Kmart settles 2008 lawsuit for $32.3 million payment

Kmart agreed to settle for $32 million allegations about pharmaceutical prices.


Kmart Corp. agreed to pay $32.3 million to settle allegations that it overbilled federal health programs for generic prescription drugs.

The amount will be paid to the United States government, according to the settlement Dec. 22 by the Department of Justice.

Kmart has North Bay stores on North McDowell Boulevard in Petaluma and on South Main Street in Lakeport. The company had a store on Cleveland Avenue in Santa Rosa, but the store was completely destroyed in the Tubbs fire that hit on Oct. 9.

There are 57 Kmart stores located in California, according to the company’s website.

Kmart Corp. is a wholly owned subsidiary of Sears Holdings Corp. Sears has stores in Santa Rosa, San Rafael and Fairfield.

“Pharmacies in Kmart stores failed to report discounted prescription prices to Medicare Part D, Medicaid and TRICARE, the health program for uniformed service members and their families,” according to the justice department.

The allegations of overbilling were made in a whistleblower lawsuit under the False Claims Act filed by James Garbe in 2008. The lawsuit was filed in Los Angeles then transferred to a federal court in Illinois. Garbe will share in the recovery.

In the allegations, “Kmart pharmacies offered discounted generic drug prices to cash-paying customers through various club programs but knowingly failed to disclose those prices when reporting to federal health programs its usual and customary prices,” the DOJ said. Those prices are used by federal programs to set reimbursement rates.

Under the settlement, Kmart Corp. did not admit liability. Claims in the lawsuit remain allegations.

“This settlement should put pharmacies on notice that there will be consequences if they attempt to improperly increase payments from taxpayer-funded health programs by masking the true prices that they charge the general public for the same drugs,” said Chad Readler, acting assistant attorney general for the department’s civil division.

“The government’s resolution of this matter illustrates the government’s emphasis on combating health care fraud,” the DOJ said.

Under the False Claims Act, tips and complaints about potential fraud, waste, abuse and mismanagement can be reported to the Dept. of Health and Human Services at 900-HHS-TIPS (800-447-8477).

James Dunn covers technology, biotech, law, the food industry, and banking and finance. Reach him at: or 707-521-4257