United States Ex Rel. Garbe v. Kmart Corp.
2016 U.S. App. LEXIS 9743
7th Cir.2016Background
- James Garbe, a Kmart pharmacist, discovered Kmart charged Medicare Part D reimbursements based on higher “usual and customary” (U&C) prices while offering much lower cash prices through nominally separate discount programs.
- Garbe filed a qui tam False Claims Act (FCA) suit in July 2008 alleging Kmart submitted inflated reimbursement claims to Part D plan sponsors/PBM intermediaries by misstating its U&C cash prices.
- Kmart operated discount programs (KMP/RMP/Prescription Savings Club) that, according to Garbe’s evidence, were widely available and that most cash customers actually paid.
- After discovery, the district court granted partial summary judgment for Garbe on (inter alia) the meaning of “U&C” and the retroactivity of the FERA amendments; Kmart sought interlocutory appeal under 28 U.S.C. § 1292(b).
- The Seventh Circuit considered whether (1) FERA’s amendment to 31 U.S.C. § 3729(a) applies to cases pending on/after June 7, 2008, (2) PBMs/Plan Sponsors are officers/employees of the United States for pre‑FERA presentment purposes, (3) materiality/presentment requirements are met, and (4) Kmart’s discount customers qualify as the “general public” for U&C pricing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Retroactivity of FERA § 4(f) | FERA applies to FCA cases pending on or after June 7, 2008 (broad, case-based retroactivity). | FERA applies only to individual reimbursement "claims" pending on or after June 7, 2008 (narrow, payment-request based retroactivity). | Held: "claims" in §4(f) means FCA cases pending on or after June 7, 2008; FERA applies to Garbe’s case. |
| Are PBMs/Plan Sponsors "officers or employees of the United States" (pre‑FERA presentment)? | Intermediaries who implement Part D are effectively government actors and thus satisfy presentment requirement pre‑FERA. | PBMs/Plan Sponsors are private entities and not U.S. officers/employees; presentment to them does not satisfy pre‑FERA presentment rule. | Held: Rejection of Garbe’s argument—PBMs/Plan Sponsors are not officers or employees of the United States for pre‑FERA presentment. |
| Materiality / Presentment under FCA | Kmart’s inflated U&C submissions materially influenced payment to Kmart; presentment to intermediaries suffices under FERA. | Garbe failed to show the false statements could influence government payment decisions or that presentment to government occurred. | Held: Under FERA, no presentment required; materiality met because allegedly false U&C prices were capable of influencing Kmart’s receipt of federal funds. Pre‑FERA claims that require presentment fail. |
| Meaning of "general public" for "usual and customary" price | The low discount program prices were widely and consistently available and thus reflect Kmart’s U&C price to the general public. | Discount‑program participants are a "particular group" and not the general public, so those prices are not U&C. | Held: Participants in Kmart’s discount programs qualify as the general public; Kmart’s discount prices constituted its U&C prices. |
Key Cases Cited
- Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (Sup. Ct. 2008) (interpreting presentment and intent requirements under pre‑FERA FCA)
- Neder v. United States, 527 U.S. 1 (Sup. Ct. 1999) (materiality standard for false statement context)
- TRW Inc. v. Andrews, 534 U.S. 19 (Sup. Ct. 2001) (statutory construction principle against superfluity)
- Stone v. I.N.S., 514 U.S. 386 (Sup. Ct. 1995) (presumption against interpretations that render text meaningless)
- Republic of Austria v. Altmann, 541 U.S. 677 (Sup. Ct. 2004) (retroactivity standards)
- Cherokee Nation of Oklahoma v. Leavitt, 543 U.S. 631 (Sup. Ct. 2005) (clarifying vs. substantive amendment analysis)
- Rivers v. Roadway Express, Inc., 511 U.S. 298 (Sup. Ct. 1994) (clear expression required for retroactive statutes)
- Gen. Dynamics Land Sys., Inc. v. Cline, 540 U.S. 581 (Sup. Ct. 2004) (context can alter meaning of identical words in statute)
- Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (Sup. Ct. 1994) (deference to agency interpretation of its regulations)
- United States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818 (7th Cir. 2011) (FERA §4(f) interpreted to apply to cases pending on June 7, 2008)
- Thulin v. Shopko Stores Operating Co., 771 F.3d 994 (7th Cir. 2014) (same retroactivity interpretation)
- United States v. Sanford‑Brown, Ltd., 788 F.3d 696 (7th Cir. 2015) (same retroactivity interpretation)