Kmart Pays to Settle Qui Tam Allegations Involving Alleged Pharmacy Kickbacks to Medicare Beneficiaries

For years, the Justice Department has cracked down on kickbacks flowing between healthcare providers. Now, increasingly, the government is scrutinizing alleged kickbacks lining the pockets of patients. The latest example involves government scrutiny of retail pharmacies offering Medicare beneficiaries various inducements, including drug manufacturer coupons and gasoline discounts.

Government interest in these alleged beneficiary kickback schemes skyrocketed after two district courts refused to dismiss qui tam cases focused on this alleged fraud. In one of these cases, it was alleged that Kmart knowingly and improperly influenced the decisions of Medicare beneficiaries to bring their prescriptions to Kmart pharmacies by permitting the Medicare beneficiaries to use drug manufacturer coupons to reduce or eliminate prescription co-pays that they otherwise would be obligated to pay. It was also alleged that Kmart improperly encouraged Medicare beneficiaries to bring their prescriptions to Kmart pharmacies by offering them varying levels of discounts on the purchase of gasoline at participating gas stations based on the number of prescriptions that they filled at Kmart pharmacies.

Late last year, an Illinois federal judge denied Kmart Corporation’s motion to dismiss the lawsuit. In denying this motion, the court wrestled with the question of whether Kmart charged government health care programs the same low “usual and customary” price extended to cash-paying customers. Kmart raised the argument that the special pricing offered to members of its “rewards programs” was not the “usual and customary” price, for the price was only offered to those who enrolled in the program.

The court rejected this argument, for the rewards program had a low bar to membership, so in effect the program was open to the general public. Several months after this ruling, Kmart settled with the Government. Expect more and larger pharmacy kickback cases in the future…

More information for whistleblowers is located at the Nolan Auerbach & White website.