False Claims Act suit against Walgreen reinstated

Where the district court dismissed claims that Walgreen Co. misrepresented that certain patients met Virginia’s Medicaid-eligibility requirements for expensive Hepatitis C drugs on the basis that Virginia’s eligibility requirements violated the Medicaid Act, it erred. The complaint plausibly alleged that the misrepresentations did, in fact, influence the decisionmakers.

Background

The United States and the Commonwealth of Virginia allege that Walgreen Co. misrepresented that certain patients met Virginia’s Medicaid-eligibility requirements for expensive Hepatitis C drugs. They asserted claims under the False Claims Act and Virginia state law. The district court dismissed the complaint, holding that Virginia’s eligibility requirements violated the Medicaid Act, and therefore Walgreens’s misrepresentations were immaterial as a matter of law.

Analysis

To plausibly allege a claim under the False Claims Act, a plaintiff must generally plead four elements: “(1) there was a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that caused the government to pay out money or to forfeit moneys due.”

The district court and the parties took on the daunting question whether Virginia’s eligibility requirements violated the Medicaid Act. But this court doesn’t think it necessary to answer that question (at least at this point in the proceedings) because it doesn’t control materiality as a matter of law.

As alleged, the Department of Medical Assistance Services and its proxy decisionmakers rejected (or required more information about) claims when patients truthfully stated they didn’t satisfy Virginia’s disease-severity or substance-abstinence requirements. The decisionmakers changed course and approved these same patients’ claims only after Walgreens doctored documents and lied to indicate compliance with those requirements.

Taking these allegations as true, they show that Walgreens’s misrepresentations had “a natural tendency to influence, or [were] capable of influencing,” the government decisionmakers. In fact, they did influence the decisionmakers. That’s what materiality under the False Claims Act is all about.

The district court erred when it held that it wasn’t enough for the governments to plead that “the fraudulent statements and records did influence the decision of [the Department] and its contractors to approve reimbursement for the relevant drugs.” The court suggested that the governments also needed to allege that the falsified representations “should … have so influenced the decision-making.” But that’s more than the statutory text or relevant law requires.

The legality of Virginia’s eligibility requirements might be relevant to whether the misrepresentations had a natural tendency to influence, or could influence, the decisionmakers. But it isn’t dispositive, the same way that labeling something an express

condition of payment “is relevant to but not dispositive of” materiality. And the complaint plausibly (in a non-conclusory way) alleges that the misrepresentations did, in fact, influence the decisionmakers.

As Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016), explains, the Act’s “focus remains on those who present or directly induce the submission of false or fraudulent claims” to the government. There’s no dispute that Reilly’s Walgreens store fraudulently submitted false claims. Allowing Walgreens to avoid liability by challenging Virginia’s eligibility criteria only after getting caught would hinder the Act’s purpose of holding fraudsters accountable.

Vacating the dismissal is necessary for other reasons, too. The complaint alleges at least one misrepresentation unrelated to the eligibility requirements Walgreens challenges. The district court didn’t explain how the supposed illegality of Virginia’s eligibility requirements rendered this misrepresentation immaterial or how it otherwise failed to state a claim. Finally this court is also persuaded that Walgreens can’t avoid liability by collaterally challenging the eligibility requirements’ legality, under a line of cases beginning with United States v. Kapp, 302 U.S. 214 (1937), which establishes that criminal-fraud defendants can’t escape liability by arguing that their fraudulent statements went to illegal requirements.

Walgreens points to a separate line of cases under Kaiser Steel Corp. v. Mullins, 455 U.S. 72 (1982), to support its illegality argument. Kaiser Steel held that courts can’t enforce a promise that violates antitrust and labor laws. Walgreens argues that Kaiser Steel prevents the governments from attempting to enforce Virginia’s illegal eligibility requirements. But seeking to recover False Claims Act damages for fraud isn’t the same as enforcing an illegal requirement. And Kaiser Steel and its ensuing precedents are largely collective-bargaining cases; even at their broadest, they’re still limited to contract law.

Vacated and remanded.

United States of America v. Walgreen Co., Case Nos. 22-1491, 22-4292, Aug. 15, 2023. 4th Cir. (Diaz), from WDVA at Abingdon (Jones). Martin V. Totaro and Martin Jordan Minot for Appellants. Jonathan M. Phillips for Appellee. VLW 023-2-229. 19 pp.