CHICAGO — A federal judge has reversed course and decided to let Blue Cross and others pursue a fraud action under Illinois laws accusing Walgreens of overbilling for prescription drugs to the tune of hundreds of millions of dollars.
The development is potentially lucrative for the plaintiffs, as it revives the potential of winning punitive damages under Illinois law, in addition to any statutory penalties.
The complaint accused Walgreens of artificially inflating prices on millions of claims submitted to insurers, then making false statements and concealing information regarding cash prices charged to average customers who have paid without insurance.
Kent Gardiner
| Crowell & Moring
On Jan. 8, U.S. District Judge Virginia Kendall dismissed the portions of Blue Cross' complaint alleging negligent misrepresentation and violation of the Illinois Consumer Fraud and Deceptive Business Act, as well as alleging violations of the Illinois Uniform Deceptive Trade Practices Act, while leaving five additional claims. Plaintiffs, including several Blue Closs Blue Shield entities, filed an amended complaint 20 days later. Walgreens again moved to dismiss that complaint, but Kendall denied that motion in an opinion she issued June 15.
In rehashing her Jan. 8 dismissal, Kendall said the complaint at the time had thin ties to Illinois, namely only that Walgreens has corporate headquarters in Deerfield and 583 stores in Illinois. The amended complaint fleshes out those claims, in part by noting Walgreens administers its Prescription Savings Club in Deerfield and that “decisions to not report its discounted prices as usual and customary to plaintiffs and to conceal that decision from plaintiffs were made by Walgreens’ senior management in and implemented out of Illinois.”
Furthermore, Kendall said, Walgreen’s wholly owned Walgreens Health Initiative, its pharmacy benefit manager “during the initial years of Walgreens’ fraudulent scheme,” and based it out of Illinois.
“Through its scheme, Walgreens secured hundreds of millions of dollars in payments from plaintiffs, and these payments were sent to Walgreens’ headquarters in Illinois,” Kendall wrote of the allegations. “Walgreens’ PBM agreements were negotiated by Walgreens in Illinois. Additionally, members of each of plaintiffs’ health plans have purchased prescription drugs from Walgreens in Illinois, and Walgreens’ deceptive practices regarding its true (usual and customary) prices of drugs discounted by the PSC program (and other similar programs) injured both plaintiffs and their members, including those based in Illinois. Finally, Walgreens was subjected to remedial actions by the U.S. government for related conduct in Illinois.”
According to the amended complaint, Walgreens entered into a fraud settlement with the Department of Justice through which it admitted a failure to identify Prescription Savings Club prices as its usual prices resulted in states paying more in reimbursements than what would’ve been paid if Walgreens had properly identified its PSC prices. The government’s demand of remedial actions “reflect the senior level involvement of Walgreens’ Illinois-based management” in the conduct that gave rise to the allegations, according to the complaint.
Kendall said plaintiffs weren’t required to allege actual damages affected people in Illinois, only that the conduct creating the damages was sufficiently linked to the state. She also rejected Walgreens’ argument the plaintiffs needed to have more specific details about transactions in Illinois, saying the allegations concerning the pricing scheme itself are sufficient and that a lack of details “as to particular consumer-based transactions that occurred in Illinois are not pled with particularity is not reason enough to dismiss the Illinois claims.”
Kendall noted questions around whether Walgreens’ conduct is sufficiently connected to Illinois are “fact-intensive” such that granting a motion to dismiss before discovery would be premature.
Blue Cross is represented by attorney Kent A. Gardiner, and others with the firm of Crowell & Moring, of Washington, D.C., and attorneys with the firm of Williams Montgomery & John, of Chicago.
Walgreens is represented by attorneys Jeffrey J. Bushofsky, Laura G. Hoey and Charles D. Zagnoli, of the firm of Ropes & Gray, of Chicago.