A recent settlement by retailer Kmart Corp. illustrates the breadth of practices in the healthcare space that the government considers to be illegal kickbacks that violate the False Claims Act (FCA).
The U.S. Department of Justice (DOJ) announced on September 1, 2015 that Kmart had agreed to settle allegations it had improperly used drug manufacturer coupons and gasoline discounts to induce Medicare beneficiaries to use Kmart pharmacies. Kmart operates approximately 780 in-store pharmacies across the United States and its territories.
Under the federal Anti-Kickback Statute (AKS), it is a crime to provide benefits to beneficiaries of federal health programs, such as Medicare and Medicaid, to influence their choice of healthcare items and services. The 2010 Affordable Care Act amended the AKS to provide for a collateral consequence in addition to its criminal penalties: Items or services resulting from its violation automatically constitute false claims under the FCA.
The qui tam complaint against Kmart was originally brought in 2013 by Joshua Leighr, a former Kmart pharmacist. DOJ intervened in the case, putting forward two theories under which Kmart allegedly violated the FCA. First, DOJ alleged that, from 2011 to 2014, Kmart pharmacies allowed customers to use drug manufacturer coupons to reduce or eliminate the co-pays those customers would have otherwise been required to pay. In addition to steering pharmacy patients to Kmart, this would have also allegedly had the effect of causing those patients to select more expensive name-brand drugs when cheaper generic versions would have sufficed. Second, the government alleged that Kmart improperly attracted pharmacy patients by providing discounts on gasoline that were based on the number of prescriptions that patients had filled at a Kmart pharmacy.
As part of the settlement, Kmart admitted no wrongdoing but paid $1.4 million to put the allegations to rest. The settlement demonstrates how seemingly mundane practices – coupons and gasoline discount reward programs – can fall within the government’s crosshairs when federal healthcare programs are involved.
