Kmart Will Pay to End Generic Drug Overbilling Claims

Kmart Corp. will pay the government $32.3 million to put to rest claims its in-store pharmacies overbilled federal health-care programs for generic drugs, the Justice Department said.

The agreement, part of a global $59 million settlement that includes state Medicaid and insurance claims against Kmart, resolves whistleblower allegations 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 various states participating in the case will recover about $10 million and whistleblower James Garbe, who litigated the case after the government declined to intervene, will receive $9.3 million, close to the maximum percentage whistleblowers can be awarded under the False Claims Act.

Garbe, who worked for a Kmart pharmacy in Ohio, also will be awarded shares of the state recoveries as provided under state false claims and insurance fraud laws.

According to Phillips & Cohen LLP, one of the law firms representing whistleblower James Garbe, Judge Nancy J. Rosenstengel of the U.S. District Court for the Southern District of Illinois indicated Dec. 22 she will approve the settlement, bringing the nearly 10-year-old case to a close.

The lawsuit against Kmart, filed by Garbe in 2008, alleged Kmart pharmacies offered discounted generic drug prices to cash-paying customers but didn’t disclose those prices when reporting its usual and customary prices to federal health programs. The usual and customary prices are generally what a retail customer pays out-of-pocket for a particular drug and are used by the government for Medicare and Medicaid drug pricing.

Garbe discovered Kmart was charging Medicare customers significantly more for generics than it was charging customers enrolled in its cash discount program. For example, his complaint alleged Kmart sold a 30-day supply of a generic version of a popular prescription drug for $5 to customers who registered for a discount program. Kmart then sought reimbursement from the government for $152 for the same drug for Medicare customers, which Kmart portrayed as the “usual and customary” price.

The claims settled by the agreement are allegations only, and there has been no determination of liability, the government said.

The case is United States ex rel. Garbe v. Kmart Corp., S.D. Ill., No. 12-CV-0881-NJR-PMF, settlement announced 12/22/17.

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