Kmart Corporation, a subsidiary of Sears Holdings Corporation, has agreed to pay $32.3 million to the United States government to settle allegations that in-store pharmacies in Kmart stores failed to report discounted prescription drug prices to Medicare Part D, Medicaid and TRICARE, a health program for uniformed service members and their families.

The agreement resolves allegations arising from a lawsuit brought under the whistleblower provisions of the False Claims Act, which permit private citizens with knowledge of fraud against the government to bring an action on behalf of the United States and to share in recovery. The 2008 lawsuit, which was filed by James Garbe in the federal district in Los Angeles and later transferred to the Southern District of Illinois, alleged that Kmart pharmacies offered discounted generic drug prices to cash-paying customers through club programs, but knowingly failed to disclose those prices when reporting to federal health programs for reimbursement.

“Pharmacies that are not fully transparent about drug pricing can cause federal health programs to overpay for prescription drugs.” said acting Assistant Attorney General Chad A. Readler. “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.”

The Kmart settlement agreement is part of a global $59 million settlement that includes a resolution of state Medicaid and insurance claims against the company. Garbe, who litigated the case after the government declined to intervene, will receive $9.3 million.

“Pharmacies and other providers who receive funds from taxpayers have a duty to follow the law,” said U.S. Attorney Donald S. Boyce. “If healthcare providers do not provide fair and transparent pricing as required under the law, the False Claims Act allows the government and whistleblowers to ensure that the Medicare, Medicaid and TRICARE programs are made whole.”

The claims were steeled without determination of liability. Tips and complaints about potential fraud, waste, abuse and mismanagement can be reported to the Department of Health and Human Services by calling (900)447-8477.