Usual and Customary Pharmacy Prices: Cash Discounts and Government Claims

Usual customary pharmacy price fraud involves knowingly reporting an inflated public cash price on government-funded prescription claims. The pharmacy offers a lower price to cash customers while submitting a higher usual and customary price for reimbursement. If you work with discount programs, pharmacy claims or payer contracts, you may see both sides of that transaction. The important connection runs from who could get the discount to what the pharmacy reported, what it understood about the payer’s requirements and what the payer actually paid.

What Counts as the Public Cash Price?

The usual and customary price is what the pharmacy charges the public. The payer’s rules determine which cash customers and discounts count, and on what date. A public cash offer, the price entered in a pharmacy’s system and the amount allowed by a health plan each answer a different question.

New York’s September 2026 NYRx pharmacy manual provides a concrete example. It defines the usual and customary price by the lowest net cash charge to the public on the service date, including a lower sale price then in effect. It also treats that price as a limit on the total payment when that amount is below ingredient cost plus the professional dispensing fee.

For another payer, the relevant definition comes from its own rule or contract for the period of the claims. A pricing program’s eligibility terms matter alongside its advertised price: who could enroll, what enrollment cost and when the lower price was available.

Medicare Part D also uses a negotiated price. The Centers for Medicare and Medicaid Services rule applicable from January 2024 ties that price to the lowest possible reimbursement a network pharmacy will receive, including pharmacy price concessions.

In January 2019, Walgreens agreed to a $60 million settlement of the government’s cash-price reporting allegations.

The Cash Sale, the Claim and the Payment

A usual and customary pricing investigation connects the qualifying cash price to the submitted claim and the resulting payment. The reported U&C field is an input to reimbursement. The remittance shows what the pharmacy received.

The transaction moves through several businesses. The pharmacy sends its claim to a processor. A pharmacy benefit manager may administer the pharmacy network and reimbursement, while the plan sponsor funds benefits. The patient’s receipt captures the cash payment or covered cost sharing. The pharmacy’s network agreement and remittance capture another part of the same prescription’s financial history.

Those records can change after the first submission. New York’s electronic billing guide distinguishes billing, reversal and rebill transactions. The original request, payer response, rejection, override and final remittance let us follow which price reached the payer and which version remained paid. The prescription reference, drug, quantity, days’ supply and service date connect that history to the cash-price comparison.

Medicare Part D adds another layer. CMS describes prescription drug event data as a summary extract of claim information. The pharmacy transaction and the sponsor’s later extract occupy different points in the payment chain.

This is where experience with health care billing becomes valuable. A person who understands the discount table may know why a price was available. Someone working with claims or remittances may know how the system treated it. We connect those views to the payer’s terms and the money.

Kmart’s Discount Club and the Public Price

Kmart’s usual and customary case concerned discounted generic prices available to cash customers but allegedly omitted from government reimbursement claims. The Department of Justice alleged that the practice affected Medicare Part D, Medicaid and TRICARE.

The Seventh Circuit’s May 2016 opinion describes a pharmacist who noticed that a competing pharmacy charged his Medicare Part D insurer less for his prescription than Kmart ordinarily charged. He examined Kmart’s reimbursement claims and brought the whistleblower case. The comparison began with a receipt and knowledge of the pharmacy’s own pricing.

The court also described an economist’s analysis showing that nearly all Kmart cash customers received discount-program prices. An auditor examined the pharmacy’s contracts with Part D intermediaries. Actual sales showed how widely customers used the lower price. The contracts supplied the reimbursement terms against which that practice was examined.

The court recounted internal documents describing a policy of low discount-program prices alongside higher reported usual and customary prices. Kmart’s stated purpose was blunt:

Kmart argued that customers who joined its discount programs belonged to a separate group and therefore fell outside the general public. The court found almost no meaningful barrier to joining. The programs typically required assent, demographic information the pharmacy already needed and a nominal fee. The lower prices were continuously available across benefit years. The opinion also described pharmacists routinely overriding official program prices to match competitors.

The court held that the discounted prices at issue were Kmart’s usual and customary charges because the drugs were widely and consistently available at those prices. It also said the membership fee belonged in the cash-price calculation.

The same opinion recounted the whistleblower’s evidence that Kmart hired an outside processor to administer the discount program while retaining control over its drug list, prices and customer eligibility. For an insider working with a pricing vendor, that is a useful distinction. The administrator’s name identifies one participant. The decisions about price and eligibility identify who controlled the offer.

We find that absurd: ordinary customers supposedly stopped being the public when they accepted the pharmacy’s discount. The court looked at who could actually buy at that price. That makes eligibility, enrollment practices and the duration of the offer central to the comparison.

In December 2017, Kmart agreed to a $32.3 million federal settlement of the overbilling allegations, within a $59 million global resolution.

Does a Settlement Headline Determine a Reward?

No. A whistleblower’s reward is a share of the recovery, with its own announced amount. In the Kmart pricing case, the announced award was $9.3 million. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

SuperValu and Safeway Put the Prices Side by Side

The SuperValu and Safeway complaints illustrate the difference between a cash price, reported usual and customary price and payment. Each alleged a specific prescription-price mismatch.

In the SuperValu complaint’s lovastatin example, the whistleblowers compared a $10 cash transaction with an insured transaction several days earlier. The insured claim reported U&C of about $81, while the alleged payment was about $48. The cash sale, submitted price and payment were separate figures even within that single comparison.

The Safeway complaint’s lisinopril example alleged a $4 cash price, reported U&C of about $12 and payment of about $6. The alleged overpayment depended on how the qualifying cash price should have changed reimbursement. Both examples direct attention to the payer’s calculation after the pharmacy supplied its price.

Did the Supreme Court Award Damages Against SuperValu?

No. The Supreme Court’s June 2023 ruling addressed what the companies knew when they submitted claims.

The Supreme Court’s opinion rejected a defense based on a reasonable interpretation developed later that ignored what the company actually believed at the time. For a pharmacy insider, that puts contemporaneous pricing decisions and understanding of the payer’s requirements at the center of the knowledge question.

SuperValu later won a judgment after the jury rejected the link to the claimed loss, although the jury found for the whistleblowers on knowledge. We examine both the decision to submit the price and the reimbursement it produced.

When a Discount Produces a Second Claim

A manufacturer’s coupon can introduce another payment into a prescription transaction. In a separate Kmart complaint concerning coupons and gas rewards, the whistleblower alleged that the pharmacy billed a third party to reduce the customer’s copayment:

That allegation concerns a second claim and reduced copayment. The usual and customary pricing case concerns the public cash price reported on the government-funded claim. The distinction determines which payment trail we follow: eligibility and cash-price reporting in one, the coupon payment and copayment in the other.

What a Pharmacy Insider Can See

A pharmacy insider may know how a public discount became a different number on a government claim. Discount eligibility, actual cash sales, reported usual and customary prices, the payer’s rule and final remittance connect the offer at the counter to its payment effect.

The evidence can sit across departments. Pricing staff may understand the program’s terms, pharmacists may see how enrollment and overrides work, and billing staff may see the claim response or later correction. Internal pricing instructions can also show what the business understood about its reporting. We examine who knew what at submission alongside the actual transaction history.

In this kind of healthcare fraud, the price at the counter and the price sent to the payer tell the story together.

When You Know How the Price Was Chosen

If you know how your pharmacy’s cash discounts became higher prices on government claims, speak with our whistleblower experts about that pricing decision. We help build your case around the transactions and the people who chose what to report, and bring in pharmacy fraud whistleblower lawyers who understand reimbursement disputes. We stay beside you from that first conversation through the case.