On November 12, 2014, the Seventh Circuit upheld the dismissal of a False Claims Act action challenging a retail pharmacy chain’s practice of billing Medicaid for the price differential between the higher Medicaid-negotiated drug prices and the lower private insurance prices, holding that billing Medicaid for this price difference did not violate federal law. In Thulin v. Shopko Stores Operating Co., Case No. 13-3638, 2014 BL 318642 (7th Cir. Nov. 12, 2014), the circuit court held that Relator, a former pharmacist with Shopko Stores Operating Co., failed to prove his allegation that “Shopko submitted inflated claims for prescription drugs to the federal Medicaid program.”

Some pharmacy customers have prescription drug coverage through both Medicaid and private insurance. In billing for what the parties refer to as “dual-eligibles,” Medicaid pays any remaining cost after the patient’s private insurer has paid the pharmacy’s contracted amount for the individual prescription. Here, Relator alleged that Shopko committed fraud by “billing Medicaid an amount in excess of the co-pay that the dual-eligibles owed under their private insurance contracts” and “compounded this [] fraud by omitting from its invoices to Medicaid the amount of dual-eligibles’ co-pays.” Further, Relator alleged that Shopko perpetuated this fraud in violation of what he deems the “federal assignment law,” 42 U.S.C. § 1396k(a)(1)(A), by programming its computer billing system to bill “more for dual eligible patients than was allowed under the assignment of rights and benefits provisions of federal law and contract provisions of private insurance companies.”

The U.S. District Court for the Western District of Wisconsin granted Shopko’s motion to dismiss in November 2013, and the Seventh Circuit has affirmed the dismissal, holding that the Relator’s “strained interpretation [of the federal assignment law] has little if any support in the plain language of the provision, which by its terms applies only to a beneficiary’s right to actually receive payments.” The circuit court also said that Shopko’s billing systems were in conformance with the requirements of the National Council for Prescription Drug Programs, which do not require reporting of copays to Medicaid for dual-eligible patient claims.

For the full Seventh Circuit Opinion, click here.

Reporter, Katy Lucas, Atlanta, +1 404 572 2822, klucas@kslaw.com.