Walgreens Allegedly Overcharges Third-Party Health Plan Holders

Walgreens is the defendant in a proposed class action lawsuit alleging it unlawfully overcharges customers with third-party healthcare plans for generic prescription drugs.

What are the allegations?

The 28-page lawsuit out of California alleges defendants Walgreen Co. and Walgreen Boots Alliance, Inc. submit to third-party healthcare plan payors claims for payment that Walgreens has “knowingly and intentionally inflated” beyond ordinary generic drug prices. The plaintiff argues that as a result of Walgreens’ conduct, customers who buy generic prescription drugs through third-party plans fork over significantly higher co-payments—in many cases, more than three to four times than what Walgreens usually charges.

The lawsuit notes the sale of prescription drugs accounted for roughly 67 percent of Walgreens’ $83.3 billion total pharmacy retail sales in 2016. Like most major retail pharmacies, the complaint continues, generic drugs made up the “vast majority” of all prescriptions filled by Walgreens that year.

This sounds a little complicated.

It might help to first give a short refresher on how the generic drug co-payment system usually works.

When a third-party healthcare plan participant fills a prescription, his or her health insurance typically covers a portion of the cost, with the individual paying the remainder directly to the pharmacy as a co-payment. It’s important to remember that because of the overall savings associated with purchasing generic drugs, third-party healthcare plans often incentivize participants to buy generics, as opposed to brand-name drugs, by offering a lower price and, therefore, a reduced co-payment.

By law, the case says, Walgreens cannot charge excessive co-payments, the bar for which is normally set by the pharmaceutical industry. The lawsuit refers to the costs of generic drugs as “usual and customary” prices.

Walgreens’ “Prescription Savings Club”

Walgreens’ “Prescription Savings Club” is a program that allows cash-paying customers, i.e. those who buy medicines without insurance, to purchase prescription generics at discounted prices. The case says the Prescription Savings Club affords certain customers the opportunity to “purchase 500 of the most commonly prescribed generic drugs listed on Walgreens’ special formulary” at tiered, more affordable prices.

Medicare and Medicaid beneficiaries are prohibited from participating in Walgreens’ Prescription Savings Club. The only other rule for participation in the Prescription Savings Club is members are not allowed to use insurance when buying drugs, the case notes.

Alleged Misdirection of “Usual and Customary” Prices

In United States ex rel Garbe v. Kmart Corp., the Seventh Circuit Court of Appeals affirmed a rule barring pharmacies (such as Walgreens) from charging for generic drugs co-payments that are above “usual and customary” levels. The case adds that within the definition of this ruling, Walgreens’ Prescription Savings Club prices “fit squarely within the accepted industry meaning of usual and customary prices” and, accordingly, represent what Walgreens actually charges for drugs.

Although it was required by law to report to third-party healthcare payors that its Prescription Savings Club prices are the true “usual and customary” prices it charges for generics, Walgreens, since 2007, has allegedly intentionally “disregarded” its savings club prices in setting its “usual and customary” drug rates for customers who use insurance to fill prescriptions.

So, what prices did Walgreens allegedly pass along to third-party healthcare payors?

“Instead, Walgreens has submitted falsely inflated ‘usual and customary’ prices for the drugs to third-party payors, and in the process, overcharged customers paying for the drugs with insurance by collecting falsely inflated copayments,” the lawsuit alleges.

Why would Walgreens supposedly do this?

The lawsuit surmises that the discriminatory pricing scheme perpetrated through its Prescription Savings Club has allowed Walgreens to “maintain and increase its market share” by undercutting its competitors’ already discounted prices. More importantly, though, Walgreens has effectively provided itself with a way to hide its “usual and customary” prices from third-party healthcare plans so it can continue to collect higher-than-ordinary copayments, the suit claims.

Who is covered by the lawsuit?

The lawsuit proposes to cover a class of individuals nationwide who, between January 2007 and the present, paid for, in full or in part, a generic prescription drug included on Walgreens’ Prescription Savings Club formulary and was insured for the purchase through a third-party healthcare plan.

Additionally, the case seeks to include a sub-class of California residents who fit the above criteria.