Walgreen Medicaid Fraud Suit Advanced by Feds in Tennessee

Federal and Tennessee prosecutors adequately alleged that Walgreen Co. violated the False Claims Act by falsifying patient records in order to improperly receive millions of dollars worth of Hepatitis C medication payments from Medicaid, a Tennessee district court said.

The plaintiffs say Walgreens, acting through store manager and pharmacist Amber Reilly, knowingly submitted or caused to be submitted materially false information to TennCare for dozens of enrollees who lacked eligibility for Medicaid reimbursement.

Walgreens argued that it can’t be vicariously liable under the FCA because plaintiffs didn’t show the company knew about allegedly fraudulent actions while they were taking place.

But a corporation can be vicariously liable under the FCA when it benefits from the fraud of a managerial agent who is acting within the scope of her employment, Judge J. Ronnie Greer of the U.S. District Court for the Eastern District of Tennessee said in the Monday opinion.

The complaint also adequately alleged Reilly’s misconduct with “meticulous details,” and that Walgreens should have known it was obligated to return overpayments to the government, the court said.

The complaint adequately alleged actual knowledge of the obligation given “the widescale fraud that occurred under Walgreen’s own roof” and the “huge upsurge in revenue that accompanied the fraud,” the court said.

The plaintiffs filed the complaint in May 2021.

The alleged misconduct, which took place between 2014 and 2016, led to a 673% increase in revenue for the Kingsport, Tenn., pharmacy in less than two years, the complaint said.

Walgreens investigated and learned about the altered records in June 2016, but made no attempt to refund payments to TennCare, the complaint said.

Reilly pleaded guilty to one count of healthcare fraud contained in a federal information in October 2016, and was sentenced to 16 months in prison in June 2017.

Spicer Rudstrom PLLC and Gibson, Dunn & Crutcher LLP represented Walgreens.

The case is United States v. Walgreen Co., E.D. Tenn., No. 21-cv-80, 3/14/22.