Iowa Medicaid Withheld $2-3 Million From a Pharmacy Over Unproven Fraud Claims
Iowa Medicaid suspended all payments to Rashid Pharmacy in Fort Madison in June 2021, citing a “credible allegation of fraud.” More than five years later, no criminal charges, no civil claims, and no indictments have been filed against the pharmacy or its owners.
The Iowa Department of Health and Human Services, which oversees Iowa Medicaid Enterprises, has withheld between $2 million and $3 million in payments for services the pharmacy had already rendered. Rashid Pharmacy closed in March 2022, after operating in Fort Madison for nearly six decades.
$2-3 million in Medicaid payments withheld from Rashid Pharmacy since June 2021, with no charges filed as of June 2026.
The pharmacy’s owners are now seeking judicial review of a May 22, 2026 order by Iowa DHHS, arguing the fraud allegation was never supported by evidence.
Federal Investigation Found a Data Error, Not Fraud
The fraud suspicion originated from an inventory discrepancy tied to Medicare payments, not Medicaid. In March 2022, federal agents executed a search warrant at the pharmacy seeking information about those discrepancies. After the search, the federal government acknowledged it had misread the data.
The error involved drugs packaged in different sizes. Federal investigators counted shortfalls for drugs sold in one package type but failed to account for overages on the same drugs purchased in different packaging. The result made the pharmacy appear to have billed for more drugs than it had on hand.
Medicaid programs in Illinois and Missouri reviewed the same pharmacy and took no action. Medicare, the Department of Justice, and Iowa Medicaid Enterprises were all unable to find “a single patient report” of fraud, according to the lawsuit.
Iowa’s ALJ Acknowledged the Weakness of the Evidence
Iowa Administrative Law Judge Jonathan M. Gallagher issued a proposed order in favor of DHHS in October 2021. He acknowledged there was “precious little to indicate Medicaid fraud” and “no definitive proof of no fraud,” but sided with DHHS because the agency is not required to prove fraud to suspend payments.
That legal standard is the core of the dispute. Iowa’s payment suspension rules allow DHHS to freeze payments on a “credible allegation” alone, with no requirement to substantiate the claim before a provider loses income.
“It has now been more than 62 months since the search warrant and about 60 months since the inception of the payment suspension.”
Rashid Pharmacy lawsuit, filed June 2026
Rashid Pharmacy ceased operations in March 2022, citing the payment suspension. The owners argue the prolonged freeze, without any resulting charge, amounts to a denial of due process.
What You Can Do Now
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Call the Iowa Legislature’s Health and Human Services Committee at (515) 281-3566 and ask members to hold hearings on Medicaid payment suspension standards. Iowa law currently allows indefinite payment freezes on unproven allegations with no review deadline.
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Contact Iowa Governor Kim Reynolds’ office at (515) 281-5211 and ask for an administrative review of DHHS payment suspension policies. Ask specifically: how many Iowa providers are currently under payment suspension, and for how long?
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Reach out to the Iowa Department of Health and Human Services directly via its public contact page at hhs.iowa.gov and request a published report on active Medicaid payment suspensions, including duration and resolution rates. Transparency data can reveal whether this case is an outlier or a pattern.
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Contact the Iowa Legislative Services Agency at (515) 281-3566 and ask for a fiscal review of how much total Medicaid funding has been withheld under credible-allegation suspensions statewide. That number does not currently appear in any public report.
Sources
Iowa Capital Dispatch: Pharmacy Sues Iowa Medicaid Over Unproven Fraud Suspension
KFF: Medicaid Fraud Control and Provider Suspension Rules Explained
CMS: Medicaid Credible Allegation of Fraud Payment Suspension Guidance
Iowa DHHS: Iowa Medicaid Enterprise Program Overview
[Callout: Iowa Medicaid can suspend payments indefinitely on a “credible allegation” with no proof required.
Iowa payment suspension standard. Iowa Capital Dispatch]