4th Cir.: Walgreens' Misrepresentations Of Medicaid Eligibility May Be Material

• Published date: 21 September 2023
• Subject Matter: Food, Drugs, Healthcare, Life Sciences, Food and Drugs Law
• Law Firm: Arnold & Porter
• Author: Ms Tirzah S. Lollar and Jocelyn Porter

In late 2021, a district court¹ dismissed an FCA suit filed by the U.S. and Virginia where the governments pursued a surprising theory (at least as to the federal government): that Walgreens made material misrepresentations regarding whether patients met state Medicaid eligibility requirements that the federal Centers for Medicare and Medicaid Services (CMS) itself had said were illegal.

The court concluded that while the fraudulent statements did influence the state's decision to pay the Medicaid claims, they should not have influenced the decision-making because the drugs should have been covered regardless of the information in the falsified records.

Walgreens argued that the misrepresentations its employee made were not material because Virginia's eligibility requirements violated federal law.

As a result, the court concluded that the misrepresentations were not material under Escobar² and the case was dismissed. The governments appealed and the Fourth Circuit reversed in August.³

The case stemmed from the discovery that a Walgreens employee was falsifying Medicaid patient records and other documents to establish that the patients satisfied Virginia's eligibility requirements for direct-acting antiviral drugs. Virginia required Medicaid patients to have a certain fibrosis score and have abstained from drugs and alcohol for a period to be covered.

According to the complaint, because of the alleged misrepresentations, Virginia's Medicaid department approved coverage for the drugs and reimbursed Walgreens for nearly $800,000. The U.S. and Virginia sued Walgreens under the federal FCA and the Virginia Fraud Against Taxpayers Act to recover the funds.

The dispute turned on the question of materiality. Walgreens argued that the misrepresentations its employee made were not material because Virginia's eligibility requirements violated federal law.

Walgreens referred to guidance from CMS that advised state Medicaid programs that if they opted to cover prescription drugs, they were required to comply with certain sections of the Social Security Act that only allow coverage to be excluded in certain limited circumstances (not applicable here) and expressed concern with the conditions some states were imposing on access to direct-acting antiviral drugs. The guidance warned that eligibility conditions, like those in Virginia, had to satisfy the Social Security Act and could not unreasonably restrict coverage.

The Fourth Circuit vacated the dismissal, but...