Kmart: The Cash Price Missing From the Insurance Claim

Kmart agreed to pay $32.3 million to the United States in a usual and customary pricing settlement over allegations that its pharmacies concealed discounted cash prices when reporting prices to federal healthcare programs. The complaint describes a split familiar to anyone who works with pharmacy pricing: a cheap generic for the cash customer, a much higher price on the insurance claim for the same prescription. Taxpayer-funded programs allegedly paid more while cash customers received the discount.

The Department of Justice announced the settlement on December 22, 2017. It covered alleged overbilling of Medicare Part D, Medicaid and TRICARE by in-store pharmacies at Kmart, a Sears Holdings subsidiary. The federal agreement formed part of a $59 million global settlement that also resolved state Medicaid and insurance claims.

This drug pricing fraud case concerned the retail pharmacy’s report of what it charged the public. The allegation was that Kmart knew its cash price and sent insurers a different number in the field meant to report that price.

How the Discount Price Disappeared From the Claim

The whistleblower alleged that Kmart left its generic discount-program prices out of the usual-and-customary field on reimbursement claims. The whistleblower’s complaint called the cash program RMP and described the reporting choice directly:

That allegation puts the company’s retail pricing and insurance billing beside each other. Kmart could offer the lower price at the counter while allegedly leaving it out of the number used to limit insurer reimbursement. The discount reached the cash customer. According to the complaint, it disappeared from the claim.

The Same Simvastatin Prescription, Different Prices

The complaint’s simvastatin examples compare identical prescriptions under the cash program and a Medicare Part D plan. For a 30-day supply of 20 mg simvastatin, it alleged a Paramount Elite Part D price quote of about $152 against a $5 cash price. For a 90-day supply, the comparison was about $450 against $15. The same drug, strength and days’ supply carried very different prices depending on who paid.

A separate Humana Part D transaction shows the claim and the payment. For a 30-day prescription of 10 mg simvastatin, Kmart allegedly sought about $259 and received about $57 through the customer’s copay and Humana’s reimbursement. Here the complaint followed the price beyond a quote to money the pharmacy received.

Competitor Matching Lowered the Cash Price Again

The complaint also alleged that Kmart instructed pharmacists to match competitors’ generic pricing programs, particularly Wal-Mart’s. For drugs on Wal-Mart’s discount list, it alleged cash prices of $4, $8 and $12 for 30-, 60- and 90-day prescriptions.

The complaint traced the lower cash prices to instructions from Kmart to its pharmacists. The price-match allegation connects that difference to a company instruction, giving an insider something more concrete than a general suspicion that insurance paid too much.

Why the Usual-and-Customary Price Mattered

A usual-and-customary price tells the payer what the pharmacy charges the general public. The Justice Department said federal health care programs typically use those reported prices to establish reimbursement rates. Kmart allegedly withheld the discounted prices that would have informed that calculation.

Medicaid’s general payment limit shows why the cash-sale side matters: for drugs covered by that limit, reimbursement cannot exceed the pharmacy’s usual-and-customary charge to the public. The cash price sets a ceiling on what the pharmacy can collect.

That comparison also explains who bears the alleged overcharge. A higher reported public price can leave a taxpayer-funded program paying more for a prescription that the pharmacy sells for less to a cash customer.

Do Pharmacy Benefit Managers Have a Role in the Prescription Drug Supply Chain?

Pharmacy benefit managers work between prescription-drug plans and pharmacies. In Medicare Part D, private plan sponsors manage claims and payments, and most use pharmacy benefit managers to work with retail pharmacies. The payment path through the drug supply chain puts private companies between the pharmacy counter and the government.

A pharmacy employee can see the reimbursement claim even when the government’s final payment sits farther along that chain.

A 2023 Georgetown Environmental Law Review paper, False Claims, Real Climate Harm: How Whistleblowers Can Fight Fraud in the Renewable-Energy, REC, and Carbon-Offset Markets, uses Kmart to explain this intermediary problem. Its analysis follows alleged overbilling from the pharmacy to private companies and then to Medicare. The practical point for an insider is that the price information and the public money can pass through different organizations.

The Case Continued After the Government Declined

The whistleblower continued the Kmart case after the government declined to join it. The Justice Department’s settlement announcement identifies it as a qui tam case under the False Claims Act.

The pricing allegations still reached a federal settlement.

SuperValu and Safeway Raised a Separate Knowledge Question

SuperValu and Safeway faced separate allegations involving discount prices and usual-and-customary reports. Their later Supreme Court ruling on June 1, 2023 held that what mattered was what the companies knew and believed when they submitted claims, rather than a justification developed afterward.

That parallel adds a question to the price comparison: what did the company understand when it chose the number? Kmart’s complaint alleged a knowing decision to report a higher price. The later cases show why the instructions and decisions behind a reported number matter alongside the cash receipts and claims.

What Evidence Is Needed to Prove Fraud?

In a pharmacy price-reporting case, the evidence connects the cash price, the reported usual-and-customary price, the reimbursement and what the company knew. Kmart’s complaint makes those connections specific enough for someone inside the business to recognize.

We work with you to connect the price files, cash-sale records and instructions behind the reported number.

The reimbursement claim shows what the pharmacy told the payer. The copay and plan payment show what it received. We examine those records together, with your account of how the price was selected and who understood the difference.

The complaint’s central allegation was a choice inside the pharmacy business: a price known at the counter failed to reach the claim. An employee who understands both systems can explain where that happened. That is the knowledge our whistleblower experts work with you to turn into a case.

How Much Money Do Pharmaceutical Whistleblowers Get for Exposing Fraud?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. In Kmart’s case, the Justice Department announced that the whistleblower would receive $9.3 million.

For pharmaceutical whistleblowers, the opportunity starts with the connection between what the business did and what the payment claim said. Here, the complaint made that connection through the pharmacy’s own prices and reimbursement transactions.

You Know the Cash Price and the Claim

If you know how a pharmacy kept its discount prices separate from its insurance claims, talk with our whistleblower experts about the pricing decisions you saw. We build the case with you and bring in pharmacy fraud whistleblower lawyers who understand Medicare and Medicaid reimbursement. We stay beside you as your knowledge of the counter, the pricing system and the payment records becomes your strongest pharmacy whistleblower case.