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Press Release

Kmart Corporation Pays $525,000 to Settle False Claims Act Allegations of Improper Medi-Cal Billings

For Immediate Release
U.S. Attorney's Office, Eastern District of California

SACRAMENTO, Calif. — Kmart Corporation has paid $525,000 to resolve allegations that it violated the federal False Claims Act when it knowingly submitted claims for reimbursement to California’s Medi‑Cal program that were not supported by applicable diagnosis and documentation requirements, U.S. Attorney McGregor W. Scott announced today.

Kmart is an Illinois corporation that provides pharmacy services in several states with approximately a half dozen locations in California over the relevant time period. The Medi-Cal program is administered by the California Department of Health Care Services (DHCS) and relies on both federal and state funding to provide health care to millions of Californians, including those with low incomes and disabilities.

Medi-Cal utilizes a formulary list, commonly known as “Code 1” drugs, which designates certain restrictions for each listed drug, including restrictions pertaining to diagnoses. Medi-Cal will reimburse certain Code 1 drugs only for approved diagnoses, taking into account criteria such as the drug’s safety, efficacy, misuse potential, and cost. Pharmacies serve the critical gatekeeping function of confirming and certifying that these Code 1 drugs are dispensed for the approved diagnoses. Kmart may bill for drugs prescribed outside of the approved diagnoses only if it submits a request to DHCS that includes a justification for the non‑approved use. Today’s settlement resolves allegations that Kmart failed to confirm and document the requisite diagnoses, and in some instances dispensed drugs for non-approved diagnoses, then knowingly billed Medi-Cal for these prescriptions.

The allegations resolved by this settlement were first raised in a lawsuit filed against Kmart under the qui tam, or whistleblower, provisions of the False Claims Act by a pharmacist who worked as Pharmacist in Charge at a California Kmart location. The False Claims Act allows private citizens with knowledge of fraud to bring civil actions on behalf of the government and to share in any recovery. The whistleblower in this matter will receive approximately $96,500 of the recovery proceeds.

This settlement is the result of a joint effort by the United States Attorney’s Office for the Eastern District of California and California’s Bureau of Medicaid Fraud and Elder Abuse. Assistant U.S. Attorney Catherine J. Swann handled the matter for the United States, with assistance from the Department of Health and Human Services, Office of Inspector General, and the Federal Bureau of Investigation. The claims settled by this agreement are allegations only, and there has been no determination of liability.

Updated March 8, 2018

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