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Kmart Settles for Over $638K Over Medicaid Overbilling Accusations in the U.S. Virgin Islands

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The Virgin Islands Department of Justice recently completed the distribution of a substantial $638,553.16 settlement with Kmart Corporation, concluding a legal battle that began in 2017 over accusations of Medicaid overbilling by the retailer’s pharmacies. Acting Attorney General Ian S.A. Clement confirmed the resolution, which dates back to practices starting in the mid-2000s where Kmart allegedly failed to extend discounted drug prices to federal health care programs, in contrast to the lower rates offered to cash-paying customers.

This disparity emerged notably when Kmart charged Medicaid above their “usual and customary charge” for cash customers—for instance, billing Medicaid $5 for a prescription that cost cash customers just $4. Such discrepancies led to charges of submitting false claims to the government.

The origins of this legal action trace back to 2008 when James Garbe, a whistleblower and former Kmart pharmacist, initiated a lawsuit in the United States District Court for the Central District of California, which was later moved to the Southern District of Illinois. Garbe’s suit argued that Kmart’s failure to provide the lowest possible prices to federal healthcare programs breached the contractual requirements mandating pharmacies to charge no more than their most customary and minimal rates for medications.

This settlement is a part of a broader agreement that includes a total of $59 million to settle various federal and state healthcare claims against Kmart, covering wrongful billing practices from September 1, 2004, to December 31, 2014. The Virgin Islands Medicaid Fraud Control Unit, entirely supported by a grant from the United States Department of Health and Human Services – Office of the Inspector General, played a pivotal role in identifying the discrepancies and ensuring adherence to Medicaid billing protocols.

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