Walgreens Allegedly Inflates Drug Prices By 4X -- and the Courts Say It's OK

Yet another federal appeals court has ruled that if companies don't have a signed confession they can't sue pharmacies such as Walgreens (WAG) for fraudulently inflating the price of prescription drugs by up to four times their normal cost.

Congress needs to tighten this area of law: This is the sixth recent case, including one against Amgen (AMGN), where judges have required that conspirators expressly acknowledge they are breaking the law when applying for fraudulent reimbursement for drug prescriptions. Federal judges, by requiring such a high technical bar for insurers and healthcare coverage providers who believe they are being ripped off, are virtually legalizing drug price inflation through fraud and kickbacks.

The Walgreens case, decided last week, is worrying because it concerns two of the most widely used generic drugs -- which ought to be among the cheapest available for patients -- Zantac (ranitidine) for heartburn and Prozac (fluoxetine) for depression. The pills come in two forms, tablets or capsules. Illinois law prevents pharmacies from substituting capsules for tablets or vice versa, in case there is a health reason behind the doctor's prescription choice. But, the ruling says, when Walgreens filled prescriptions for employees of the Pirelli Tire Co.:

Since mid-2001, Walgreens adopted a policy of filling prescriptions for Ranitidine tablets with the more costly capsule form. Likewise, Walgreens filled prescriptions for Fluoxetine capsules with the more costly tablet form.

Each time it filled a prescription, the theory goes, Walgreens represented to the [pharmacy benefit manager] that it had received a prescription for the costly form of the drug; the PBM passed on the misrepresentation to Pirelli, who then reimbursed Walgreens at the more expensive [average wholesale] price -- two to four times higher than the [maximum allowable cost] price.

No confession, no case
The court dismissed the case in part because none of Pirelli's evidence included a memo or an email in which a Walgreens employee admitted he or she was screwing Pirelli:

Pirelli did not "provide facts showing that any individual at a Walgreens store made a misrepresentation or concealed a material fact."

In fact Pirelli did present evidence that Walgreens was switching tablets to capsules and vice versa based on price. It obtained an investigation by another PBM which showed that in St. Louis, Boston, and Phoenix:

Walgreens filled an overwhelmingly large percentage (97 percent) of Ranitidine prescriptions with capsules, while every other pharmacy filled prescriptions for Ranitidine with capsules at a meager rate (3 percent).

Pirelli also presented the allegations of Bernard Lisitza, a whistleblowing pharmacist who won a $35 million settlement from Walgreens for doing the exact same thing alleged in the Pirelli case. Although the settlement in the Lisitza case contains no admission of wrongdoing by Walgreens, it does say that from 2001 through 2005 Walgreens improperly switched Medicaid patients from Zantac tablets to capsules, and Prozac capsules to tablets.

The part of the ruling that is least controversial is where the court rules that Pirelli couldn't demonstrate that it was damaged by the scheme -- a search of its own database found too few cases in which patients appear to have been improperly switched. But the facts as they apply to Pirelli are not as important as the broad principle that the court affirmed, which will only lead to higher drug prices: Victims of pharmaceutical pricing fraud need not bother the feds unless they have a signed confession from the villain -- which, of course, they'll never get.

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Image by Flickr user Brooks Elliott, CC.

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