Life Science Compliance Update

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February 03, 2017

Walgreens to Pay $50M to Settle Anti-Kickback Suit

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Walgreen Co. (“Walgreens”) has agreed to pay $50 million to settle allegations that it gave kickbacks to government health care beneficiaries who it enrolled in its Prescription Savings Club (PCS) discount and incentives program. The government specifically alleges that Walgreens violated the Anti-Kickback Statute (AKS) and False Claims Act (FCA) by providing government beneficiaries with discounts and other monetary incentives under the PSC program, to induce them to patronize Walgreens’ pharmacies for all of their prescription drug needs. The government also alleged that Walgreens understood that permitting government beneficiaries to participate in the PSC program was a violation of the AKS, but that it nevertheless marketed the program to government beneficiaries and paid its employees bonuses for each customer they enrolled in the program, without verifying whether the customers were government beneficiaries.

Allegations Found in the Complaint

As alleged in the Complaint and set forth in the parties’ Settlement Agreement, both of which have been filed in Manhattan federal court:

Walgreens launched the PSC program in 2007. From January 2007 through December 2010, the PSC program provided members with discounts on thousands of brand-name and generic drugs, as well as a 10 percent rebate on all Walgreens’ branded products, including household products, baby-care products, most grocery items, and non-prescription medications. Walgreens intended these lower drug prices and other monetary benefits to be an inducement to its existing and potential customers to cause them to patronize Walgreens for all of their pharmacy needs. Walgreens hoped that by offering these significant benefits to its customers, it would prevent them from taking their pharmacy business to Walgreens’ competitors.

Walgreens recognized that allowing government beneficiaries to participate in the PSC program would violate the AKS. Accordingly, Walgreens consistently maintained in its published materials regarding the PSC program that government beneficiaries were ineligible to participate in the program.

Notwithstanding Walgreens’ understanding that allowing government beneficiaries to participate in the PSC program would violate the AKS, Walgreens consistently marketed the PSC program to government beneficiaries. Walgreens also incentivized its employees to enroll customers in the PSC program, regardless of whether they were government beneficiaries. For example, from May 2008 through August 2010, Walgreens paid employees anywhere from $1 to $5 for each customer they enrolled in the PSC program. Walgreens never checked whether the customers who had been enrolled were government beneficiaries.

As a result, from January 2007 through December 2010, Walgreens enrolled hundreds of thousands of government beneficiaries in the PSC program. These government beneficiaries included beneficiaries of the Medicare, Medicaid and TRICARE programs. Thereafter, from January 2011 through December 2015, while Walgreens’ internal company policy continued to preclude the enrollment of government beneficiaries in the PSC program, Walgreens continued to enroll such beneficiaries in the program.

Walgreens Accepts Responsibility

Atypical of most settlement agreements we see, Walgreens admitted, acknowledged, and accepted responsibility for a handful of actions alleged by the government, including the following:

  • During the period January 1, 2007 through December 31, 2010, Walgreens’ published materials regarding the PSC program stated that persons receiving benefits from the Medicare and Medicaid programs were not eligible to participate in the PSC program.
  • In October 2007, Walgreens identified approximately 13,000 PSC program members who it had determined were beneficiaries of the Medicare and Medicaid programs, and it removed those individuals from the PSC program. In an internal news release informing its employees of this removal, Walgreens stated that “any customer who ha[d] any type of 3rd party coverage with a Medicare or Medicaid plan was removed from the [Prescription] Savings Club database,” and that “th[is] removal was necessary to comply with State/Federal regulations.”
  • Subsequent to October 2007 and continuing through December 31, 2010, internal Walgreens documents reflect that its stated policy to exclude Medicare and Medicaid beneficiaries from the PSC program was based on, among other things, the prohibition on offering inducements to beneficiaries of government healthcare programs reflected in the federal AKS and corresponding state anti-kickback laws.
  • Notwithstanding its stated policy to exclude Medicare and Medicaid beneficiaries from the PSC program, subsequent to October 2007 and continuing through December 31, 2010, Walgreens enrolled hundreds of thousands of Medicare and Medicaid beneficiaries in the PSC program.
  • Between November 2007 and December 31, 2010, Walgreens also enrolled more than 10,000 TRICARE beneficiaries in the PSC program.
  • Prior to December 31, 2010, pharmacists at Walgreens’ stores nationwide made tens of thousands of notations in Walgreens’ internal customer database reflecting that specific Medicare, Medicaid, and TRICARE beneficiaries had been enrolled in the PSC program and were using the PSC program to purchase some of their prescription drugs.
  • At various times between November 2007 and December 31, 2010, Walgreens paid its employees a bonus of between $1 and $5 for each customer they enrolled in the PSC program. When paying these bonuses, Walgreens did not verify that the customers its employees had enrolled in the PSC program were not government beneficiaries.
  • Prior to December 31, 2010, Walgreens did not have effective mechanisms in place to block government beneficiaries from enrolling in the PSC program or to monitor adequately whether government beneficiaries had been allowed to enroll in the PSC program, to ensure compliance with its stated policy to exclude such beneficiaries from the PSC program. As a result, hundreds of thousands of government beneficiaries were enrolled in the PSC program.
  • Subsequent to December 31, 2010, and continuing through December 31, 2015, Walgreens’ internal company policy continued to preclude the enrollment of government beneficiaries in the PSC program, and Walgreens continued to enroll such beneficiaries in the program.

Under the settlement agreement, Walgreens will pay roughly $46.21 million to the United States and an additional $3.79 million to resolve numerous state law civil fraud claims. The allegations were originally brought in a qui tam suit under the False Claims Act by Marc Baker, a former Florida Walgreens pharmacy manager. Baker will receive $9.7 million for his whistleblowing efforts.

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