On November 12, 2014, the U.S. Court of Appeals for the Seventh Circuit affirmed an earlier dismissal by a U.S. District Court in Wisconsin regarding allegations of unlawful billing practices between a retail pharmacy and Medicaid. More specifically, the relator alleged that the pharmacy improperly inflated the costs of certain drugs as sold to dual-eligible Medicaid patients (i.e., customers eligible for Medicaid coverage who also maintained private insurance policies).
The case hinged on the language of 42 U.S.C. § 1396k(a)(1)(A), which states:
For the purpose of assisting in the collection of medical support payments and other payments for medical care owed to recipients of medical assistance under the State plan approved under this subchapter, a State plan for medical assistance shall—
(1) provide that, as a condition of eligibility for medical assistance under the State plan to an individual who has the legal capacity to execute an assignment for himself, the individual is required—
(A) to assign the State any rights, of the individual or of any other person who is eligible for medical assistance under this subchapter and on whose behalf the individual has the legal authority to execute an assignment of such rights, to support (specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party;
Details of Thulin v. Shopko Stores Operating Co. LLC
The relator in the case is a retail pharmacist employed at Shopko, a Midwestern pharmacy chain headquartered in Green Bay, Wisconsin, and maintaining nearly 300 pharmacies across several states. Not uncommonly, Shopko and Medicaid engaged in a negotiation of prices for many of its prescription drugs, resulting in specific sale prices (and coverage) for Medicaid patients. These prices were not necessarily identical to prices offered to privately-insured customers – whose providers may have negotiated a different arrangement with the pharmacy.
According to the plaintiff, problems were arising with regard to dual-eligible customers. By way of an example cited in the Seventh Circuit’s order, say a Shopko customer is eligible for Medicaid but is also covered by a private insurance policy. The customer has a prescription for Drug X, which has a list price of $50.00. Following a negotiation between Shopko and the customer’s private insurance carrier, the former agreed to accept $25.00 as full payment for Drug X — $20.00 in coverage and $5.00 collected from the customer as a co-pay.
Conversely, Medicaid and Shopko have negotiated a deal in which Medicaid will reimburse the pharmacy up to $30.00 for Drug X.
The customer submits a prescription for Drug X at Shopko, and pays nothing for the drug at the point of sale. Allegedly, in this example, Shopko would submit a bill to the private insurer for $25.00, of which it would pay a total of $20.00 under the agreement. Thereafter, Shopko would bill Medicaid as the “payor of last resort.” However, Shopko’s bill to Medicaid would not be for the $5.00 remaining under its agreement with the private insurer, but for $10.00 – the difference between the amount it received from the private insurer and the amount it could have received upon billing Medicaid outright.
In the plaintiff’s allegations, this practice runs afoul of the directive that states must be assigned all payments for medication from any third party. According to his argument, in the above example, Medicaid should not have been on the hook for any portion of the payment for Drug X, as a third-party payor was available to cover the entire cost of the drug.
The Seventh Circuit did not agree.
Court’s Interpretation of the Assignment Clause
The District Court dismissed the relator’s claim for, among other reasons, failing to show that Shopko engaged in any intentional false claims misconduct in violation of federal law. In the Seventh Circuit’s opinion, it begins by mentioningthe Court held that the case wais subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) (an assertion up for debate within the appellate jurisdictions). From there, the Court analyzed whether Shopko’s claims were factually intentionally false, relying on the language of the Assignment Clause as the triggering federal statute in question.
Classifying the relator’s argument as “strained,” the Court concluded that no judicial precedent exists to interpret the Assignment Clause as he hads – highlighting the purpose of the law, which is to ensure a beneficiary actually receives payment. In fact, the Court highlighted a U.S. Supreme Court decision further extrapolating this issue, holding that this “‘Federal Assignment Law’ ensures that Medicaid is entitled to reimbursement of its medical expenditures if a beneficiary receives a settlement or other recovery from third-party tortfeasors.” [See, Wos v. E.M.A. ex rel. Johnson, 133 S. Ct. 1391, 1396 (2013)]
In sum, the Assignment Law was held not to apply to the situation at hand, and the Court could not find any instance of intentional false claims on the part of Shopko.
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