HEB Grocery Company, a popular San Antonio-based grocery chain, has agreed to pay the state of Texas a total of $12 million to settle allegations of Medicaid fraud. The lawsuit was filed by three qui tam whistleblowers, alleging that the grocery company committed fraud against the state Medicaid program by allegedly submitting inflated prices on claims for thousands of drug prescriptions it filled through its in-house pharmacy.

In Texas, as in many states, reimbursement to a pharmacy for a prescription drug dispensed to a Medicaid recipient is typically based on the lesser of two prices: either the pharmacy’s usual and customary price to the public, which is the price that the pharmacy regularly charges for the same prescription to a customer who does not use insurance (such as a customer who pays in cash); or the Medicaid program’s estimate of the pharmacy’s acquisition cost for the drug, plus a fixed dispensing fee. To make the comparison between the two different prices, the Texas Medicaid program relies on the pharmacy’s certification of its usual and customary price in its reimbursement claim, and calculates the estimated acquisition cost from the certified price data that is provided by the drug manufacturers.

This major grocery chain has hundreds of stores located throughout Texas, and many of the stores have pharmacy departments housed within them. The lawsuit alleges that HEB knowingly submitted false certifications of usual and customary prices, which included inflated prices, to the Texas Medicaid program to obtain higher reimbursements than it was allowed to receive when filing its reimbursement claims for prescriptions that were filled at the HEB pharmacy.

According to the qui tam lawsuit, HEB introduced a discount drug program in 2006 called Rx Rewards, which offers a 30-day supply of hundreds of commonly prescribed drugs for $5, and was open to any HEB customer without charge. It is alleged that since that time, HEB knowingly provided false, inflated prices to the Texas Medicaid program when claiming reimbursements for the drugs in this program, instead of listing the lower prices. In essence, the lawsuit claimed that HEB failed to provide the same 30-day, $5 program to the Medicaid program. This allegedly caused the state of Texas to pay millions of extra dollars in reimbursements.

This qui tam whistleblower suit was brought in 2011 in Travis County by three pharmacists worked in neighboring states, where they filled prescriptions for HEB customers. The pharmacists were not HEB employees themselves.

The Texas Medicaid Fraud Prevention Act, like the federal False Claims Act, prosecutes fraud committed against Medicaid, a government funded program. Qui tam whistleblowers who bring a suit under this law can receive a monetary reward for their efforts to expose the fraud; these rewards are used as an incentive to help bring these cases to light.

In this particular Medicaid fraud case, the state and federal government will share about $10 million of the settlement, with the rest being divided between the whistleblowers.