The Rule That Only Works If Someone Sues

Introduction

There's a line in the federal code that's supposed to protect you at the pharmacy counter. If a drugstore offers cash customers a lower price through a savings program, 42 C.F.R. § 423.100 says that lower price becomes the ceiling for what Medicare will pay too. The pharmacies that run Giant, Hannaford, Stop & Shop, and Food Lion offered those cash discounts for nearly nine years and billed the government the higher price anyway. The only reason anyone found out is that a pharmacist who worked there filed a lawsuit.

The Rule, and the Nine Years It Was Ignored

On June 10, 2026, the Justice Department announced that Ahold Delhaize USA (the parent company behind those four supermarket pharmacy banners) agreed to pay $40 million to settle allegations it overcharged Medicare Part D, Medicaid, and TRICARE. The mechanism is a piece of fine print most people never encounter: the "usual and customary" price.

Here's how it's supposed to work. When you fill a prescription without insurance, the pharmacy charges you its standard cash price. That cash price is the "usual and customary" rate, and federal rules treat it as the ceiling on what taxpayers can be billed for the same drug, so the government never pays more for a pill than the guy paying cash at the next register.

The catch is what counts as the cash price. Pharmacies figured out that if they wrapped their discounts inside a "savings program" instead of cutting the sticker price directly, they could argue the discount didn't count, so members got the low price while the government got billed the high one. Court documents reported by The Morning Call put Ahold Delhaize's window at January 2009 through September 2017, roughly eight years and eight months of two-tier pricing on the same shelf. The company admitted no wrongdoing and says the programs were "discontinued nearly a decade ago." Hold onto the timing on that discontinuation, because we'll come back to it.

This rule was designed to catch overbilling, but it has no way to catch it on its own. It only works when someone on the inside decides to spend years in federal court, which is what one pharmacist eventually did.

The Pharmacist Who Got $6 Million

The case is captioned U.S. ex rel. LaBenne v. Koninklijke Ahold Delhaize N.V., Civil Action No. 18-CV-925 in the Western District of Pennsylvania. Lawrence LaBenne is a pharmacist who worked at one of the company's Pennsylvania supermarket pharmacies. He filed his complaint in 2018 under the False Claims Act, the statute that lets private citizens sue on the government's behalf when they spot fraud against federal programs. If the case succeeds, the whistleblower takes a cut.

LaBenne's cut is $6,083,587. That's his share of the $40 million, paid out of the $32.9 million federal portion of the settlement (the remaining $7.1 million goes to participating states whose Medicaid programs were also billed). Eight years of litigation for one pharmacist, and six million dollars at the end of it.

That number answers the question that actually matters: who caught this? Not an auditor, not a CMS algorithm flagging price anomalies across millions of claims, not a Medicare integrity review. A guy who worked at the pharmacy, saw the gap between what members paid and what the government got charged, and was willing to sue. The federal government's detection system for this entire category of fraud is one employee deciding it's worth the fight.

Three Chains, One Playbook

A one-off would be a compliance failure. This is the same scheme, built on the same regulation, that has now produced settlements from three major chains.

Start with Kmart. A pharmacist named James Garbe noticed his store charged savings-program members $5 for a 30-day supply of a popular generic and billed Medicare $152 for the same drug, according to the whistleblower firm Phillips & Cohen. Medicare paid more than 30 times the cash price for the same pill. Garbe's case went up to the Seventh Circuit, which ruled in 2016 (Garbe v. Kmart, 824 F.3d 632) that publicly available discount prices are the usual and customary price and must be reported as such. The Supreme Court declined to take it up. Kmart settled for $42 million in late 2017, and Garbe walked away with $9.3 million.

Then Walgreens. Its Prescription Savings Club ran the same arbitrage, and Walgreens settled a federal case with the DOJ in January 2019 for $60 million on the discount-pricing piece alone. A separate $100 million class action over the same conduct got preliminary approval in November 2024, covering customers who used insurance at Walgreens going back to 2007.

Now Ahold Delhaize. The Seventh Circuit settled the legal question in 2016, Walgreens paid up in 2019, and Ahold Delhaize's conduct ran through September 2017. The company kept the programs going right up to the point the law was no longer ambiguous, then shut them down. Remember that "discontinued nearly a decade ago" line. The programs stopped in 2017 — the same year Kmart settled and the Seventh Circuit closed the legal door on the argument.

Who Benefits

Follow the money and it's not complicated. For nearly nine years, Ahold Delhaize's pharmacies served two customer pools out of the same inventory. Cash shoppers got the low savings-program price, which built loyalty and foot traffic in stores where the pharmacy is a few aisles from the groceries. Government programs got billed the higher list price. The chain kept both: the marketing benefit of the discount and the inflated reimbursement from taxpayers.

The Kmart numbers show how wide that gap can run: $5 versus $152 on a single generic. No equivalent drug-level figure for Ahold Delhaize's pharmacies is in the public record, so I won't pretend the multiple was identical here. But the structure is the same, and the math compounds. Spread even a fraction of that gap across millions of prescriptions at more than 2,000 stores in 23 states over eight-plus years, and the $40 million settlement starts to look less like a penalty and more like a rounding error. DOJ False Claims Act settlements typically recover a slice of the alleged damages, not the whole thing, so the actual overbilling was almost certainly larger than what the company paid to make the case go away.

One more beneficiary, and I want to be precise about this one. JJ Fleeman is the CEO who signed off on this settlement. He didn't run the company during the conduct. He became Ahold Delhaize USA's CEO in April 2023, nearly six years after the programs ended, so the fraud isn't his. The exit timing is what's notable. The settlement landed in his final weeks; his departure was announced in March 2026, and he starts as CEO of Dollar General on January 1, 2027. A legacy billing problem gets resolved on the way out the door, the institution pays, and nobody who made the original decision is named anywhere in the file.

The Detection Gap Is the Design

The part that should bother you more than the $40 million is that the rule worked exactly as written, and it still didn't stop anything for nearly nine years.

The "usual and customary" definition is good policy. What fails is the enforcement built around it. The regulation creates a clean financial incentive to inflate the price reported to the government, and then provides no proactive way to detect when a pharmacy does it. There's no automatic cross-check between what savings-program members pay and what Medicare gets billed. The detection mechanism is a whistleblower, and a whistleblower only appears if a chain happens to employ a pharmacist who notices the gap and is willing to spend the better part of a decade in litigation. Three chains got caught that way. Any chain that didn't employ a James Garbe or a Lawrence LaBenne stayed invisible.

The rule never changed, not after the Seventh Circuit ruling in 2016 and not after Walgreens in 2019. The settlements treat each chain as an isolated bad actor when the repetition tells you it's a structural feature. When the same scheme, built on the same regulation, produces the same outcome at three large companies across two decades, that's a known arbitrage that pays until somebody sues.

The Bottom Line

If you filled a prescription with Medicare, Medicaid, or TRICARE coverage at a Food Lion, Giant, Hannaford, or Stop & Shop pharmacy between 2009 and 2017, your program was likely billed more than the cash customer next to you paid. The $40 million settlement acknowledges the conduct without admitting it, the savings programs are gone, and the whistleblower got his check. Real accountability, eight years late, for one company.

What's still true is everything that produced it. The regulation that created the incentive is unchanged, the enforcement model still depends on an insider deciding to sue, and there's no public way to know which chains are running a version of this right now. We'll only find out the way we found out about this one — when someone on the inside finally sues.