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Attorney General Jason R. Ravnsborg

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Attorney General Jackley Announces Final Settlement with K-Mart

FOR IMMEDIATE RELEASE:   Wednesday,  January  10, 2018

CONTACT:  Sara Rabern (605) 773-3215   

PIERRE, S.D. –  Attorney General Marty Jackley announced that South Dakota has joined with other states and the federal government to settle allegations that Kmart Corporation, owned by Sears Holdings Management Corporation (“Kmart”), charged the Medicaid program more than its usual and customary charge for certain drugs.

“This settlement will help ensure that low-income South Dakotans will receive the government funds needed to assist in paying for their medications,” said Jackley.  "We will continue to preserve the integrity of the Medicaid program."

The total portion of the settlement amount recovered by South Dakota is $136,748.41, of which $92,100.52 will be retained by the federal government as the federal Medicaid share. The remaining $44,647.89 will go to the state general fund to offset alleged Medicaid damages in this case. 

In the mid-2000s, Kmart, along with many other pharmacies, began offering discounted generic drugs to their cash paying customers (typically $4 for a thirty day supply).  Kmart began its Retail Maintenance Program (“RMP”) by charging $15 for a ninety day supply.  The program was later expanded to include thirty and sixty day supplies. Although some pharmacies with similar programs gave federal health care programs the benefits of these prices, it was alleged that Kmart did not. Rather, Kmart billed and received $5 from Medicaid for a prescription that cash paying customers could purchase for $4. As a result of Kmart’s actions, Kmart received reimbursement amounts from Medicare, Medicaid and other federal healthcare programs that were higher than it was entitled to receive in violation of federal and state false claims statutes. 

The lawsuit alleged that Kmart was submitting false claims when it charged federal health care programs higher prices than it was charging cash paying customers. The premise of the claim is that the federal government and virtually every state Medicaid program require that a provider charge no more than its “usual and customary” rate for a good or service.  Therefore, when Kmart billed and received $5 for a prescription that cash paying customer could purchase for $4, the lawsuit claimed that Kmart was falsely representing the usual and customary rate. The parties, working with several states Medicaid Fraud Control Units and the United States Department of Justice, entered into a settlement agreement that allowed the South Dakota to be a party to the settlement and resolve these allegations for the time period of September 1, 2004 through December 31, 2014.  

The South Dakota Medicaid Fraud Control Unit and the South Dakota Department of Social Services assisted in recovering the settlement money.