Walgreens Accused Of Scamming Taxpayers

It's America's biggest drugstore chain.

"Beyond the reach of cell phones and superhighways, there's a place called 'perfect,'" rings the familiar ad for Walgreens.

In a perfect world, however, Walgreens wouldn't be accused of ripping off taxpayers. But we're nowhere near perfect. CBS News investigative correspondent Sharyl Attkisson reports.

Michael Behn, a former federal prosecutor, said, "The pharmacies nationwide had a pill flipping scheme."

Behn helped expose how Walgreens exploited a Medicaid loophole.

To save taxpayer dollars, Medicaid limits how much it pays for popular forms of drugs.

But it doesn't bother to set price-ceilings on rarely-used versions.

Take generic Zantac, or ranitidine, for example. The antacid is a huge seller in tablet form. Medicaid limits payment to 34 cents apiece.

The same drug as capsules has no price-ceiling because it was so rarely-prescribed. Medicaid pays $1.25 each.

Walgreens figured it could pocket millions by switching patients from tablets to capsules.

Behn explained to Attkisson, "These are the ranitidine capsules."

"This is what was being prescribed?" Attkisson asked, pointing to the tablets. "And this is what was being given?" pointing to the capsules.

Behn replied, "Correct. At three times or more the cost to taxpayers," Behn answered.

The scheme was blown wide open by a whistleblower, a pharmacist who doesn't want to appear on camera. He said Walgreens rigged its computers to automatically switch to the most expensive type of pill.

"The only way in which a computer system could switch from a tablet and a capsule, is if someone went in and manipulated the computer system," Behn said.

Attkisson asked, "And the fact that this was done nationwide indicates this was a corporate policy?"

Behn responded, "That's what we alleged."

By gaming the system, Walgreens managed to change over almost all Medicaid customers from cheap generic Zantac tablets to pricy capsules.

In Florida alone, it cost taxpayers an extra $1.2 million the first year.

And the pill-switching went on for several years nationwide, including other prescriptions: generic Prozac (fluoxetine) for depression, and generic Eldepryl (selegiline) for Parkinson's.

Walgreens denies wrongdoing and declined to be interviewed.

But they recently agreed to pay back the government more than $35 million.

And they're not the only ones. CVS and Omnicare quietly settled similar cases coughing up $86 million more.

The whole pill-flipping episode proves just how imperfect some drugstore chains can be.

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    Sharyl Attkisson is a CBS News investigative correspondent based in Washington.