United States v. Walgreen Co.

• Decision Date: 14 March 2022
• Docket Number: 2:21-CV-00080-JRG-CRW
• Court: U.S. District Court — Eastern District of Tennessee
• Parties: UNITED STATES OF AMERICA and STATE OF TENNESSEE, Plaintiffs, v. WALGREEN COMPANY, Defendant.

UNITED STATES OF AMERICA and STATE OF TENNESSEE, Plaintiffs, v. WALGREEN COMPANY, Defendant.

No. 2:21-CV-00080-JRG-CRW

United States District Court, E.D. Tennessee, Greeneville

March 14, 2022

MEMORANDUM OPINION AND ORDER

RONNIE GREER UNITED STATES DISTRICT JUDGE

This matter is before the Court on Defendant Walgreen Company's Motion to Dismiss Counts I-VI of Plaintiffs' Complaint [Doc. 16], Walgreen's Memorandum of Law in Support [Doc. 17], Plaintiffs' Response [Doc. 32], and Walgreen's Reply [Doc. 39]. For the reasons herein, the Court will deny Walgreen's motion.

I. Background

Plaintiffs United States of America and State of Tennessee allege that Amber Reilly, whom Defendant Walgreen Company formerly employed as a registered store manager in its pharmacy in Kingsport, Tennessee, defrauded them by submitting false or fraudulent claims for prescription medications to TennCare the program under which Tennessee participates in the federal Medicaid program. [Compl., Doc. 1, ¶¶ 1-4, 39-88]. According to Plaintiffs, Ms. Reilly, while acting in her capacity as Walgreen's manager in Kingsport, knowingly falsified the medical records and lab reports of sixty-five TennCare enrollees. [Id. ¶¶ 43-45]. She then submitted these falsified records and lab reports to TennCare so that these enrollees would be eligible for high-cost prescription drugs used to treat Hepatitis C [Id. ¶¶ 46-54].

Relying on these false records, TennCare allegedly approved the Kingsport pharmacy's request for these drugs and continued to approve them for more than two years, from October 2014 through December 2016. [Id. ¶¶ 46-47]. During this timeframe, the pharmacy allegedly reaped “staggering revenue increases . . . from payments by TennCare . . . for Hepatitis C medications.” [Id. ¶ 76].^[1] Specifically, Plaintiffs allege that the pharmacy's revenue ballooned by 673 percent from October 2014 through December 2016. [Id. ¶¶ 75-77]. Ninety-two percent of that revenue-a sum that exceeded $30, 000, 000 in payments-allegedly came from Hepatitis C drugs. [Id. ¶ 77]. Of those payments, roughly $8, 000, 000 allegedly came from TennCare, and roughly $5, 930, 000 were payments that TennCare allegedly made to fill prescriptions for the enrollees whose records and reports Ms. Reilly falsified. [Id.].

In late 2016, Ms. Reilly was eventually charged in this Court with healthcare fraud, in violation of 18 U.S.C. §§ 1347 and 2, and pleaded guilty. [Plea Agreement, Doc. 2, No. 2:16-CR-00107-JRG]. Plaintiffs allege that, around this same time, Walgreen had knowledge that it had received overpayments from Ms. Reilly's fraudulent conduct and that it had an obligation to reimburse TennCare for those overpayments. [Compl. ¶¶ 85-86]. Plaintiffs cite several bases for Walgreen's knowledge:

• Defendant became aware of Ms. Reilly's fraud as early as June 2016 and was on notice that it had received payments based on false statements and documents submitted and that it ha[d] an obligation to reimburse TennCare for such overpayments.

• On or about June 8, 2016 and June 14, 2016, the Tennessee Bureau of Investigation served Defendant with subpoenas seeking records related to prescriptions filled for certain patients and claims and records submitted to TennCare for those patients.

• On June 15, 2016, Defendant's loss prevention personnel went to the Kingsport Pharmacy to investigate and recovered records that had been altered. The loss prevention personnel also spoke to an employee of Defendant who worked at the direction of Ms. Reilly, and the employee admitted to falsifying several prior authorization records at the direction of Ms. Reilly.

• In October 2016, Ms. Reilly pleaded guilty to one count of healthcare fraud relating to at least 51 Hepatitis C patients that failed to meet TennCare eligibility requirements. Specifically, Ms. Reilly admitted that, in her role as a clinical pharmacy manager, she falsified (and directed at least one other employee to falsify) prior authorizations, medical lab reports, and drug test results so that otherwise unqualified Hepatitis C patients would satisfy TennCare's payment eligibility criteria. Accordingly, Defendant was on notice by October 2016 that it had received payments from TennCare based on false and fraudulent claims for at least 51 TennCare beneficiaries, and that it had an obligation to reimburse TennCare for overpayments.

• Further, on or about September 28, 2017, representatives of the United States and the State of Tennessee made Walgreen aware, through its counsel, of overpayments for up to 14 additional TennCare beneficiaries.

[Id. ¶¶ 81-85]. To date, however, more than five years after Ms. Reilly's guilty plea, Walgreen has allegedly made no attempt to return the overpayments to TennCare. [Id. ¶ 86].

Now, Plaintiffs have brought this civil suit against Walgreen in this Court, alleging that it financially benefited from Ms. Reilly's fraudulent conduct and has made no attempt to refund the illicit proceeds that it received. [Id. ¶¶ 44, 86]. Plaintiffs claim that Walgreen violated the False Claims Act, 31 U.S.C. § 3729, et seq. (Counts One, Two, and Three) and the Tennessee Medicaid False Claims Act, Tenn. Code Ann. § 71-5-181 et seq. (Counts Four, Five, and Six). [Id. ¶¶ 89-106]. Plaintiffs also claim that Walgreen is liable under common law theories of payment by mistake of fact and unjust enrichment. [Id. ¶¶ 107-14]. Walgreen now moves for the dismissal of all claims under the False Claims Act and the Tennessee Medicaid False Claims Act. Having carefully reviewed and considered the parties' arguments, the Court is now prepared to rule on Walgreen's motion.

II. Legal Standard

Under Federal Rule of Civil Procedure 8(a)(2), “[a] pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the plaintiff's complaint must contain “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when the plaintiff pleads facts that create a reasonable inference that the defendant is liable for the alleged conduct in the complaint. Id.

When considering a motion to dismiss under Rule 12(b)(6), the Court must accept the allegations in the complaint as true and construe them in a light most favorable to the plaintiff. Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir. 1999). “[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions, ” however. Iqbal, 556 U.S. at 678. The allegations must consist of more than “labels, ” “conclusions, ” and “formulaic recitation[s] of the elements of a cause of action.” Twombly, 550 U.S. at 555 (citation omitted); see Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” (citation omitted)).

III. Analysis

“As the [False Claims] Acts' name suggests, liability under the Act often arises for the submission of false claims to the government.” U.S. ex rel. Harper v. Muskingum Watershed Conservancy Dist., 842 F.3d 430, 433 (6th Cir. 2016) (citing 31 U.S.C. § 3729(a)(1)(A)-(B)). The United States brings two claims against Walgreen for allegedly submitting false claims to the United States, one claim under 31 U.S.C. § 3729(a)(1)(A) and one claim under 31 U.S.C. § 3729(a)(1)(B).^[2] Under § 3729(a)(1)(A), a “person”^[3] who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” is “liable to the United States.” 31 U.S.C. § 3729(a)(1)(A). Under § 3729(a)(1)(B), a “person” who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim” is “liable to the United States.” Id. § 3729(a)(1)(B). The term “knowingly” means a person's (1) “actual knowledge of, ” (2) “deliberate ignorance of the truth or falsity of, ” or (3) “reckless disregard for the truth or falsity of the information” at issue in the alleged false claims. Id. § 3729(b)(1)(A)(i)-(iii). A claim under § 3729(a)(1)(A) or § 3729(a)(1)(B) is known as a “direct false claim” because it “cause[s] the United States to remit money directly to claimants.” U.S. ex rel. Landis v. Tailwind Sports Corp., 160 F.Supp.3d 253, 255 (D.D.C. 2016) (citations omitted).

The United States also brings one claim against Walgreen for allegedly retaining the fraudulent proceeds. Under § 3729(a)(1)(G), a “person” who (1) “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government” or (2) “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government” is “liable to the United States.” 31 U.S.C. § 3729(a)(1)(G). A claim under § 3729(a)(1)(G) is known as a “reverse false claim, ” Harper, 842 F.3d at 433, because it “reverse[s] the typical claim under the Act: instead of creating liability for wrongfully obtaining money from the government, the reverse-false-claims provision creates liability for wrongfully avoiding payments that should have been made to the government, ” U.S. ex rel. Barrick v. Parker-Migliorini Int'l, Inc., 878 F.3d 1224, 1226 (10th Cir. 2017). The term “knowingly” means a person's (1) “actual knowledge of, ” (2) “deliberate ignorance of the truth or falsity of, ” or (3) “reckless disregard for the truth or falsity of” the fact that he has a legal obligation to return...