Supreme Court Declines to Save Kmart in Drug Pricing Lawsuit

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By Eric Topor

A decision against Kmart Corp. for allegedly misreporting retail drug prices won’t be reviewed by the Supreme Court, leaving in place a whistle-blower victory ( Kmart Corp. v. United States ex rel. Garbe , U.S., No. 16-408, review denied 1/9/17 ).

The Supreme Court declined to wade into False Claims Act arguments over whether pharmacies have to report discounts given to retail customers to the government as the usual and customary prices of drugs. 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.

The U.S. Court of Appeals for the Seventh Circuit ruled in May 2016 that retail price discounts or club discounts given to Kmart pharmacy customers paying out-of-pocket should have been included in Kmart’s usual and customary drug price reports. The appeals court also said 2009 FCA amendments widening FCA liability applied retroactively to pre-amendment claims for payment made by pharmacies and providers as well.

The Supreme Court’s decision Jan. 9 not to review the appeals court’s decision means that both of those holdings will remain undisturbed. The Seventh Circuit’s decision affirmed the district court’s ruling denying Kmart summary judgment, and the case is proceeding through pretrial discovery. Trial is scheduled to begin Aug. 14 unless a settlement is reached.

Whistle-blowers have had recent litigation successes alleging FCA violations through retail pharmacy discount programs, and the Seventh Circuit’s decision has formed the basis of a recent whistle-blower win against Safeway Inc. A federal district court in Illinois declined Nov. 30 to dismiss a pharmacist whistle-blower’s allegations against Safeway for fraudulently reporting high out-of-pocket drug prices by omitting discounts. It specifically cited the Seventh Circuit’s Garbe ruling as controlling precedent.

Pharmacy Discount Litigation

National grocer SuperValu Inc. is facing similar whistle-blower charges against its retail pharmacy operations as well. A federal district court in Illinois rejected SuperValu’s motion to dismiss the FCA allegations brought by whistle-blowers Tracy Schutte and Michael Yarberry Oct. 21, and litigation is ongoing.

In addition, a federal district court in Indiana declined to dismiss similar allegations against Houchens Industries Inc.'s discount drug program at its Hometown IGA pharmacy locations in a case settled in in July 2015, and Texas grocery chain H-E-B settled similar allegations against its discount drug program for $12 million in 2014.

A spokesman for Kmart’s parent corporation, Sears Holding Corp., declined to comment on the Supreme Court’s decision to reject Kmart’s petition for review. Counsel for whistle-blower James Garbe didn’t respond to Bloomberg BNA’s request for comment.

King & Spalding LLP represented Kmart. Korein Tillery LLC represented Garbe.

To contact the reporter on this story: Eric Topor in Washington at etopor@bna.com

To contact the editor responsible for this story: Peyton Sturges at psturges@bna.com

For More Information

The Seventh Circuit's decision is at http://src.bna.com/fr6.

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