The owners of a Fort Madison pharmacy are suing the state over an alleged failure to pay for millions of dollars’ worth of pharmaceuticals.
Rashid Pharmacy is seeking judicial review of a May 22, 2026 order by the Iowa Department of Health and Human Services, which oversees Iowa Medicaid Enterprises.
The company claims it operated in Fort Madison from 1963 to March 2022, when it closed. In June 2021, Iowa Medicaid Enterprise suspended all Medicaid payments to Rashid Pharmacy, claiming a “credible allegation of fraud” existed, although, the lawsuit claims, the Medicaid programs in Illinois and Missouri took no such action.
The lawsuit alleges that in March 2022, the federal government executed a search warrant at the pharmacy, seeking information related to alleged inventory discrepancies tied to Medicare — not Medicaid — payments for drugs.
The lawsuit claims that after the search, the federal government acknowledged it had misinterpreted data, giving rise to a suspicion of inventory discrepancies. The data, the lawsuit alleges, had counted shortfalls for drugs that were packaged in a certain way, but failed to take into account overages for the same drugs purchased in different packaging. The result was that the pharmacy falsely appeared to have billed Medicaid for dispensing far more drugs than it had on hand, the lawsuit claims.
Rashid Pharmacy appealed its Iowa Medicaid payment suspension, noting that Medicare, the Department of Justice and Iowa Medicaid Enterprises had been unable to find “a single patient report” of fraud.
According to the lawsuit, Iowa Administrative Law Judge Jonathan M. Gallagher issued a proposed order in favor of DHHS in October 2021, expressing concern that “there is precious little to indicate Medicaid fraud,” while adding that “there is no definitive proof of no fraud.”
In his proposed order, Gallagher stated that “on balance, DHHS’ position on whether a credible allegation of fraud exists has more force than Rashid’s counterargument.” Gallagher noted that DHHS was not required to show proof of fraud in order to suspend payments, pointing out that it was “enough to say there is no proverbial smoking gun to show no fraud.”
“It has now been more than 62 months since the search warrant and about 60 months since the inception of the payment suspension,” the lawsuit asserts. “Rashid Pharmacy ceased operation on March 26, 2022. Despite the federal government’s investigation, no criminal charge or civil claim has been brought against Rashid Pharmacy in relation to alleged Medicaid fraud. Nor have there been any allegations, charges, indictment, information, or civil suits as to any claimed Medicare or Medicaid fraud or shortage.”
During those five years, the lawsuit adds, Iowa Medicaid Enterprises has withheld approximately $2 million to $3 million in payments for services rendered and products lawfully dispensed to Medicaid beneficiaries. Rashid Pharmacy now seeks judicial review of DHHS’ May 2026 decision to deny payment of the money the pharmacy claims it is owed, arguing the decision is either unsupported by evidence or is wholly irrational.
The State of Iowa, which does not comment on pending litigation, has yet to file a response to the lawsuit.
