State of Michigan Ex Rel Marcia Gurganus v. Cvs Caremark Corp

496 Mich. 45
Michigan Supreme Court·Decided June 11, 2014·No. Docket 146791, 146792, and 146793·Published·Cited by 37 cases

Opinions

YOUNG, C.J.

This case concerns three actions — two class actions and a qui tarn action brought in the name of the state of Michigan — involving allegations that multiple pharmacies in Michigan systematically violated MCL 333.17755(2) by improperly retaining savings that should have been passed on to customers when dispensing generic drugs in the place of their brand-name equivalents. Under MCL 333.17755(2), when a pharmacist receives a prescription for a brand-name drug and instead dispenses the generic equiva[51] lent, the pharmacist must “pass on the savings in cost to the purchaser. . . The statute is clear: when a generic drug is substituted for a brand-name drug (and only then), the pharmacist must pass on the monetary difference between the wholesale cost of the brand-name drug and the wholesale cost of the generic drug.

Plaintiffs further contend that violations of § 17755(2) necessarily result in violations of the Health Care False Claim Act1 (HCFCA) and the Medicaid False Claim Act2 (MFCA) when pharmacists submit reimbursement claims to the state for Medicaid payments that they are not entitled to receive. Plaintiffs argue that, when submitting reimbursement claims, defendant pharmacies are impliedly and fraudulently representing that they are passing on the savings in cost when generic drugs are dispensed.

Plaintiffs’ complaints, however, fail to plead facts with sufficient particularity to survive summary disposition. In their complaints, plaintiffs attempt to derive the wholesale costs of drugs dispensed by all the Michigan defendants by extrapolating from the wholesale costs in a single set of proprietary data from a single Kroger pharmacy in West Virginia. The inferences and assumptions required to implicate defendants are simply too tenuous for plaintiffs’ claims to survive summary disposition. Moreover, plaintiffs’ overbroad approach of identifying all transactions in which a generic drug was dispensed fails to hone in on the only relevant transactions — those in which a generic drug was dispensed in place of a brand-name drug. This overbroad method of pleading is deficient, especially given plaintiffs’ burden to plead instances of fraud with particularity.3

[52] Because plaintiffs have failed to adequately plead violations of § 17755(2), their HCFCA and MFCA claims stemming from violations of that section necessarily fail as well. As a result, their complaints fail to state a ground on which relief can be granted.4 We reverse the Court of Appeals’ construction of MCL 333.17755(2) and its holding that plaintiffs’ pleadings were sufficient to survive summary disposition, vacate the remainder of the Court of Appeals’judgment, and reinstate the trial court’s grant of summary disposition to defendants.

I. FACTS AND PROCEDURAL HISTORY

Two of the consolidated cases are class actions brought by three named plaintiffs: the city of Lansing and Dickinson Press Inc. (who are third-party payors for prescription medication) and Scott Murphy (who is a consumer of prescription medication).5 The claims before the Court arising from the class actions are alleged violations of § 17755(2) and the HCFCA. The class action plaintiffs argue that defendants systematically violated § 17755(2) by charging prices for generic drugs that produced a higher profit margin than had been achieved by selling the equivalent brand-name drugs. The class action plaintiffs also plead that defendant pharmacies made false statements in contravention of the HCFCA when they submitted claims for private insurance reimbursement that are not in compliance with § 17755(2).6

[53] The other consolidated case is a qui tam action alleging a single claim under the MFCA.* *7 The relator, Marcia Gurganus, alleges that defendants failed to comply with § 17755(2) when they submitted prescription drug claims to the state for generic drugs dispensed to Medicaid beneficiaries and failed to pass on the “savings in cost” when dispensing the generic drugs. By doing so, Gurganus contends, defendants submitted false claims to the state in violation of the MFCA.8

In their first amended complaints, plaintiffs relied on annual reports from some of the defendants and a newspaper article to allege that defendant pharmacies profited more from dispensing generic drugs than from brand-name drugs. The Kent Circuit Court granted defendants summary disposition pursuant to MCR 2.116(C)(8).9 The court dismissed all three cases without prejudice, holding that the complaints failed to plead sufficient facts and relied on unsupported inferences, alleging no acts undertaken by any of the defendants in Michigan.

Instead of providing pricing data specific to defendants in their second amended complaints, both the class action plaintiffs and Gurganus derived the allegations for their claims from specific proprietary information acquired by Gurganus revealing the wholesale [54] costs and sales prices of brand-name and generic drugs that had been sold in 2008 at a single West Virginia Kroger pharmacy where Gurganus was employed.10 The key data for plaintiffs are the wholesale costs of drugs, which defendants keep confidential from the public.

Plaintiffs allege that because Kroger operates retail pharmacies nationwide, acquires prescription drugs through central purchasing functions serving all its pharmacy locations, and acquires the majority of its prescription drugs from wholesalers, the wholesale costs of all the other defendants likely were not materially different. Because Kroger and the other defendants operate in substantially the same manner, and because the purchasing power for each defendant is essentially the same, said plaintiffs, one can extrapolate from the West Virginia pharmacy data the wholesale costs of each of the defendants in Michigan. Plaintiffs go on to identify more than 2,000 transactions by various defendants allegedly made in violation of § 17755(2) using this West Virginia data.

Defendants again moved for summary disposition pursuant to MCR 2.116(C)(8), and the trial court again granted summary disposition for failure to state a claim on which relief could be granted, this time with prejudice.* 11 Unpersuaded that the class action plaintiffs’ allegations stated a claim, the court noted that

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State of Michigan Ex Rel Marcia Gurganus v. Cvs Caremark Corp, 496 Mich. 45 (Mich. 2014).

496 Mich. 45 (State of Michigan Ex Rel Marcia Gurganus v. Cvs Caremark Corp) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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