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United States. v. Walgreen Co.

United States District Court, N.D. Illinois, Eastern Division

September 30, 2019

UNITED STATES OF AMERICA, et al., Plaintiffs,


          John Robert Blakey, United States District Judge.

         Relators and Plaintiffs Sarah Castillo Baier (Castillo-Baier) and Rita Svendsen Baier (Svendsen-Baier) (collectively Relators) have brought a qui tam action under the False Claims Act (FCA), 31 U.S.C. § 3729 et seq., (Counts I & II) and its Illinois counterpart, the Illinois False Claims Act (IFCA), 740 ILCS Comp. Stat. 175/1 et seq., (Counts III & IV) on behalf of the United States and the State of Illinois. [65].

         Relators sue Defendants Walgreen Co. (Walgreens) and James G. Kulekowskis, alleging that they induced patients and providers to use a Walgreens specialty pharmacy location by: (1) routinely and systematically waiving copayments for Medicaid and Medicare patients; and (2) automatically refilling prescriptions for these same patients. Id. ¶¶ 3, 185. On September 27, 2018, Defendants Walgreens and Kulekowskis moved to dismiss Relators' Second Amended Complaint (SAC). [70].

         On August 7, 2018, the United States and State of Illinois (collectively the Government) filed a Joint Complaint in Intervention (JCI) against Defendants Walgreens, Kulekowskis, and Christopher G. Hayes[1] pursuant to the FCA (Counts I & II) and ICFA (Counts III & IV), alleging that they automatically refilled prescriptions for Illinois Medicaid patients at the same Walgreens specialty pharmacy at issue in Relators' SAC. [64] ¶¶ 1, 3. The Government also brought claims for common law fraud (Count V), unjust enrichment (Count VI), and payment by mistake (Count VII)[2] based upon these same allegations. [64] ¶¶ 104-11. The Government, unlike Relators, did not bring claims based upon any copayment waivers. See generally [64]. On September 27, 2018, Defendants Walgreens, Kulekowskis, and Hayes moved to dismiss the Government's JCI. [68].

         For the reasons explained below, this Court grants both motions to dismiss, [68] [70].

         I. BACKGROUND

         The following facts come from the Government's JCI, [64], and Relators' SAC, [65].

         A. The Parties

         The federal government and state of Illinois jointly fund and administer the Medicare and Medicaid programs in Illinois. [64] ¶¶ 7-8; [65] ¶¶ 21, 29-33.

         Defendant Walgreens is an Illinois corporation authorized to do business in the United States, Puerto Rico, and Guam, with its corporate office in Deerfield, Illinois. [64] ¶ 9. Walgreens operates a chain of retail drugstores that sell, among other items, prescription drugs. Id. In addition to over 8, 000 retail stores, Walgreens owns and operates more than 700 specialty pharmacies through its Specialty Pharmacy division. Id. This division provides specialized medication for complex, genetic, rare, and chronic health conditions. Id. This case concerns Walgreens' C&M Specialty Pharmacy (C&M) located in Glenview, Illinois. Id. ¶ 3.

         Defendant James G. Kulekowskis, Jr. is a Doctor of Pharmacy (Pharm.D) and licensed pharmacist in Illinois and Florida. Id. ¶ 10. At all times relevant to this case, Kulekowskis worked as the pharmacy manager of C&M, with responsibility for overseeing all business and operations there. Id. Defendant Christopher Hayes is a licensed pharmacist. Id. ¶ 11. At all times relevant to this case, Hayes worked as the supervisor of all pharmacists and technicians employed at the C&M location. Id. Both Kulekowskis and Hayes reside in Illinois. Id. ¶¶ 10-11.

         Relator Castillo -Baier resides in Illinois and worked for Walgreens from July 2002 through July 2017. [65] ¶ 15. She holds a pharmacy technician certification and began working as a Senior Certified Technician at Walgreens in 2007. Id. In May 2013, Walgreens transferred Castillo -Baier from one of its retail pharmacy locations in Arlington Heights to C&M. Id. ¶ 16. She worked as a pharmacy technician at C&M from May 2013 through December 2013, after which Walgreens transferred her to C&M's finance department. Id. ¶ 17. Castillo -Baier worked in C&M's finance department from January 2014 until she resigned, effective July 5, 2017. Id.

         Relator Svendsen -Baier also resides in Illinois and worked for Walgreens from February 2002 until November 2013. Id. ¶ 18. She worked as a Certified Pharmacy Technician until November 2011, when she became a student pharmacist/pharmacy intern and no longer required certification. Id. Svendsen -Baier worked with Defendant Kulekowskis for approximately one year between 2003 and 2004, and from time to time between May and December 2010, at C&M. Id. ¶ 19.

         B. The Medicaid Program

         The Medicaid Program, 42 U.S.C. § 1396 et seq., is a government health insurance program funded jointly by the federal and state governments to assist people and families with low income and limited resources. [64] ¶ 21. The Centers for Medicare and Medicaid Services (CMS), within the United States Department of Health and Human Services (HHS), administers Medicaid on the federal level. Id. ¶¶ 22-23. Within broad federal rules, however, each state decides who is eligible for Medicaid, the services covered, payment levels for services, and administrative and operation procedures. Id. ¶ 23. The state directly pays the providers of Medicaid services and obtains the federal share of the payment from accounts drawn on funds of the United States Treasury. Id.

         Providers of prescription drugs for Medicaid patients who participate in the Medicaid program are eligible for reimbursement for covered prescriptions. Id. ¶ 24. To enroll in the Illinois Medicaid program, pharmacies must submit an enrollment application that contains, in relevant part, a certification that “all of the information provided in this application process is true, correct and complete and that the enrolling provider is in compliance with all applicable federal and state laws and regulations.” Id. ¶ 26. Once enrolled in the Illinois Medicaid program, each pharmacy must sign the Illinois Medicaid Provider Agreement, which provides, in part, that providers will comply with all current and future program policy and billing provisions. Id. ¶ 27. Defendant Walgreens, doing business as C&M Pharmacy LLC, executed such a Provider Enrollment Agreement with the Illinois Medicaid program dated July 1, 2006. Id. ¶ 28.

         Claims submitted to Illinois Medicaid may also be submitted electronically. With respect to electronically-filed claims, the Illinois Medicaid Policy Handbook states, in relevant part:

Paper claim forms all contain a certification statement, which the provider is required to sign. By signing the form, the provider is attesting to the accuracy of the information contained therein.
Electronic claims and claims created by the Department do not contain a certification statement, nor is there a way for the provider to sign electronic claims at the time of submittal. Instead, the Department has instituted a post-payment certification as described below.
A copy of Form HFS 194-M-C, Billing Certification, accompanies each remittance advice which contains an electronically submitted paid service or a service paid as a result of a claim created by the Department.
It is the responsibility of the provider who provided the service and submitted the claim for payment to review the Remittance Advice and the Billing Certification form attesting the accuracy of the information therein.
The same signature requirements that apply to the signing of a paper claim, as described in Topic 112.7.1, apply to Form HFS 194-M-C.

[65] ¶ 43. Form 194-M-C, the billing certification form, contains the following language: “I understand payment is made from State and Federal funds and any falsification or concealment of a material fact may be cause for prosecution or other appropriate legal action.” Id. ¶ 45.

         According to Relators, Walgreens received Form 194-M-C in connection with each claim submitted electronically to Illinois Medicaid. Id. ¶ 46.

         C. The Medicare Program

         The Medicare Program, 42 U.S.C. § 1395 et seq., is a government health insurance program funded jointly by the federal and state governments to assist the elderly and disabled. Id. ¶ 29. CMS administers Medicare on the federal level. Id. ¶ 30. Medicare reimburses health care providers for covered services given to Medicare patients. Id. ¶ 33. In doing so, Medicare determines what types of services are covered and therefore reimbursable, and at what rate it will reimburse the covered service. Id. Providers enrolled in the Medicare program agree to submit claims only for medically and reasonably necessary services covered under the program, and to only seek compensation to which the provider is legally entitled. Id.

         Pharmacies such as Walgreens who wish to enroll in Medicare must complete Medicare Enrollment Application - Clinics/Group Practices and Certain Other Suppliers, Form CMS-855B. Id. ¶ 34. Form 855B contains the following certification:

I agree to abide by the Medicare laws, regulations and program instructions that apply to this supplier. The Medicare laws, regulations, and program instructions are available through the Medicare contractor. I understand that payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with such laws, regulations, and program instructions (including, but not limited to, the Federal anti-kickback statute and the Stark law), and on the supplier's compliance with all applicable conditions of participation in Medicare.

Id. ¶ 35.

         D. C&M Operating Structure

         As a specialty pharmacy for complex, genetic, rare, and chronic health conditions, C&M provides medications that are often much more expensive than medications provided at the pharmacies in Walgreens' retail stores. [64] ¶ 29. C&M provides pharmaceutical services for patients at home as well as patients in medical clinics. Id. ¶ 30. For patients in medical clinics, C&M sends their medications or prescriptions directly to the clinic; for home patients, a Walgreens-employed driver, or UPS, FedEx, and/or the U.S. Postal Services will deliver medications or prescriptions directly to the patient. Id.

         C&M assigns each pharmacist or technician to a particular “department” within the store. Id. ¶ 31. These departments include mental health, transplant, HIV, and biologics. Id. C&M then categorizes patients into these departments based upon the type of medications they need, and each department fills or refills their prescriptions. Id. Accordingly, when a patient needs a prescription entered, the pharmacist or technician for that patient's designated department enters the prescription. Id.

         E. Automatic Refill Allegations

         A typical medication prescription requires a patient to take the medication once per day, every day. Id. ¶ 32. A typical prescription is written for a 30-day supply of the medication, and each prescription allows for a finite number of refills. Id. Thus, a patient taking such medication once per day, every day, will run out of medication after 30 days. Id.

         Prior to May 1, 2013, C&M refilled Medicaid patient prescriptions under an “automatic refill” or “auto refill” protocol. Id. ¶ 33. Under such protocol, the pharmacy automatically refilled prescriptions every 30 days (or other time period depending upon the medication), until all prescribed refills ran out. Id.

         1. April 2013 Provider Notice

         On April 24, 2013, HFS issued a Provider Notice to all pharmacies participating in Illinois' Medicaid program advising that effective May 1, 2013, Illinois Medicaid would no longer allow pharmacies to automatically refill prescriptions, and that “[a]ll prescription refills must be initiated by a request from the prescriber, participant, or other person acting as an agent of the participant, e.g., a family member.” Id. ¶ 2. The Provider Notice also explained:

The possession of a prescription with remaining refills authorized does not, in itself, constitute a request to refill the prescription. The department will not reimburse a pharmacy for any prescription claim that has been filled using an auto refill process. Any claim for a prescription filled without a request from the prescriber, participant [i.e., the patient], or agent of the participant will be subject to recovery. Claims for prescriptions that have been filled using auto refill and inadvertently billed to the department must be reversed by the pharmacy.

Id. According to the Government, the auto-refill prohibition “protects limited government resources from waste and abuse, and also protects public health and safety by preventing prescription drugs from unnecessarily being sent to patients.” Id. ¶ 5. In particular, sending unnecessary prescriptions to patients can result in an individual taking a medication even after his or her provider intended that the prescription be discontinued, or when the prescriber intended a dosage change. Id. Moreover, receiving unnecessary prescriptions could result in the patient selling the medication on the open market. Id.

         2. C&M's Reaction to the Provider Notice

         According to the Government, the Provider Notice had the potential to negatively impact C&M's pharmacy sales; based upon Illinois Medicaid claims data, Medicaid-covered prescriptions constitute approximately 70% of sales at C&M. Id. ¶ 39. Thus, C&M faced a significant overhaul in its method of refilling prescriptions, as well as a threat to sales, due to the auto-refill prohibition. Id. According to the Government, “Defendants” responded to this threat by advising all of its pharmacists and pharmacy technicians to: (1) automatically refill all prescriptions; and (2) falsely enter a notation in the computer system that the provider (such as a nurse in the case of clinic patients) or the patient (in the case of home patients) specifically requested the refill. Id. ¶ 40. The Government fails to specify which of the three named Defendants-Kulekowskis, Hayes, and Walgreens-made this advisement. Id.

         In May 2013-when Castillo-Baier worked at C&M-C&M refill technician Aneta Kuligowska trained Castillo-Baier on the new Illinois Medicaid Auto-Refill Prohibition and “C&M's method for fraudulently getting around the policy.” Id. ¶ 41. According to the Government, every day at C&M, the store generated a computer printout showing a list of patients for whom 30 days had passed since the patient's last prescription was filled. Id. ¶ 42. Despite the Provider Notice, C&M pharmacists and technicians then auto-refilled each of the prescriptions for patients on the list, regardless of whether the patient or a provider requested a refill. Id. When a patient or provider did not specifically request a refill for a Medicaid-covered prescription, C&M employees made “false and fraudulent notation[s]” that a patient or a nurse called to request the refill, when in fact, no such refill was requested. Id. ¶ 43. And based upon these auto-refilled prescriptions, Walgreens submitted claims for the prescriptions to Illinois Medicaid. Id.

         The Government offers C&M pharmacy technician Candice Bundzinski's day-to-day experience as an example of the allegedly fraudulent auto-refill process. Id. ¶¶ 56-61. Bundzinski served as a pharmacy technician at C&M from December 2013 through August 2014. Id. ¶ 56. She began each work day by printing out a list generated by the auto-refill system containing 15 pages of patient names. Id. ¶ 57. From that list, Bundzinski then identified which patients required a prescription refill based upon their 30-day medication cycle. Id. Bundzinski and other pharmacy technicians would then process these orders and submit all requests for prescriptions to C&M's laboratory. Id. ¶ 58. But according to Bundzinski, she and other C&M employees only contacted 15 percent of patients to determine whether they actually wanted their prescriptions refilled. Id.

         Once she automatically refilled the prescription, Bundzinski then typed a note into C&M's computer system advising that the patient requested the refill, even if she never spoke to the specific patient. Id. ¶ 59. Based upon C&M's training, Bundzinski believed these notations to be necessary for audit purposes. Id. Bundzinski never saw or otherwise knew of Illinois Medicaid's prohibition of prescription auto-refills during her tenure with C&M. Id. ¶ 60.

         3. C&M's Software System

         During this time period, Walgreens allowed C&M to use a computer system not associated with the rest of Walgreens' network. Id. ¶ 44. Generally, Walgreens and all of its affiliated stores used the Intercom Plus System, while C&M used a different Citrix-based system called CarePoint. Id. Walgreens did not transition C&M to its Intercom Plus System until late 2016. Id. According to the JCI, as late as January 2015-over a year after the auto-refill prohibition-C&M's CarePoint system designated all patients, including Illinois Medicaid patients, as participating in C&M's auto-refill program unless a patient specifically opted out of the service. Id. ¶ 45.

         C&M's computer system automatically marked the initials of the individual logging into the computer and the time and date of that entry. Id. ¶ 46. Thus, when a pharmacist or technician entered a note in the computer system that a nurse or patient had requested a refill-in the “disclosure field” of a patient's profile-the computer system placed a date and time stamp on each entry and recorded the initials of the particular pharmacist or technician. Id. ¶ 46. According to the Government, even when technicians had not contacted a customer, “Defendants” instructed technicians to input a notation reflecting that they had made contact. Id. ¶ 48. The Government does not specify which individual defendants made such instructions. See id.

         In such situations, technicians input notations such as “RN REQ. REFILLS, ” and “other non-specific phrases” every 30 days. Id. For example, C&M pharmacy technician Suhail Ishaque routinely made a note on his schedule that a patient received Illinois Medicaid, and thus that he needed to notate “Make Disclosure that patient requested” or “Make Disclosure that nurse requested.” Id. ¶ 49. Ishaque made such notes only for Illinois Medicaid patients. Id. ¶ 50.

         4. Provider Bulletin and C&M's Subsequent Reaction

         On October 8, 2014, the Illinois HFS sent Provider Bulletin P-200 14-06 (the Provider Bulletin) to all enrolled pharmacies regarding the Illinois Handbook for Providers of Pharmacy Services (the Handbook), reminding pharmacies of the State's auto-refill prohibition. Id. ¶ 52. Shortly after receiving the Provider Bulletin, Defendant Hayes, in his role as a pharmacist and technician supervisor at C&M, gave all C&M pharmacists and technicians a copy of the Provider Bulletin. Id. On the first page of the employees' copies Hayes wrote:

Att: Please read bracketed areas. All refills for [Illinois Department of Public Aid] (only) must be noted in disclosure notes that the patient requested. This note also needs to be added when refilling Medicare B patient meds.


         Following the issuance of the Provider Bulletin, Defendants Kulekowskis and Hayes called a meeting on November 14, 2014. Id. ¶ 62. The Government alleges that the meeting was triggered in part by C&M's receipt of a government subpoena requesting information regarding prescription refill practices since May 2013. Id. ¶ 62. Four days before the meeting-when C&M first received the subpoena-Hayes sent the following email to all pharmacists and technicians and copied Kulekowskis:

I have looked at some order[s] that were billed to Illinois Medicaid in the last month and those notes are not in disclosures. A DISCLOSURE NOTE MUST BE ENTERED FOR EVERY DELIVERY.

Id. Kulekowskis referred to the meeting as a “CYOA (Cover Your Own Ass) Meeting.” Id. ¶ 63. Castillo-Baier, along with all C&M pharmacists and technicians, attended the CYOA meeting. Id.

         At the November 14 meeting, Kulekowskis presided and told the room that he “want[ed] everybody on the same page” regarding the subpoena and wanted to make sure “they were all saying the same thing if questioned.” Id. ¶ 64. Kulekowskis then told the meeting participants to say “that they do not do any auto-refills, but do call all patients to remind them when their prescriptions are about to run out and would need to be refilled.” Id. ¶ 65. He added that the pharmacists and technicians must continue to enter the disclosure notes for each patient stating that he or she had requested a refill. Id. Further, Kulekowskis advised the group that in addition to computer disclosure notes, they should start making handwritten notes on the daily computer printouts showing all refills to be filled for a particular day. Id. ¶ 66.

         5.Patient A”

         The Government offers “Patient A” as an example of a C&M customer and Illinois Medicaid patient not contacted monthly for refill authorization. Id. ¶ 77. Patient A remained a C&M customer from May 24, 2013 through October 19, 2014. Id. During this time, Patient A never called C&M to request medication refills, yet every 30 days C&M refilled Patient A's three medications. Id. ¶¶ 77-78.

         For example, on July 21, 2014, C&M transmitted a refill claim for payment to Illinois Medicaid for Patient A's Atripla medication. Id. ¶ 80. According to the Government, on the transmission form C&M made a specific representation as to the “goods actually provided to Patient A.” Id. Field “D2” on the form correctly indicates Patient A's Atripla prescription number. Id. Field “DF” then indicates that Patient A's physician authorized six refills on the original prescription. Id. Field “D3” indicates the actual fill number for a prescription. Id. For this July 21 transaction, a C&M employee allegedly typed “02” into the “D3” field, making a specific representation that this constituted the first refill on the original prescription. Id. But C&M's telephone logs do not contain any record of phone contact with Patient A for this refill, and the disclosure note field in C&M's record for this transaction remained blank. Id. ¶ 81.

         According to the Government, the State paid C&M $2, 054.39 for this fraudulent claim. Id. ¶ 82. And in total, between May 24, 2013 and October 19, 2014, the State paid C&M $33, 867.16 for claims submitted for Patient A's refills. Id.

         6. The CORE Center

         Dr. Ronald Lubelchek of the Ruth M. Rothstein CORE Center served as Patient A's physician. Id. ¶ 83. Cook County Health and Hospital Systems operates the CORE Center, which provides medical services for patients with HIV and other infectious diseases. Id. Approximately 75 percent of CORE Center patients comprise Illinois Medicaid recipients or participants in Medicaid Managed Care plans. Id. The CORE Center operates a pharmacy on premises; C&M serves as one of the outside pharmacies that provides medications for the on-premises pharmacy. Id. ¶ 84.

         According to Dr. Lubelchek-who has worked with the CORE Center since 2005 and now serves as its acting medical director-C&M sends electronic authorization requests through a patient's electronic medical records after a patient exhausts the series of refills for that specific medication. Id. ¶¶ 85-86. C&M does not, however, contact the CORE Center every month to obtain authorization for each refill on a specific prescription. Id. ΒΆ 86. According to the Government, C&M nevertheless sends refills to the CORE Center on a monthly basis, which results in ...

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