Government says Walgreens violated False Claims Act

Where a complaint filed by the United States and the Commonwealth of Virginia plausibly alleged that Walgreens violated the False Claims Act and Virginia law, Walgreens’ motion to dismiss was denied.

Background

The United States and the Commonwealth of Virginia allege that from January 2015 through July 2016, Amber Reilly, a Clinical Pharmacy Manager at a Walgreens pharmacy in Kingsport, Tennessee, and another employee at her direction, changed data on forms and falsified laboratory test results in order to obtain preauthorization for reimbursement for hepatitis C medications that Walgreens provided to Virginia Medicaid recipients, in violation of the False Claims Act, or FCA, and Virginia law.

I initially granted the motion to dismiss based on lack of materiality. The Fourth Circuit reversed, holding that the alleged misrepresentations were material. It did not express an opinion as to the other grounds of the motion to dismiss not considered by this court and remanded the case for resolution of the remaining issues.

FCA and VFATA direct claims

Walgreens contends that respondeat superior does not apply in direct FCA claims, and thus it cannot be liable under the FCA counts for the fraudulent conduct of Reilly and her accomplice since it is not plausibly alleged that Walgreens itself did not act in good faith. At about the same time as the plaintiffs filed this case in this court, the United States and the State of Tennessee filed a similar case in the Tennessee federal district court, alleging that Walgreens was liable under the FCA and Tennessee law for the fraud scheme led by employee Reilly resulting in loss to Tennessee’s Medicaid program.

The Tennessee district court rejected Walgreen’s identical argument, holding that the restitutional purposes of the FCA require that the employer-principal receiving the funds obtained by the fraud be held liable. Thus, the knowledge of an employee in FCA cases can be imputed to the employer when the employee acts for the employer’s benefit and within the scope of the employment. While the Tennessee district court’s reasoning is not binding on this court, I find it persuasive.

Walgreens argues that it had good faith reasons to believe that the store’s revenues had increased for proper reasons, as the complaint itself acknowledges with Reilly’s supervisor’s statements regarding her ability to create customer loyalty and trust. However, merely arguing good faith reasons is insufficient to defeat allegations concerning Walgreens’ scienter at the motion to dismiss stage. Several allegations of the complaint demonstrate the plausibility of Walgreens’ scienter, even apart from reliance upon a theory of vicarious liability.

The substantial increase in revenue, in combination with Walgreens’ awareness of that increase and potential causes, may support a finding of scienter. I will not resolve factual questions at this stage. Regarding the claims under the Virginia Fraud Against Taxpayers Act, or VFATA, that statute’s requirements are virtually identical to those of the FCA. The plaintiffs’ VFATA claims survive for the same reasons as their direct FCA claims.

Reverse claims

As to the reverse false claim counts under the FCA and VFATA, the plaintiffs must plead that (1) Walgreens had an obligation to repay the government, (2) it improperly avoided repaying the funds and (3) it did so knowingly. Here, the alleged obligation is based on failure to return a Medicaid overpayment within 60 days of identification, as set forth in the Patient Protection and Affordable Care Act. The plaintiffs have asserted a plausible claim for relief.

Remaining claims

The plaintiffs contend that Walgreens violated the Virginia Medicaid Fraud statute. The plaintiffs have plausibly alleged at the motion to dismiss stage that Walgreens is vicariously liable.

The court also finds that plaintiffs have plausibly alleged that Walgreens should “reasonably have expected to repay” the plaintiffs sufficiently to deny the motion to dismiss the unjust enrichment claim. Next, the payment by mistake claim survives the motion to dismiss because plaintiffs have plausibly alleged that Walgreens received payments under mistaken facts that were attributable to the fraud of another. Finally, plaintiffs have sufficiently pleaded allegations sufficient to assert a fraud claim.

Defendant’s motion to dismiss denied.

United States v. Walgreen Co., Case No. 1:21-cv-00032, Jan. 14, 2024. WDVA at Abingdon (Jones). VLW 024-3-027. 22 pp.