Kmart Settles False Claims/Overbilling Case for $32.3 Million


The chain allegedly failed to disclose discounted prescription drugs.

Kmart Corporation has agreed to pay $32.3 million to the United States to settle allegations that its in-store 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. Kmart is a wholly owned subsidiary of Sears Holdings Corporation.

According to the Department of Justice, the agreement resolves allegations arising from a lawsuit brought under the whistleblower provisions of the False Claims Act, which allows 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. 

The lawsuit, filed in 2008 by James Garbe, a former Kmart pharmacist, 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 its usual and customary prices to federal health programs. Those prices are typically used by the programs to establish reimbursement rates, according to the Department of Justice.

The settlement agreement with the government is a part of a global $59 million settlement that includes a resolution of state Medicaid and insurance claims against Kmart. Garbe, who litigated the case after the government declined to intervene in the action, will receive $9.3 million.  

Howard Riefs, a spokesperson for Sears Holdings, told Drug Topics, “We're pleased to put this case behind us so that we can focus on the needs of our members and customers, and our company's transformation.”

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