February 14, 2019
6 min read

Walgreens to pay $270 million for overbilling prescription drugs, insulin pens

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With all of the attention currently placed on prescription drug prices, it’s difficult to believe that a major retail distributor of medications would do anything but toe the proverbial line when it comes to sales practices. However, last month, Walgreens was ordered to pay more than $270 million for improperly billing Medicare, Medicaid and other state- and federal-level programs over the course of 10 years.

The suit is broken down into two components. In one part, the company has been ordered to pay $209.2 million for improper billing practices surrounding the dispensation of hundreds of thousands of insulin pens to patients between 2006 and 2017. In the second part of the settlement, the company will pay $60 million for overcharging Medicaid between 2008 and 2017 for failure to disclose and charge the same prices it offered through its Prescription Savings Club program.

But here is the kicker: Walgreens settled a similar lawsuit — for upwards of $50 million — that resulted from similar offenses with the Prescription Savings Club program last year.

Andrew Beato
Andrew M. Beato

“Overcharging for drugs, biologics and medical devices occurs more often than you might otherwise expect,” Andrew M. Beato, chair of the False Claims Act and Whistleblower Practice Group at Stein Mitchell Beato & Missner LLP, told Healio Rheumatology. “It affects public payers such as Medicare and Medicaid funded by taxpayer dollars, as well as private payers.”

Beato’s law firm was the whistleblower responsible for the $270 million settlement. The case involved the United States federal government and 39 states falling into the category of a qui tam lawsuit, a type of whistleblower lawsuit brought under the False Claims Act in which government funds are recovered after fraudulent activity.

“Ultimately, the best law to hold violators accountable is the False Claims Act,” Beato said. He noted that the law was enacted after the Civil War to prevent anyone doing business with the government to engage in overcharging for the goods or services provided. “A violation is punishable by up to three times the damages, and a whistleblower is entitled to receive up to 30% of what the government recovers.”

The Act has a long history of success, according to Beato, and has been involved in the return of more than $45 billion to the government. 

Madelaine A. Feldman, MD
Madelaine A. Feldman

Madelaine A. Feldman, MD, president of the Coalition of State Rheumatology Organizations and clinical assistant professor of medicine at Tulane University School of Medicine, dug into the particulars of the current suit. “In the first part of the suit, [Walgreens was] manipulating the automation of their computer screens to show a 30-day supply of insulin and other medications, even if the patient needed more than 30 days,” she said. “They were then charging the government more for these medications.”

In the second part of the settlement, Walgreens was selling the drugs to patients at a lower price, but charging the government a higher price, according to Feldman. “It seems like it should not be necessary to say this, but you are not allowed to do that,” she said, also referencing provisions under the False Claims Act. “The problem is that the government is just not able to audit every pharmacy and every transaction to see how well they are adhering to the rules. This is why we need whistleblowers.”

This is not a new problem, according to Beato. The current lawsuit was filed in 2012 as the United States ex rel. Marc D. Baker v. Walgreen Co., 12 Civ. 0300 (JPO) in the Southern District of New York. “The Department of Health and Human Services Office of Inspector General has raised this concern for more than a decade as a vulnerability,” he said. “For example, HHS noted last year in a report that spending on certain types of drugs grew by 625% between 2006 and 2015. Others have noted that there are serious overcharging issues with the pricing in the 340B drug pricing program.”

If there is another factor in the equation that is receiving as much attention as the prices themselves, it is the role of pharmacy benefit managers, or PBMs, in the way drugs are priced. “Put simply, they are middle men in this system,” Feldman said. “But the amount of money our health care system — including Medicare and Medicaid — is losing to these middle men is in the billions of dollars.”

The Role of PBMs

Beato offered a simple remedy to prevent practices like the one that resulted in the Walgreens lawsuit. “Greater transparency in the pricing system — from drug makers to PBMs to plan sponsors to patients — would be a productive step,” he said. The contribution of PBMs to increased costs of drugs is tied drug price rebates they negotiate from drug makers, which is the way they make money, according to Beato. “If a PBM keeps some or all of the rebate and does not pass it along to the consumers, this impacts the price of the drug at the point of sale.”


The lack of transparency, particularly in the PBM structure, has reached a crisis level to such an extent that the HHS Secretary, Alex Azar, recently proposed a rule to lower prescription costs by regulating rebates between drug makers and PBMs. “Secretary Azar’s proposal is a step in the right direction to stop the hidden system of kickbacks that cause prices to increase,” Beato said. “And, in instances where a company refuses to comply, aggressive enforcement of the False Claims Act by the Department of Justice and state agencies is needed to hold companies accountable when they place profit before compliance.”

Without aggressive enforcement of existing statutes, taxpayers will continue to foot the bill for billion-dollar companies to make even more money by inflating drug prices, according to Beato.

Feldman noted that Secretary Azar’s proposed rule would help ensure that rebates paid to PBMs would always be passed back to the beneficiary. “Already, PBMs are decrying this proposed rule,” she said. “What is most concerning is that this has become a partisan political issue. It is obvious that people who oppose this don’t understand the damage this is doing to the health care system.”

Beyond the rebate system, there are other hurdles to curbing malfeasance in the system, according to Feldman. “For example, there is a safe harbor law that protects the rebates PBMs negotiate from being called kickbacks,” she said. “But they are kickbacks.”

Despite the fact that the Federal Trade Commission is charged with the task of controlling anti-trust issues, Feldman pointed out that the three largest PBMs control 80% of the pharmaceutical market. “I recently attended a trade forum for PBMs in which an attorney advisor, Dan Dilman, spoke, and he essentially said that transparency for PBMs was a bad thing because it would soften competition and lead to higher prices,” she said. “If this is what their attorney advisor is telling them, then it is not surprising that we have ended up where we are.”

Feldman believes that the FTC has no appetite for regulating these transactions involving PBMs. She noted that conflict between how the states and the federal government regulate commerce is also part of the problem. “When states put in regulations to control PBMs, the rules obviously only apply to that state,” she said, suggesting that this makes it easy for companies to circumvent the laws. “Getting the federal government to pass any kind of law that affects a company that has as much money as a pharmaceutical company or a PBM is challenging because you are up against a lot of lobbying.”

Moving Forward

Feldman is encouraged by the progress being made, across the board, in the form of whistleblower suits, increased attention on drug pricing systems, and, perhaps most importantly, increasing political will to tackle the issues. “The laws are in place, there are protections built into the system, it’s just a matter of whether they are enforced,” Feldman said. “It’s also a question of a whistleblowers are able to find these activities.”

 For Beato, it is a matter of whether companies like Walgreens are feeling sufficient pressure to rectify their behaviors. “Every enforcement action has an impact on a company and raises awareness internally and externally on the requirements of the law and how to comply,” he said. “For example, Walgreens has agreed to a Corporate Integrity Agreement with the Department of Health and Human Services as part of the settlement with the government. That agreement imposes specific compliance requirements which will have a lasting impact.”

“They seem to be accepting responsibility,” Feldman acknowledged. “They have made steps to show they realize they have done wrong, and they have made steps to resolve these matters.”

However, whether this will curb similar behaviors in the future remains to be seen, noted Feldman. “With the previous $50-million-dollar suit, and then this suit, it is clear that they have money saved up for this,” she said. “It is hard to say at what point it will be enough to make them stop.”

As a lawyer specializing in whistleblower cases, Beato is already preparing for the next fight. “Future cases will particularly focus on practices that contribute to the extremely high prices for biologics,” he said. – by Rob Volansky

For more information:

  • Andrew M. Beato can be reached at 901 15th St NW #700, Washington, DC, 20005; email: kelcey@redbanyan.com.
  • Madelaine A. Feldman, MD, can be reached at 2633 Napoleon Ave. #530, New Orleans, LA 70115; email: info@csro.info.

Disclosure: Beato reports no relevant financial disclosures. Feldman reports being on the Merck advisory board.