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KMart Pharmacy settles fraud case for $32 million

  • Publish Date: Posted over 6 years ago
  • Author:by Jason Poquette BS Pharm, RPh

Kmart Pharmacy and The Bobby Fuller Four have something in common. They both “fought the law, and the law won.” According to information released by the U.S. Department of Justice in December 2017, Kmart has agreed to pay $32.3 million to settle allegations of fraudulent claim billing practices. Specifically, the lawsuit against the pharmacy chain revolved around the store failing “to report discounted prescription drug prices to Medicare D, Medicaid and TRICARE.”
The decision is just another blow to the already plummeting stock of Sears Holding Corp which owns the Kmart pharmacy business. Some have suggested this might be the end of the line for Kmart pharmacy. Sears has been losing about $1 billion annually and sales are down 45% since 2013. This is further proof that retail pharmacy is in no position to save otherwise failing business models. At the very least it reminds us that pharmacy billing protocols are very strict, and can be quite complicated.
This specific case involves the fact that pharmacies are contractually bound to offer Federal programs the lowest cash price on prescription medications, particularly generics which have more opportunity for savings. Kmart apparently did not disclose the lower cash prices that it offered to members of their club discount program. Kmart fought the allegations, which came about by a whistleblower lawsuit by a former pharmacist employee, since 2008. The gray area is whether or not “club” member prices are truly “cash” customers. The Supreme Court did not agree with Kmart. The law won.

But the impact of this decision could go well beyond the Kmart chain. Other pharmacy chains offering similar “club” or “member” discounts to cash customers will be scrutinized for compliance with these pricing guidelines. Even smaller chains and independents may need to carefully consider their pricing structure to ensure that their “usual and customary” price does not fall below the rate that they have to bill Federal programs.
From a career-perspective, pharmacists need to be mindful of these compliance concerns. Certainly Kmart pharmacists are now thinking about this issue and wondering what it will mean for their career as their already crumbling parent company pays $32.3 million in fines. But pharmacists everywhere working in settings that bill Federal insurance claims need to be mindful and informed about the laws surrounding such billing. In fact, Medicare laws require all such pharmacists to participate in annual Fraud, Waste and Abuse training as a condition of plan participation.
However, one pharmacist made out pretty well in the deal. Ohio pharmacist, James Garbe, who filed the lawsuit against his former employer will reportedly take home $9.3 million in the deal. Federal law provides this incentive to whistleblowers who are aware of potentially fraudulent activity against the government.

All of this only goes to highlight some of the complexity and opportunity that exists within the pharmacy profession. Pharmacists well versed in billing compliance issues should be considered an asset to any employer. Pharmacy billing and contracting specialists may be a new career path. An ounce of prevention might have saved Kmart $32 million in damages.
Pharmacy, in spite of these and many other challenges, still remains a promising profession for pharmacists who are pro-active about their career. This includes working with and researching some of the great employers associated with Pharmaceutical Strategies. Your skills combined with their connections makes for a winning combination.