCA claim within the meaning of the Supreme Court’s opinion in Universal Health Servs., Inc. v. U.S. ex rel. Escobar because Virginia Medicaid’s prior authorization requirements were unlawful under §1927(d)(1) and (2) of the Social Security Act.  The district court’s opinion entirely rejected the government’s theory of FCA liability, concluding that “[t]he allegations reveal that Walgreens did not receive any payment that it was not entitled to receive.”

Details of the Suit

The Virginia Department of Medical Assistance Services (DMAS) administers the Virginia Medicaid program through contracted third parties, including Managed Care Organizations (MCOs), to provide prescription drugs and other services to Virginia Medicaid recipients.

The suit alleged that from January 2015 through July 2016, a clinical pharmacy manager and another employee at a Walgreens pharmacy in Kingsport, Tennessee, changed data on forms and falsified laboratory test results to obtain prior authorization for reimbursement for the hepatitis C medications Sovaldi, Harvoni, and Daklinza that Walgreens dispensed to Virginia Medicaid recipients. Beneficiaries who received the drugs had been diagnosed with hepatitis C and prescribed the medications by their respective healthcare providers. However, they did not meet certain disease severity and alcohol and drug abstinence requirements set in place by Virginia Medicaid as prerequisites for reimbursement for the medications. Allegations also included the following claims that the manager:

  • Held herself out to be a “patient care advisor” with a physician group treating the patients.
  • Signed prior authorizations on behalf of practices but was not authorized to sign the name of any physician group on documentation submitted to DMAS.
  • Approached a nurse practitioner at one physician group and offered to complete the insurance paperwork for the practice’s hepatitis C patients if the group filled the prescriptions through her Walgreens store.

In dismissing the case, the district court held that under federal law, there are limited circumstances in which a state may restrict a drug being provided to Medicaid beneficiaries through a state formulary.  42 USC § 1927(d)(4)(C) provides that a covered outpatient drug may only be excluded with respect to the treatment of a specific disease or condition for an identified population if, based on the drug’s labeling, “the excluded drug does not have a significant, clinically meaningful therapeutic advantage in terms of safety, effectiveness, or clinical outcome of such treatment for such population over other drugs included in the formulary and there is a written explanation (available to the public) of the basis for the exclusion.”

The district court explained that because cost alone is not an acceptable rationale for restricting access to a medically necessary drug under the Medicaid statute, the prior authorization requirements violated federal law. Further, the district court held that because the DMAS’s prior authorization requirements were unlawful, the manager’s acts were not material to DMAS’s reimbursement of the claims at issue.

False Claims Act Implications

FCA liability is triggered when a person presents a fraudulent claim or makes a statement material to a false claim. 31 U.S.C. §§ 3729(a)(1)(B). The FCA defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” In Escobar, the Supreme Court explained that the FCA’s materiality standard is “demanding” and “look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.”  The Supreme Court then set forth a number of nonexclusive considerations to guide the materiality inquiry, which primarily focus on the government’s actual conduct with respect to payment of purportedly false claims.

In seeking dismissal, Walgreens argued that any false statements to DMAS could not have been material to any payment determination because DMAS was legally obligated to pay the claims for the drugs at issue and the prior authorization criteria were in contravention of the governing federal statute.  While acknowledging that the “novelty” of its argument, Walgreens faulted the government for attempting “to use an FCA claim to enforce unenforceable payment criteria.”

In applying Escobar’s materiality standard, the district court agreed with Walgreens’ position and determined that any fraudulent actions by the pharmacy manager could not have been material to Virginia Medicaid’s decision to reimburse Walgreens because Walgreens was entitled to be reimbursed by Virginia Medicaid under the applicable federal statute.  As a result, there could be no FCA liability under the facts pleaded by the government and dismissal was warranted.

If you have any questions about the implications of this case, please contact the authors.