By: Kathleen “Kitty” Juniper, Esq.

On December 3, 2014, Rite Aid Corporation settled a qui tam action brought by a whistle blower in the Central District Court of California, for violations of the federal False Claims Act1. The whistle blower, Jack Chin, alleged that the drugstore chain improperly used gift cards and other promotions to persuade Medicare and Medicaid beneficiaries to transfer their prescriptions to Rite Aid pharmacies. Mr. Chin became aware of the gift card practices when beneficiaries redeemed the gift cards at a pharmacy where he was employed.

Rite Aid denied the allegations and paid the government $2.9 million (plus interest accrued from Oct. 1, 2014 and recoupment of any overpayments to be determined). Mr. Chin will receive 17% of the settlement amount and attorneys will receive $80,000 for their fees and costs. The settlement and the redacted complaint (partially sealed) can be accessed here: Complaint and Settlement Agreement

The settlement is similar to that made by Walgreens in 2012 for the same type of allegations made by Mr. Chin and another whistleblower. There, Walgreens paid the federal government $7.9 million to settle allegations that it offered government health beneficiaries (Medicare, Medicaid, TriCare, FEHBP) $25 gift cards when transferring prescriptions to their pharmacies. Walgreens had dutifully stated in its ads that the gift card offer was not valid with government health care programs. Nonetheless, the Justice Department alleged that Walgreen employees often ignored the exemptions and handed the gift cards to the beneficiaries regardless.

These settlements are particularly important as the delivery of health care becomes increasingly “retail” from a marketing aspect. Health care providers and suppliers need to be mindful that typical retail marketing programs do not fit neatly into the highly regulated health care space. Retail health care requires proper scrutiny of marketing and promotional materials and their processes for implementation, before distribution to the field. Compliance plans should ensure that marketing teams and field managers, who often undertake their own promotions at the store/office level, are educated on the nuances of health care marketing.

131 USC § 3729 et seq. The False Claims Act claims were based on alleged violations of the Federal Anti-Kickback Statute, 42 USC § 1320a-7b(b) and the Beneficiary Inducements Statute, 42 USC § 1320a-7(a)(5). The complaint also alleges violations of the fraud and abuse and whistleblower statutes of 19 states and the District of Columbia.