In March, the Department of Justice for the Eastern District of California announced the federal government and California reached a settlement agreement with Kmart. The retailer, based in Illinois with locations throughout California, will pay $525,000 to resolve allegations that it violated the federal False Claims Act by knowingly submitting false claims to Medi-Cal. The claims for reimbursement were not supported by appropriate diagnoses and documentation.
Kmart’s Fraudulent Billing
Medi-Cal uses a formulary list that designates restrictions for the drugs listed, known as Code 1 drugs. Certain restrictions are related to approved diagnoses. Medi-Cal will reimburse pharmacies for Code 1 drugs, but only if their use is in line with the formulary’s restrictions. For instance, a pharmacy may not be reimbursed for a drug prescribed and dispenses for an unapproved diagnosis.
It is up to the pharmacy to verify and certify that the Code 1 drugs are dispensed for approved diagnoses and adhere to other relevant restrictions. If a pharmacy wishes to dispense a drug outside of the formulary’s guidelines and seek reimbursement, it must obtain approval from the California Department of Health Care Services by providing their justification for the unapproved use.
Kmart failed to confirm whether the Code 1 drugs were prescribed for approved uses. In certain cases, Kmart dispensed the drugs for non-approved uses, and then knowingly billed Medi-Cal for reimbursement.
The settlement for $525,000 resolves the allegations of fraudulent billing practices.
Kmart Settlement Began as a Qui Tam Suit
The allegations against Kmart began when a previous Pharmacist in Charge at a Kmart location in California filed a qui tam lawsuit. The qui tam provision of the FCA enables private citizens to file lawsuits on behalf of themselves and the government. Qui tam suits are initially filed under seal and only the government is notified. This gives the government time to investigate the allegations and determine whether they want to join the lawsuit as a party. Whether or not the government joins the qui tam lawsuit, it may negotiate a settlement with the defendant. If the government obtains a settlement, or if the lawsuit results in an award for the government, then the whistleblower receives a part of the settlement. In regard to the Kmart settlement, the pharmacist whistleblower will receive $96,500.
Not Kmart’s First FCA Settlement
The recent settlement is not Kmart’s first. In December 2017, Kmart agreed to pay the federal government $32.3 million to settle allegations of fraudulent billing against Medicare Part D, Medicaid, and TRICARE. This separate case was based on Kmart pharmacies offering generic drugs at discounted prices through club programs, and then knowingly failing to report those lower prices to the federal health programs. By Kmart not reporting its usual and customary prices to the federal health programs, which are used to establish reimbursement rates, the company knowingly and fraudulent obtained higher reimbursements than it should have.
Are You Aware of Health Care Fraud?
If you work in a health care or related business you are aware of a fraudulent scheme against a state or federal health care program, such as Medicare or Medicaid, contact a San Francisco qui tam attorney at Brod Law Firm today. An experienced attorney will review your information and advise you on your best course of action.
(image courtesy of Clark Young)