Materiality at Issue When Alleged Noncompliance Did Not Increase Fixed-Rate Payments; United States District Court for the Eastern District of Pennsylvania No. 19-2192, U.S. ex rel. Juliet Mbabazi et al. v. Walgreen Co.


The district court granted in part and denied in part Walgreens’ motion to dismiss a qui tam case alleging it failed to identify whether Medicaid beneficiaries had supplemental insurance and therefore failed to bill that insurance before filing claims to the government for payment. The court found the relators had satisfactorily asserted the existence of an express certification but had not alleged any facts showing this certification was false. The court found the implied false certification claim better pleaded and that the relators had satisfied the scienter element. However, the court found the complaint failed to plead that the government would not have paid claims had it known that Walgreens routinely failed to verify whether or not Medicaid beneficiaries had supplemental insurance. Because many of the claims at issue were paid by the government at a fixed-rate through managed care organizations, the court explained the relators had to show that payments from the government increased due to Walgreens noncompliance.

Relators Juliet Mbabazi and Khaldoun Cherdoud sued Walgreen Co. under the False Claims Act, alleging that Walgreens submitted fraudulent claims for Medicaid payments by falsely certifying that the beneficiaries did not have other available insurance coverage for the claims and/or that Walgreens had complied with all applicable secondary payer statutes/regulations. Walgreens moved to dismiss.

The federal Medicaid statute has secondary payer requirements, meaning that all other available resources must be used before Medicaid pays for the care of an individual enrolled in the Medicaid program. Pennsylvania ensures Medicaid’s secondary payer status by requiring providers to utilize other insurance benefits before billing the Medicaid program. It also requires providers to undertake reasonable efforts to determine whether a Medicaid beneficiary has other available medical benefits before billing Medicaid.

Mbabazi was employed as a licensed pharmacist by Walgreens from January 2016 through January 2018. During her employment, Mbabazi worked at over forty retail locations in Eastern Pennsylvania, spending most of her time at stores in Philadelphia. As part of her daily activities, Mbabazi interacted with customers filling prescriptions.

According to Mbabazi, Walgreens did not train its employees to seek out other insurance benefits before filling prescriptions for Medicaid recipients, nor did it train its employees to ask Medicaid recipients or their providers whether prescriptions were for an injury related to an automobile or work accident. Instead, Walgreens billed whatever insurance was already on file, even if that insurance was Medicaid.

Relator Cherdoud is a Pennsylvania Medicaid recipient. For his part, he alleged that Walgreens billed Medicaid for certain medications without attempting to utilize his other insurance or even identify whether Cherdoud had any other coverage available.

The relators asserted that Walgreens’ alleged false certifications fall into two categories: (1) express false certifications that no other insurance coverage was available; and (2) implied false certifications of compliance with federal laws and regulations governing Walgreens’ obligations under the secondary payer regulations.

The court first considered the express false certification claims, which were premised on the allegation that Walgreens certified that no other insurance coverage was available when submitting claims for payment to Pennsylvania Medicaid. Walgreens argued that these false certification claims should be dismissed because: (1) the relators failed to allege with particularity that Walgreens submitted any claims in violation of the billing requirements on which Relators rely; and (2) the relators did not allege how any representations Walgreens made with respect to any such claims were false.

However, the court noted that the relators described the process by which pharmacies are required to certify whether a beneficiary has other insurance coverage when submitting a claim to Pennsylvania Medicaid. While the details were sparse, the court found that the allegations that Walgreens expressly certified that no other coverage was available when it submitted claims was enough to satisfy the relators’ burden to allege the existence of an express certification.

Next, Walgreens argued that the relators failed to allege facts sufficient to plausibly show that the certification was false. The court agreed, finding the complaint contained no such facts. The court therefore dismissed this claim without prejudice.

Next, the court considered the relators’ implied false certification claims. Walgreens argued that this claim must be dismissed because the relators had not alleged facts to show: (1) a misleading representation made false by Walgreens’ failure to disclose noncompliance with statutory/regulatory requirements; and (2) an underlying violation of regulation.

The court disagreed with Walgreens’ first argument, finding that the relators alleged that Walgreens certified/represented that no other coverage existed when submitting claims for payment to Pennsylvania Medicaid. In support, they also alleged that Walgreens failed to discharge its duty to undertake reasonable efforts to verify that the beneficiaries had no other insurance coverage. The court found those allegations satisfied the pleading requirements for a specific representation that was rendered misleading by Walgreens’ failure to disclose noncompliance.

In support of their second challenge, Walgreens argued that the relators had not alleged facts to plausibly show a violation of the regulations on which they relied. Specifically, Walgreens argued that the applicable regulations do not expressly require Walgreens to undertake a secondary benefits investigation every time a Medicaid beneficiary fills a prescription by asking the beneficiary whether other coverage exists.

While the court agreed that the regulations do not specify any frequency for checking the availability of supplemental insurance, the court held that the secondary payer regulatory scheme as a whole applies when providers seek payment for claims. The regulation states that “Providers shall make reasonable efforts to secure from the recipient sufficient information regarding the primary coverages necessary to bill the insurers or programs.” In their complaint, the relators alleged that Walgreens made no effort. Accordingly, the court found this sufficient and declined to dismiss this claim.

Next, Walgreen argued that the relators failed to adequately plead scienter. The court found the relators alleged that Walgreens certified the absence of any other insurance coverage without undertaking any effort to identify or use other coverage before billing Pennsylvania Medicaid. The court found this satisfied the scienter requirement at this stage.

Next, Walgreens challenged the claims on the materiality element. Walgreens argued that the relators pleaded claims arising out of managed care organizations, but no claims related to fee for service claims for payment. According to Walgreens, the only specific example described in the complaint concerned Walgreens’ submission of claims for payment for the prescriptions of Cherdoud, who is an MCO beneficiary, not an FFS beneficiary.

However, the court found this argument misplaced, given the Third Circuit’s determination that an FCA plaintiff need not plead specific claims for payment or representative samples at the pleading stage. While the specific examples the relators pled in their complaint may implicate MCO claims only and not FFS claims, the court found that they had pled sufficient facts to also support claims arising out of FFS claims.

Nonetheless, the court found that the defendants’ argument regarding the distinction between MCO claims and FSS claims is viable in the materiality context. The court explained the relators had to allege facts to show that the government would not have made the payments had it known that Walgreens had not complied with its secondary payer obligations.

The court noted that in the case of fixed-rate claims, like MCO claims, courts have held that there is no FCA liability where a falsely-claimed service or item does not affect the rate of reimbursement. Therefore, to assert an FCA claim in this context, the relators had to allege facts showing a connection between the claims and an increase in payments. The court found the relators failed to allege these facts and therefore dismissed the claims.

Finally, the court dismissed the count alleging reverse false claims, as it merely reiterated the presentment claims. The court dismissed this claim with prejudice.

FCA - Mbabazi v Walgreens