In separate deals finalized this week, Penn Medicine acquired Princeton HealthCare, and Tenet Healthcare Corp. completed its sale of two hospitals to an affiliate of Paladin Healthcare.
Dallas-based Tenet Healthcare Corp. has completed the sale of two Philadelphia-area acute care hospitals and related operations to American Academic Health System, LLC, an affiliate of Paladin Healthcare.
Tenet and Paladin announced the deal in September, under which Tenet was paid $152.5 million in cash and a secured promissory note for $17.5 million. The deal was finalized this week, as Tenet announced plans to cut $250 million in costs and layoff as many as 2,000 employees.
Ownership and management of Hahnemann University Hospital and St. Christopher's Hospital for Children and their physician practices and affiliated operations transferred to AAHS on Thursday.
Also this week, Princeton HealthCare System became part of the University of Pennsylvania Health System, finalizing an acquisition process that began in 2015.
Financial terms were not disclosed.
The Plainsboro, NJ-based not-for-profit health system, located 40 miles north of Philadelphia, includes the flagship University Medical Center of Princeton, Princeton House Behavioral Health, Princeton HomeCare and the Princeton Medicine physician network.
As part of the transaction, PHCS and its affiliates are now Penn Medicine Princeton Health, and the medical center's new name is Penn Medicine Princeton Medical Center.
"PHCS has an impressive reputation for providing high-quality care to patients close to home, and innovating in many types of community-based health and wellness initiatives," Ralph W. Muller, CEO of the University of Pennsylvania Health System, said in a joint announcement.
"Now, we can offer a powerful partnership to patients throughout the region PHCS serves, continuing the services they already depend on, coupled with access to world-class care for complex conditions and innovative clinical trials available at Penn Medicine," Muller said.
The Philadelphia-based University of Pennsylvania Health System includes five hospitals, including the Hospital of the University of Pennsylvania and Penn Presbyterian Medical Center, as well as primary and specialty physician networks and outpatient facilities, and home and hospice services.
"This is a significant day in our history, and we look forward to being an even stronger organization, clinically and financially, as we continue to fulfill our almost century-old mission of serving this community," PHCS President and CEO Barry S. Rabner said.
"We could not ask for a better partner than Penn Medicine," he said. "Members of our community will continue to receive high-quality care right here, close to home. They also will benefit from easier access to the latest medical breakthroughs, clinical trials, cutting-edge technologies and specialized clinical expertise – both here and elsewhere in the Penn Medicine system."
Founded in 1919, PHCS serves more than 1.3 million people in central New Jersey. The health system employs 3,000 staff and more than 1,100 physicians.
PHCS announced in mid-2015 that it would begin evaluating partnerships. In July 2016 the health system signed a letter of intent with UPHS. The search process considered 17 potential partners, PHCS said.
Among patients who were transferred to other hospitals, the length-of-stay at the emergency room in the first hospital was shorter for patients who had telemedicine consults.
Emergency department patients at rural hospitals using telemedicine see a clinician six minutes sooner than patients in hospitals that have no such technology, a new study from University of Iowa shows.
And if that first clinician assessment is through a telemedicine encounter, as was the case 42% of the interactions examined in the study, the door-to-provider time is shortened by nearly 15 minutes, says study lead author Nicholas Mohr, MD, an emergency physician and associate professor at the Carver College of Medicine at the University of Iowa.
"If we are talking about 15 minutes for a patient in a rural hospital, that can be important for patients who have certain very serious diseases," says Mohr, who is also a researcher with the university’s Rural Telehealth Research Center.
"Especially in remote hospitals, that 15 minutes saved could change outcomes for patients with particular conditions that we would expect would be most sensitive to that, such as severe trauma, stroke, myocardial infarction," he says.
Mohr's study looked at data from 14 hospitals in Iowa, Kansas, Nebraska, North Dakota, and South Dakota that subscribe to telemedicine services from Avera eCARE Services, an emergency medicine telemedicine provider based in Sioux Falls, SD. The research matched 2,857 emergency department cases that used telemedicine services with non-telemedicine controls.
Among patients who were transferred to other hospitals, the length-of-stay at the emergency room in the first hospital was shorter for patients who had telemedicine consults.
"For patients who will need rapid transfer to a tertiary care facility, having a provider to start to effect that transfer probably makes as much difference as anything," Mohr says. "We’ve shown in earlier studies that among transferred patients when telemedicine is involved those patients who have major trauma, for instance, are transferred more quickly."
"That is probably a combination of being able to see patients more quickly and also because they can start the transfer. They can send a helicopter, for example, or they can get a receiving clinician to help with the transfer. All of those things to do that require someone seeing the patient can be started," he says.
Mohr says the link to subspecialist expert consultation provided through telemedicine comes as more rural hospitals staff their emergency departments with advanced practice providers, such as nurse practitioners and physician assistants.
"As we see that that is the case, one question that is raised is how do you provide supervision and backup to all of those providers?" Mohr says. "Telemedicine can be one really powerful way of providing that supervision."
The study showed that most patient encounters in the rural emergency department can be completed by local staff without an outside consultation, Mohr says.
"The consultation rate was about 3.5%, meaning that if 30 people walked into a rural emergency department, 29 were going to be treated without ever consulting the TM provider," Mohr says. "But, that 30th person is the one that the local clinician pushes the button and asks for help."
"Having that option available to them can be valuable," he says. "We've heard in some of our prior work that local clinicians value that, in terms of recruitment and retention. They appreciate having a telemedicine provider there, either to help with transfer or documentation, or to help with supervision of advanced practice providers."
Mohr says telemedicine finally appears to be catching on with rural providers. In North Dakota, for example, he says 80% of critical access hospitals use telemedicine services.
"In some regions where there are maybe extrinsic factors that make it challenging to staff emergency departments, there is a lot of value in having that tertiary care center expertise in those emergency departments," Mohr says. "It's becoming a minority of hospitals that don’t have telemedicine available."
"Barriers to telemedicine adoption for years were legislative and licensure barriers and broad band access, especially in rural areas," he says. "As broadband speeds are getting faster and rural communities are being connected to more broadband providers, that is making telemedicine available where previously it wasn’t, even when they wanted it."
Mohr says that telemedicine is not the silver bullet that will remove obstacles to healthcare access in rural America, but he sees it as part of the solution.
"And it will continue to be a bigger part of the solution as there are more telemedicine providers, and we figure out how telemedicine can best influence the care that patients receive, as broad band internet connectivity improves, and the quality of the connection at rural hospitals improves," he says. "All of those things will coalesce for telemedicine to continue to expand the scope of emergency care."
Meaningful use mandates for electronic health records under the HITECH Act have largely been met, or at least initiated, by most payers and providers, which means that software vendors will have a smaller customer base, and less room to grow.
The widespread adoption of electronic health records by payers and providers in recent years means fewer customers for software vendors, and that could lead to significant consolidation within the EHR sector, according to a report by Standard & Poor’s Global Ratings.
"The high degree of penetration, and the resultant decline in the new customer base, has spurred industry consolidation as leading participants seek new avenues for revenue growth, including enhanced features and capabilities to existing products," S&P analyst Sarah Kahn said.
Kahn cited a government report which showed that in 2015, 96% of hospitals (up from 72% in 2011) and 78% of physician offices (up from 34% in 2011) used certified EHRs, and that 82% of non-federal acute-care hospitals exchanged laboratory results, radiology reports, clinical summaries, or medication lists electronically.
With new customers in short supply, Kahn said she expects EHR vendors to "start feeling the pressure from more limited revenue opportunities and greater competition in the U.S. markets."
The report also predicts that:
Growth rates among the largest EHR providers (such as Epic Software Corp. and Cerner Corp.) will outpace industry growth rates, as healthcare providers continue to favor large EHR providers that can offer a broad range of services.
Consolidation in the healthcare IT industry will facilitate economies of scale and broaden capabilities, but that credit ratings will remain constrained by the niche nature of the industry as well as by low barriers to entry and high fragmentation.
Aggregation of information within a digital healthcare infrastructure will allow industry payers to compare outcomes of providers, products, and procedures, facilitating a greater focus on total cost and value.
With healthcare IT spending trending upward overseas, as countries with public payment systems focus on providing a base level of care and managing a growing population, some U.S. vendors will look abroad to expand their operations.
Hospitals and other providers are not immune to the sexual harassment complaints that have rattled the entertainment and political sectors. While strong sexual harassment policies are key, changing a culture has to start with top leadership.
Peggy Strange, a veteran employment litigator with Jackson Lewis, spends much of her time providing sexual harassment prevention and training to hospitals and other healthcare venues.
Strange spoke with HealthLeaders Media about the components within effective sexual harassment policy and the importance of the C-Suite leading by example.
The following is a lightly edited transcript.
HLM:What needs to be in an effective sexual harassment policy?
Strange: The bigger issue is the need to sit down with the C-Suite, the physician and administrative leadership and say 'Hey, let’s have an honest conversation about what is going on here and try to get tools for how to deal with it. What should we be doing as an organization to get ahead of this curve?'
The policies are a piece of that. Are they robust enough? Some clients have a two-minute video with the CEO saying: 'We don’t tolerate this. We want to know if you feel in any way that you have a problem.'
Before we do that, we have to talk to the leadership and ask if they are ready to handle it when people bring problems forward. There are some who may ask 'are we digging up problems where there aren’t any?' The answer is you probably want to know if there are issues in your organization.
Really, what you want is to have leadership model expected behavior.
HLM: Are you saying that changing the culture is the harder part?
Strange: I am not sure that policy is the easy part. It's a part of the puzzle, but it's got to be part of a larger undertaking by the hospital, the healthcare provider, to ask 'how are we as an organization going to respond to these developments?' Policy is one piece of it.
HLM: Does healthcare provide unique challenges for sexual harassment policy?
Strange: One piece of it is how are we going to manage physicians? There is always this struggle in the hospital setting between human resources and managing physicians. We have way more physicians as employees than we’ve ever had before. Is it the medical leadership that manages physicians? Because it needs to be a coming together of medical leadership and HR in a process for managing physicians that is more holistic rather than just focusing on peer review or medical leadership, particularly as more physicians become employees of hospitals.
HLM: How will the growing numbers of women physicians, nursing leaders and administrators affect the process of building effective sexual harassment policy?
Strange: It is a helpful development because anytime you have more and different voices at the table when you talk about solving the problem you are going to have different opinions about the best way to establish this environment; where we come together and model expected behavior in the work place so that everyone is working in the same direction.
HLM: Will we see more lawsuits?
Strange: I am not sure about the rise of litigation. Companies are getting out ahead of this, at least the ones that are doing the right thing in response and investing time and resources. With all of that organizations will be better equipped to handle complaints before they get to litigation.
HLM: What’s the best way to focus resources?
Strange: No. 1, training the C Suites and starting with that because we see a lot of organizations that may have the right policies in place but are your executives aware of how to manage these situations that sends the right message?
No. 2, training for managers, and also a lot of companies are looking at training for board members.
And you have to ask 'how are we getting these policies to our employees in a meaningful way? Can we do something on video, or provide something more meaningful to a generation that is much more computer savvy? Could we have a town hall meeting with employees?' Try to get the message out everywhere so folks know this organization is committed to a certain environment and you are free to come forward if that is not the environment you’re experiencing.
HLM: Who attends that first meeting with leadership to address cultural changes?
Strange: Start with the highest levels of management in a smaller setting and start planning for how we are going to address this issue throughout the organization. Bring in your highest levels of the organization; general counsel, chief medical officer, executive-level employees and discuss frankly what environment are we going to set, how are we going to set it, what are our concerns, and how are we going to address those, and are we going to be prepared if someone comes forward?
HLM: How do you ensure that your sexual harassment policy isn’t ignored?
Strange: Do you have people who are well-trained, well-equipped investigators; folks who can look into claims and help figure out what happened and what is the appropriate action and response to what happened?
We are working with clients on building investigative tool kits and how to conduct investigations. That is a whole other skill set that often doesn’t come naturally to people, which is understandable because it's not something we do every day. But, if you read anything about what is going on with the rise in claims, the investigation is the critical part. If you don't have good investigators and you've got folks who don’t feel like they’re being heard, that is how you get these 'me too' situations.
HLM: How do you know if your sexual harassment policy is working?
Strange: All of this is going to ultimately lead to a switch in culture where managers are going to be relied on to know their employees better so they have a finger on the pulse of what is going on in their organization and can identify if they see issues.
Are your managers trained to set the right culture, and are they aware enough that if they think something is going on they are going to track it down, rather than ignore it? Are they going to work close enough to the employees so that the employees trust them enough to bring issues to their attention?
On average, healthcare created 25,000 jobs each month in 2017. Even though that pace is off from 2016, the sector remains the most powerful job creator in the U.S. economy.
Healthcare job growth slowed in 2017, but it still accounted for 15% of the 2 million new jobs created in the U.S. economy last year, Bureau of Labor Statistics data show.
Preliminary figures from BLS show that the healthcare sector employed nearly 16 million people at the end of 2017, and created 300,000 new jobs over the past 12 months, including: 206,000 new jobs in ambulatory care: 76,000 jobs in hospitals; and 18,000 in nursing and residential care.
In 2016, healthcare created nearly 380,000 jobs, averaging more than 31,000 new jobs each month.
Susan Salka, president and CEO of San Diego-based AMN Healthcare, said the healthcare sector continued to see strong job growth in 2017 in the face of significant headwinds.
"Last year was rife with uncertainty about healthcare policy, but much greater pressures are driving demand forward," Salka says. "We are facing a future of significant healthcare workforce shortages, and the industry must face that challenge."
Salka says the continued robust job growth "shows that the most important workforce issues for our industry are the long-range drivers of healthcare demand, which include the aging of the U.S. population, the improving U.S. economy, and the shortages of almost all types of healthcare workers."
Healthcare job growth numbers may fluctuate in the months and years ahead, Salka says, but the overall trajectory is still going up.
"Our aging population, improving economy, increasing healthcare job openings, and the Baby-Boomer retirement tsunami hitting our industry will push up job growth in 2018 and beyond," she says. "So, whether or not there are slight fluctuations in growth, the future for healthcare jobs is very high demand and not enough supply to fill that demand."
Travis Singleton, a senior vice president at Dallas-based Merritt Hawkins & Associates, is not so sure that growth can continue at the current pace.
"It is unrealistic to think that healthcare job growth could continue on its impressive trajectory with the uncertainty created by the partial dismantling of the Affordable Care Act along with no detailed replacement," he said. "This puts healthcare dollars in question and that will blunt expansion."
Singleton says the uncertainty over the direction of healthcare has put many systems in a holding pattern. "Expansion in particular is a hostage to potential sources of reimbursement," he says. "The industry is waiting to see where the dollars are coming from particularly with Medicare/Medicaid and indigent care."
"The one exception tends to be the safer fee-for-service care that you would typically see in ambulatory settings," Singleton says. "You also see similar growth patterns in segments like retail and telehealth as they are less reliant on reimbursement."
Salka says she expects that the fastest area for job growth within healthcare will remain in ambulatory care, the ongoing trend for several decades. In 2017, ambulatory care averaged 17,000 new jobs each year, compared with 6,300 new jobs in the hospital sector.
"Healthcare is changing to value-based care to prevent people from being hospitalized, and you can see it throughout the industry," she says. "We will continue to see the greatest jobs growth in urgent care, clinics, home healthcare, diagnostic centers and similar providers. However, hospital employment grew every month last year and will continue to be a major employer."
Singleton says the continued hiring in the face of so much uncertainty shows that patient demand trumps other concerns.
"If most hospitals and health systems could just tap the breaks all together and wait for a certain direction they would, but the shear patient demand dictates that they still add personnel," he says.
"The economy, aging demographics, the push to meet patients where they live (convenient care), and the expansion of healthcare coverage mean a fairly healthy industry overall."
Federal regulators say a bill in the Pennsylvania House of Representatives that would allow nurse practitioners to practice independently and write prescriptions would spur competition, improve access to healthcare and benefit consumers.
The Federal Trade Commission has once again sided with nurse practitioners in their long-simmering feud with physicians on scope-of-practice.
At the request of Pennsylvania State Rep. Jesse Topper (R-Bedford), FTC staff this week submitted comments on the competitive impact of a legislative proposal(HB100) that would eliminate a state requirement that APRNs enter collaborative agreements with physicians after they've completed three years of practice, and 3,600 hours of training, under a physician.
The bill also allows APRNs to write prescriptions independently, and eases practice restrictions on APRNs moving into the state.
"Undue regulatory restrictions on APRN practice can impose significant costs on healthcare consumers – patients – as well as both public and private third-party payors," the letter said.
"Removing existing supervision requirements to permit independent APRN-CNP prescribing and practice has the potential to benefit Pennsylvania consumers by increasing competition among health care providers, which likely would improve access to care, contain costs, and expand innovation in health care delivery," the letter said.
The bill is opposed by the Pennsylvania Medical Society. In a strongly worded rebuttal to a recent editorial written by the PennLive Editorial Board, Society President Theodore Christopher, MD, blasted suggestions that nurse practitioners should be given more autonomy.
“Physicians and nurse practitioners (NPs) are neither professionally equivalent nor interchangeable. And, it is careless to suggest that maintaining the current collaborative relationship between physicians and NPs somehow involves an issue of "freedom," Christopher wrote. "Rather, the current relationship between these two professionals serves to ensure that patients receive the best possible care."
FTC has analyzed APRN regulations in several states. While deferring to the will of state legislatures, FTC staff has been consistently supportive of states' efforts to reduce regulations that restrict scope of practice in healthcare and other professions.
In 2017, the FTC created the Economic Liberty Task Force which the commission said is "examining professional licensing issues and ways to promote entrepreneurship by avoiding costly and burdensome regulations that harm competition without offering countervailing benefits to consumers."
The Department of Health and Human Services’ Office of the Inspector General serves up a year-end review of its greatest hits for 2017.
Federal auditors identified an estimated $4.4 billion in misspent Medicare, Medicaid and human services program dollars in fiscal 2017, the Department of Health and Human Services Office of Inspector General said in a semiannual report to Congress.
"We continue to cultivate a workforce with the skills and talents to excel in data-driven oversight," HHS Inspector General Daniel R. Levinson said in remarks accompanying the report.
"By leveraging advanced analytic techniques to detect potential vulnerabilities and fraud trends, we are better able to target our resources at those areas and individuals most in need of oversight, leaving others free to provide care and services without unnecessary disruption," Levinson said.
The OIG report shows that for FY 2017, $296 million was returned based on program audit findings over six months, and about $4.1 billion in "investigative" receivables for the full fiscal year. Investigative receivables include recoveries from criminal actions, civil and administrative settlements, civil judgments, and administrative actions by OIG.
OIG brought criminal actions against 881 people in 2017, and an additional 826 civil actions, including false claims and unjust-enrichment lawsuits, civil monetary penalty settlements, and administrative recoveries related to self-disclosures.
The agency booted 3,244 people and entities from participating in federal healthcare programs.
Some highlights from 2017:
OIG was involved in the largest national healthcare fraud takedown in history. More than 400 defendants across the nation were charged with participating in fraud schemes involving about $1.3 billion in false billings to Medicare and Medicaid. Opioid-related charges were brought against 120 people, including 27 doctors.
OIG identified concerns about extreme use and questionableprescribing of opioidsin Medicare Part D. In 2016, half a million beneficiaries received high amounts of opioids through Medicare Part D, and almost 90,000 of them were at serious risk of opioid misuse or overdose. Moreover, 401 prescribers had questionable prescribing patterns.
Mylan Inc. agreed to pay $465 million toresolve False Claims Act liabilityfor allegedly improperly classifying EpiPen as a generic drug with the Medicaid drug rebate program, resulting in underpaid rebates to Medicaid and overcharges to entities participating in the 340B Drug Discount Program.
eClinicalWorks, LLC, and three of its senior executives agreed to pay $155 million for allegedly causing healthcare providers to submit false claims in connection with the Medicare and Medicaid Electronic Health Record Incentive Programs by concealing from ECW's customers that ECW's software did not comply with the requirements for "meaningful use" certification.
OIG's review of emergency room visits foundthat the injuries of 134 Medicare beneficiaries residing in skilled nursing facilities may have resulted from potential abuse or neglect. More than a quarter of these incidents may not have been reported to law enforcement at the time. OIG referred all 134 incidents to law enforcement.
OIG estimated that CMS paid $730 million to providers who did not meet federal requirements formeaningful use. CMS also made $2.3 million in incentive payments for the wrong payment year when providers switched between incentive programs.
Limitations in claims data impede CMS's ability to identify Medicare's costs for replacement of devices that were recalled or that failed. OIGestimated costs totaled $1.5 billion for Medicare and $140 million for beneficiaries over the 10-year period ending on Dec. 31, 2014, for seven recalled and failed cardiac devices.
OIG found that the Medicare Shared Savings Programshows potential to reduce spending and improve quality. Most Accountable Care Organizations in the MSSP reduced spending and improved quality of care during the first three years of the program. A small subset of ACOs showed substantial reductions in Medicare spending for key services.
The nation's Baby Boomer physician workforce is aging along with the larger population. Forty-three percent of all physicians are age 55 or older. Specialists are on average older than are primary care doctors.
It's not just primary care physicians who are in short supply.
A white paper from physician recruiters Merritt Hawkins says it’s time to acknowledge the growing shortage of medical specialists, too.
"The notion that we should be training more primary care physicians while maintaining or reducing the supply of specialists is a grave miscalculation," said Mark Smith, president of Merritt Hawkins. "We should be training more of both types of physicians."
Since 2011, about 10,000 Baby Boomers each day turn 65 in the United States. Seniors 65 or older comprise 14% of the population but account for 34% of inpatient procedures and 37.4% of diagnostic treatments and tests.
"It is primarily specialists such as cardiologists, orthopedic surgeons, neurologists, rheumatologists, pulmonologists, vascular surgeons and many others who care for the declining health and organ systems of elderly patients," Smith said. "A growing number will be needed as the population ages."
The nation's Baby Boomer physician workforce is aging along with the larger population. Forty-three percent of all physicians are age 55 or older. Specialists are on average older than are primary care doctors. For example, 73% of pulmonologists and 60% of psychiatrists are age 65 or older, compared with 40% of internists and 38% of family practitioners, the white paper said.
The study relies on data from Merritt Hawkins' physician search assignments conducted for hospitals and other healthcare providers that demonstrate the growing demand for medical specialists. It also cites Merritt Hawkins' physician surveys which show that 80% of specialists are overextended or are at capacity, while only 20% have time to see more patients or take on new duties.
Citing a 2017 Merritt Hawkins' survey, the white paper notes that the time it takes to schedule appointments with medical specialists such as cardiologists, dermatologists, orthopedic surgeons and obstetricians/gynecologists has increased significantly since 2014.
"In certain medical specialties, vascular surgery being just one, there are only a few thousand physicians, while patients with the conditions they treat number in the tens of millions," Smith said. "The data indicate that medical specialists will be in increasingly short supply, and this should be a serious concern for healthcare policy makers and the public."
One of the last independent hospitals on Long Island will become Northwell's 23rd hospital, and its fifth in Suffolk County.
Norwell Health has acquired Mather Hospital, a 248-bed community teaching hospital in Port Jefferson, NY. The acquisition is expected to take effect in January, the two hospitals said in a joint statement.
"This month Mather Hospital celebrates 88 years of service to our community. So it is auspicious that at this time Mather officially becomes a member hospital of Northwell Health. This is a once-in-a-century event that fortifies us for future growth," Mather President Kenneth Roberts said.
"While we are now a member of one of the country's premier health systems, our mission remains the same – to provide our community care to the best of our ability, showing compassion and respect and treating each patient in the manner we would wish for our loved ones," he said.
Mather Hospital began merger discussions with several health systems in early 2016. Mather had been one of only two hospitals on Long Island that had not joined or announced plans to join a larger system.
The merger is the end result of a due-diligence process that began in July. Representatives from both hospitals met over the past five months to iron out the details of the acquisition.
Mather’s service lines include bariatrics, neurosurgery, orthopedics, pulmonology, robotic surgery, breast health, mental health and emergency services. It also operates the advanced radiosurgery program Precision CyberKnife of New York.
Mather’s Graduate Medical Education program offers residencies in internal medicine, psychiatry, radiology and transitional year. The hospital has more than 2,600 employees and more than 600 staff and affiliated physicians. The hospital cared for more than 12,500 inpatients and over 40,000 emergency patients last year. Mather physicians performed more than 3,800 inpatient surgeries and 10,500 outpatient surgeries.
Northwell Health is New York State's largest health system and private employer, with 23 hospitals, more than 600 outpatient facilities, 63,500 employees, and nearly 15,000 affiliated physicians.
Federal prosecutors say the retailer offered discounted generic drug prices to cash-paying customers but knowingly failed to disclose those prices when reporting to federal health programs.
Kmart Corp. will pay the federal government $32.3 million to settle allegations that its pharmacies failed to report discounted prescription drug prices to Medicare Part D, Medicaid, and TRICARE, the Justice Department announced.
The settlement ends a nearly 10-year legal battle and stems from a 2008 lawsuit, filed by whistleblower James Garbe, which alleged that Kmart pharmacies offered discounted generic drug prices to cash-paying customers but knowingly failed to disclose those prices when reporting to federal health programs its usual prices, which are used to establish reimbursement rates.
"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 for the Department’s Civil Division.
"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," Readler said.
The settlement is a part of a $59 million settlement that includes a resolution of state Medicaid and insurance claims against Kmart. Garbe, who litigated the case after the government declined to intervene in the action, will receive $9.3 million.
“The settlement shows we were right to continue to pursue the case on behalf of taxpayers, despite the government’s decision not to join the qui tam lawsuit,” said Erika A. Kelton, a whistleblower attorney and partner at Phillips & Cohen. “Not only did we recover funds for taxpayers, we also stopped a practice that would have been an improper drain on government healthcare funds.”
Kmart tried to get the case dismissed after it was unsealed seven years ago, taking it all the way to the US Supreme Court. However, the US Supreme Court declined in January to hear Kmart’s appeal of a lower court decision in 2015 that ruled against Kmart and denied the company’s request to dismiss the case.
According to the whistleblower’s complaint, Kmart sold a 30-day supply of a generic version of a popular prescription drug for $5 to customers who registered for a discount program but Kmart sought reimbursement from the government for $152 for the same drug for Medicare customers, which Kmart claimed was the “usual and customary” price.
Garbe worked for a Kmart pharmacy in Ohio when he discovered that Kmart was charging Medicare customers significantly more for generics than it was charging customers enrolled in its cash discount program. He had filled a personal prescription at the pharmacy and saw that Kmart claimed to his Medicare Part D insurer that the prescription cost $60 rather than the much lower price of $15 that it charged cash-paying customers in its discount program, the complaint alleged.
Kmart argued in court that it could exclude the lower prices that it charged members of its discount program when determining the proper price – known as the “usual and customary price” – to charge government healthcare programs. But the 7th US Circuit Court of Appeals disagreed.
“The 'usual and customary' price requirement should not be frustrated by so flimsy a device as Kmart's 'discount programs,'" the court wrote in its opinion.
In a statement emailed to HealthLeaders Media, Kmart said: "We're pleased to put this case behind us so that we can focus on the needs of our members and customers, and our company's transformation."
