Walgreens ordered to pay $987M in COVID-19 test contract case

Walgreens must pay more than $987 million as part of an arbitration award won by a virtual care company, a federal judge ruled Monday.

U.S. District Judge Richard Andrews in Delaware sided with PWNHealth, upholding a previously determined arbitration award related to a contract dispute between the pharmacy retail giant and PWNHealth, which also does business as Everly Health Solutions.

At-home health testing startup Everlywell acquired PWNHealth and Home Access Health and announced it was rebranding the parent company as Everly Health in March 2021. The two companies offer self-collected lab testing services. 

At the beginning of 2020, during the COVID-19 pandemic, ordering a COVID-19 test required a physician’s involvement. Walgreens contracted with PWNHealth to use its physician network to order COVID-19 tests that customers requested via a website jointly designed by Walgreens and PWNHealth, according to Everly Health Solution’s court filings. 

When regulatory requirements changed, Walgreens could have its in-house pharmacists order the tests, according to a memorandum opinion from Andrews.

Everly claims that Walgreens, on the joint website, continued to display PWN’s trademark and also displayed that tests would be sent to PWN and its network, despite “diverting tests from the agreed workflow,” Reuters reported, citing court filings.

In the memorandum opinion, Andrews said during the summer of 2021, Walgreens began using its in-house pharmacists to order the tests and continued to use the jointly-created website but did not remove PWN’s name from the site.

In its court filing, Walgreens said the relationship with PWN “deteriorated when, following a change in law adopted to increase access to testing services, Walgreens elected to start using its own in-house pharmacists to fill the demand for tests.”   

Walgreens said there was no “willfulness” in its “inadvertent failure to remove PWN’s name and mark from its website for a short time after it began in-sourcing,” according to the filing.
 

Everly initiated the arbitration in 2022 with the American Arbitration Association, alleging that an agreement between Everly/PWN and the retail pharmacy was exclusive, and that the company breached the agreement when it in-sourced certain enabling services related to the ordering and oversight of COVID testing, Walgreens said in a filing with the U.S. Securities and Exchange Commission (SEC) on Monday.

Everly/PWN also alleged fraudulent inducement, misappropriation and improper use of PWN’s mark. The virtual care provider sought monetary damages for its alleged claims, Walgreens said.

Last March, the arbitrator issued a final award in the amount of $988 million. Walgreens then filed a lawsuit in March asking a Delaware federal judge to strike down what it called an “egregious and improper” arbitration award.

PWNHealth separately asked the judge to affirm the arbitration award.

“We are pleased with the Court’s well-reasoned decision confirming the arbitration award, which resulted from a thorough, multi-year arbitration process,” an Everly Health spokesperson said in a statement.

Walgreens argued that the $987 million award was 12 times above the maximum of $79 million in damages allowed under the contract between the two companies. It would be the largest-ever under the federal Lanham Act, a false advertising law that protects trademarks, the company said, as Reuters reported.

In a statement to Fierce Healthcare Tuesday, a Walgreens spokesperson said, “We are very disappointed that the court declined to set aside an arbitration award that clearly far exceeded the contractual cap on damages – and also, importantly, the arbitrator’s authority. We vigorously intend to seek review of this decision on appeal.”

In the SEC filing, Walgreens said the company is “closely evaluating its legal rights and options to challenge both the award and the amount of damages on appeal to the United States Court of Appeals for the Third Circuit.”

The appeals process would likely take two years or more to complete, the company said in the filing.