By George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law
On May 27, 2016, the U.S. Seventh Circuit Court of Appeals rejected Kmart Corporation’s arguments in a False Claims Act (FCA) suit in Illinois. The court ruled against Kmart in the whistleblower action. Kmart was arguing that the prices it charged through its generic drug discount programs should not be counted in determining what its “usual and customary” prices were for purposes of Medicare Part D reimbursement.
What is the “General Public?”
The appeals court in this case held that the “general public” included customers in its discount programs, which were not selective and had “almost nonexistent” barriers to join.
“Regulations related to ‘usual and customary’ price should be read to ensure that where the pharmacy regularly offers a price to its cash purchasers of a particular drug, Medicare Part D receives the benefit of that deal,” the appeals court said.
The decision affirmed the U.S. District Court’s denial of Kmart’s bid for summary judgment in a July 2008 qui tam suit. The relator, James Garbe, a pharmacist previously working for Kmart, alleged that Kmart submitted inflated bills to federal and state programs participating in Medicare Part D. He alleged it did this while charging cash-paying customers far less for prescription drugs through its so-called retail maintenance program. Medicare has a “most favored nations” requirement for its drug suppliers. Under Medicare regulations Kmart is supposed to give the Medicare Program the lowest prices. If it actually gives cash paying customers a lower price, then, DUH! it violates those regulations. To read more on this, click here.
Fraud Enforcement and Recovery Act.
Much of the panel’s ruling hinged on the application of the Fraud Enforcement and Recovery Act (FERA), a 2009 amendment to the FCA that relaxed the requirement that a false claim be presented to “an officer or employee of the United States government or a member of the Armed Forces of the United States” in favor of the requirement a “false record or statement” be “material to a false or fraudulent claim.”
The Seventh Circuit said the whistleblower had sufficiently alleged that for any FCA claims pending on or after June 7, 2008 — FERA’s effective date of retroactivity — he could rely on the amendment to carry his FCA suit safely past the summary judgment stage.
“FERA had the effect of bringing within the FCA’s ambit false claims to intermediaries or other private entities that either implement government programs or use government funds,” wrote Circuit Judge Diane P. Wood for the panel. “There is little doubt that much of the money paid to Kmart under Medicare Part D came from government coffers.”
According to the appeals court, the relator successfully alleged that to the extent Kmart made false claims, they were material because those claims were the basis of the federal monies it received.
Lastly, the appeals court held Kmart’s lowest prices for which its drugs were widely and consistently available to the general public through its discount programs should have been counted in its calculation of usual and customary prices for the drugs. To read the court’s appeal in its entirety, click here.
Contact Health Law Attorneys Experienced with Health Care Fraud and Qui Tam or Whistleblower Cases.
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“Seventh Circuit Rules Against Kmart in Whistleblower Action.” AHLA. (May 27, 2016). Web.
Suevon, Lee. “7th Circ. Allows Kmart FCA Suit Over Medicare Payments.” Law360. (June 2, 2016). Web.
About the Author: George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law. He is the President and Managing Partner of The Health Law Firm, which has a national practice. Its main office is in the Orlando, Florida, area. www.TheHealthLawFirm.com The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone: (407) 331-6620.
KeyWords: False Claims Act (FCA), Whistleblower suit, Seventh Circuit Court, Kmart FCA suit, Medicare Part D reimbursements, Fraud Enforcement and Recovery Act (FERA), fraudulent billing, overbilling, submitting false claims, health law defense attorney, fraud defense lawyer, legal representation for False Claims, health law, The Health Law Firm
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