Kmart Corporation, a wholly owned subsidiary of Sears Holdings Corporation (SHC), will pay $32.3 million to the United States government to settle allegations that in-store Kmart pharmacies failed to report discounted prescription drug prices to Medicare Part D, Medicaid, and TRICARE, the health program for uniformed service members and their families. The settlement agreement with the United States is a part of a global $59 million settlement that also resolves state Medicaid and insurance claims against Kmart.
The U.S. Department of Justice (DOJ) announced that the agreement resolves allegations arising from a 2008 lawsuit brought under the qui tam, or whistleblower, provisions of the False Claims Act (FCA) (31 U.S.C. §3729 et seq.), which permit private citizens with knowledge of fraud against the government to bring an action on behalf of the United States and to share in any recovery. A former employee who worked as a Kmart pharmacist between 2007 and his resignation in 2010, brought the lawsuit, and will receive $9.2 million of the settlement.
The lawsuit alleged that Kmart pharmacies offered discounted generic drug prices to cash-paying customers through various club programs but knowingly failed to disclose those prices when reporting to federal health programs its "usual and customary" prices, which are typically used by those programs to establish reimbursement rates. The DOJ declined to intervene in the lawsuit and the relator prosecuted the action on his own.
The U.S. District Court for the Southern District of Illinois found that, as a matter of law, all of the discount program transactions represented the "usual and customary" price, and that all of the transactions the relator identified were subject to FCA liability, regardless of when they occurred (see Relator claims Kmart drug programs misrepresented ‘usual and customary’ prices, November 18, 2014).
On appeal of the district court decision, the U.S. Court of Appeals for the Seventh Circuit held that pharmacy benefit managers and plan sponsors are not officers or employees of the United States for the purposes of the FCA, so claims paid by these parties could not be the basis for the FCA suit. The Seventh Circuit, however, affirmed most of the district court’s rulings, such as the applicability of different two versions of the FCA to the claims and the finding that Kmart offered discount drug prices to the "general public" through its drug programs. The case was remanded to the district court for further determination (see Contracted Part D sponsors, managers not considered government employees, May 31, 2016).
This global settlement resolves the district court lawsuit (U.S. ex rel. Garbe v. Kmart Corp., Case No. 12-CV-881-NJR-PMF, S.D. Ill.). It should be noted that the claims settled by the agreement are allegations only, and there has been no admission or determination of liability.
Companies: Sears Holdings Corporation; Kmart Corporation
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