Kmart settles healthcare fraud lawsuit for $32.3 million

Washington, DCThe Department of Justice announced that Kmart Corporation has agreed to pay $32.3 million ($59 million including state law issues) to settle a lawsuit that claims in-store pharmacies overbilled Medicare Part D, Medicaid, and TRICARE. The healthcare fraud scheme, which a Kmart pharmacist stumbled upon only when he had his own prescription filled, allegedly affected drug reimbursements in 46 states. The pharmacist was awarded $9.3 million under the whistleblower qui-tam provisions of the False Claims Act (FCA).

Healthcare fraud uncovered

Every state has a formula for determining drug cost reimbursements under federal and state law. The formulas vary, but all involve the concept of a provider’s “usual and customary charge.” These formulas prevent a pharmacy from seeking reimbursement from the government for more than the price charged to the general cash-paying public.

James Garbe, an alert Kmart pharmacist and Medicare Part D recipient, had a prescription filled at a non-Kmart competitor pharmacy. He was surprised to discover that the competitor charged Medicare less than Kmart did for the same medication. His subsequent review of Kmart’s reimbursement claims revealed a two-tiered price structure – one for customers who paid cash, and a higher price for those with insurance. The lower price sales were not included in the calculation of the usual and customary charge, with the effect that Medicare was routinely overbilled.

In one case, Kmart reportedly sold a 30-day supply of a generic version of a prescription drug for $5 to cash customers, but then filed for reimbursement from the government for $152 for that same drug for its Medicare customers. Garbe shared this information with the government and in 2008 filed a whistleblower lawsuit.

Whistleblower incentives under False Claims Act

The federal FCA makes it illegal for a person or organization to make a false filing in any federal health care program. In recognition of the fact that healthcare workers are often in the best position to discover fraud, the law protects whistleblowers from employment retaliation and offers them what is essentially a “bounty” for successful prosecutions or settlements. Amounts range from 25 to 30 percent of the proceeds or settlement in situations like Garbe’s lawsuit, where the government chose not to intervene.

In any event, it is certainly no way to make living, as is obvious from the seven years that elapsed from the filing of the lawsuit to the eventual settlement. Although the incentive to expose corruption is nice, whistleblowers are more likely to be motivated by a desire to help ensure that laws designed to protect the public are enforced.