KMART pays $1.4M under False Claims Act

Giant U.S. discount department store KMART Corp. paid $1.4 million for violating the False Claims Act by illegally using promotional materials to convince Medicare beneficiaries to fill prescriptions at its pharmacies, said the U.S. Justice Department Tuesday.

The Sears Holdings Corp.-owned chain illegally used drug manufacturer coupons and gasoline discounts to invite elderly Medicare healthcare insurance beneficiaries to fill their pharmacies' prescriptions. The coupons are used to reduce or completely eliminate prescription co-payments.

This prompted people to look for brand-name drugs, instead of going for the cheaper generics. This eventually increased the government's costs. Besides drug manufacturer's coupons, Kmart allegedly offered gasoline purchase discounts at certain gas stations based on how many prescriptions were filled. Kmart has a total of 780 in-store pharmacies.

According to the government, Kmart's illegal activities went on from June 2011 to June 2014. The store's strategy violates the federal prohibition against giving benefits to Medicare beneficiaries to encourage them to buy certain brands.

This settlement was first brought in 2013, when former Kmart pharmacist Joshua Leighr went into a whistleblower lawsuit. According to the Justice Department, Leighr will get $248,500 from the payout.

Kmart said it accepted co-pays. Co-payments makes insurers, even the government, influence customers towards buying cheaper medications. A new, expensive drug can have higher co-pay so that patients will not buy it, which means they bear more of the cost if ever they do. Medicaid prohibits these coupons, as well as disallowing retailers from giving incentives for patients to choose certain pharmacies.

Kmart is accused of offering gas discounts and accepted copay coupons from drug brands. There are no decisions yet whether the store was liable or not, but it just went on to settle the allegations.

According to Reuters, Sears' spokesman Howard Riefs declined to comment on the issue.