As described in an April 17, 2018 article originally posted on the Sheppard Mullin Richter and Hampton, LLP False Claims Act Defense Blog, Kmart Corporation and the U.S. Department of Justice entered into a False Claims Act settlement agreement dated March 8, 2018, to end an investigation that was conducted jointly by the United States Attorney’s Office for the Eastern District of California and California’s Bureau of Medicaid Fraud and Elder Abuse.

In a March 8, 2018 Press Release issued by the Department of Justice, the Department reported that the settlement was the result of a whistleblower lawsuit against Kmart in which the whistleblower, a Pharmacist-in-Charge at a California Kmart location in Lakeport, California, alleged that Kmart violated the federal False Claims Act by knowingly submitting claims for reimbursement to California’s Medi‑Cal program that were not supported by applicable diagnosis and documentation requirements. As described in the March 8, 2018 Press Release, Kmart paid $525,000, as required by the Settlement Agreement; of this amount, $96,500 went to the whistleblower.

The following is an excerpt from the original April 17, 2018 False Claims Act Defense Blog:The following is an excerpt from the original April 17, 2018 False Claims Act Defense Blog:

In Case Alleging Nationwide Pharmacy Fraud, Kmart Scores Narrow Settlement

Brought by a pharmacist formerly employed at a Kmart in Lakeport, California, the original complaint alleged among other things that, instead of using a state-made drug utilization review alert system, Kmart relied on its own electronic systems that were not sufficiently sophisticated to provide detailed alerts such that pharmacy personnel would understand the need for physician or pharmacist input on certain drug fills.[1] The whistleblower alleged that, due in part to these configuration deficiencies and in part to understaffing, pharmacy personnel made a practice of pushing prescriptions through rather than completing consultations and other procedures required by Medi-Cal, California’s Medicaid system.[2]

Rather than cabining the complaint to the state and pharmacy site with which the relator was personally familiar, the relator further pleaded that twenty-six other states’ pharmacy regulations and false claims acts were probably violated by Kmart’s pharmacy practices, including that each state named as a plaintiff suffered damages “in an amount far in excess of millions of dollars exclusive of interest” according to the relator’s “direct and independent knowledge.” In other words, the complaint alleged aggregate damages alone “far in excess” of 50 million dollars, prior to trebling and exclusive of, interest, penalties or costs.

Two and a half years later, Kmart has settled the case for $525,000. The DOJ Press Release references only resolution of allegations related to claims paid by Medi-Cal. It makes no mention of other states as initially alleged in the complaint. The disparity between the potential damages attributable to the conduct alleged in the complaint and the amount Kmart ultimately played is noteworthy. The settlement of litigation alleging that each state-victim suffered millions of dollars in damages for a mere $525,000 combined with the omission of any reference to these claims, raises questions about the merits of the initial allegations. While the settlement amount may seem like a lot, given the cost and disruption inflicted on a company forced to defend allegations as broad as those made by relator, Kmart may understandably view this resolution as vindication.

Of course, the relator’s share of the recovery is $96,500. Additionally, relator’s counsel undoubtedly received an amount from Kmart for attorney’s fees, due to the statutory fee-shifting provisions. No doubt these amounts will be a balm to soothe any disappointment relator or his counsel may experience from the case’s failure to live up to its promise.