Giant drugstore chain Walgreens is under fire for allegedly overcharging consumers with health insurance for generic-drug prescriptions. Customers could wind up making co-payments that are three to four times higher than they would otherwise cost through a program offered by the company, which is part of Walgreen Boots Alliance (WBA).
According to a 28-page federal court filing by a California consumer on May 28, Walgreens allegedly violates legal prohibitions that forbid pharmacies from charging consumers a fee for their medicines that exceeds the "usual and customary" price. The retailer submitted claims to third-party providers for payment at "prices that Walgreens has knowingly and intentionally inflated," the filing said.
The "lynchpin" in the alleged scheme is Walgreens' Prescription Savings Club (PSC), a program that allows cash-paying customers to purchase 30- or 90-day supplies of 500 commonly prescribed generic drugs at discount prices ranging from $5 to $30, the suit said. Rivals such as Walmart (WMT), Target (TGT) and Costco (COST) also offer deals on generic drugs, though they report their respective prices accurately to insurers.
"The PSC prices, however, are often significantly lower than the 'usual and customary' prices that Walgreens reports to health insurance companies," the suit said, resulting in lower co-pays (under the PSC plan) than people with insurance wind up paying.
"Using the PSC as its vehicle," the suit said, "Walgreens has effectively created a discriminatory pricing scheme, whereby customers enrolled in the PSC who are not using insurance when purchasing a prescription generic drug are able to pay the lower PSC price, while those customers using insurance must pay the higher and artificially inflated 'usual and customary' price."
Insurers provide incentives to participants in their plans to use generic drugs because they're usually cheaper than brand-name drugs. But the suit claims Walgreens doesn't tell consumers with insurance that they can get a better deal through the PSC and omits information that shows its "usual and customary prices" are more than double what some of its rivals charges.
The suit, whose lead plaintiff is Dawn Cobbs, a resident of San Diego who purchased generic medications from Walgreens stores in California, is seeking class action status. It aims to cover individuals with insurance who paid for a generic prescription that was included on the PSC.
Walgreens filled more than 928 million prescriptions in its 2016 fiscal year, most of which are generic drugs. Its retail pharmacy business brought in $83.8 billion in revenue that year. About 90 percent of U.S. citizens have a health insurance plan that covers some of their expenses for medications.
Like brand-name drugs, prices for some generics have skyrocketed in recent years. A study released last year by the Government Accountability Office found 315 medications with "extraordinary price increases" of at least 100 percent and in some cases 1,000 percent or more. Generic prices overall, however, fell.
Shares of Walgreens, the second-largest drugstore chain behind CVS (CVS), rose 1.1 percent, or 86 cents, to close at $81.02 on Wednesday. A company spokesman declined to comment for this story because of the pending litigation.