In most of the country, pharmacies can offer rewards points, coupons, or other inducements to get you to switch prescriptions to them. Not only is this illegal in certain states, it’s also illegal to offer these incentives to customers with health insurance through Medicaid. Kmart has settled allegations from a whistleblower that it did exactly that for customers with Medicaid, and accepted co-pay coupons for brand-name drugs for them.

Co-payments for drugs exist because insurers, including the government, want to steer customers toward cheaper medications. A new and pricey drug might have a high copay to discourage patients from using it, and so they bear more of the cost if they do. Promotional coupons, which come from drug companies, lower the customer’s copay to decrease their out-of-pocket cost, but the insurer is still stuck paying for a more expensive drug.

Medicaid doesn’t allow these coupons, and they also don’t allow retailers to offer incentives for patients to switch pharmacies. Kmart is accused of doing both of these things: offering gas discounts to customers who transferred or filled prescriptions at Kmart, and accepting copay coupons from drug manufacturers.

A report from a Kmart pharmacist who was the whistleblower in this case led to a 2013 lawsuit. Kmart paid $1.4 million to settle the suit, and the whistleblower will receive $248,500 of the total. He no longer works for Kmart.

The settlement didn’t decide whether Kmart was liable or not, but simply settled the allegations.

Kmart pays $1.4 million to settle U.S. charges over Medicare inducements [Reuters]

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