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146791-3 - State of Michigan v CVS Caremark, et. al.

State of Michigan ex rel. Marcia Gurganus,
 
Bryan R. Walters
 
Plaintiff-Appellee,
 
v
(Appeal from Ct of Appeals)
 
 
(Kent – Redford, J.)
 
CVS Caremark Corporation, et. al.,
 
Matthew L. Vicari
 
Defendants-Appellants,
 Eric J. Eggan
 
 
 
 
 
 
_____________________________
 
 
City of Lansing and Dickinson Press, Inc.,
 
Bryan R. Walters
 
Plaintiffs-Appellees, Cross-Appellants,
 
v
 
 
Rite Aid of Michigan, Inc., and Perry Drug Stores, Inc.,
 
 
 
Defendants-Appellants, Cross-Appellees,
 
 
 
 
 
 
 
______________________________
 
 
 
 
 
 
City of Lansing and Dickinson Press, Inc., and Scott Murphy,
 
 
 
Plaintiffs-Appellees, Cross-Appellants,
 
v
 
 
 
 
 
CVS Caremark Corporation, et. al.,
 
 
 
Defendants-Appellants, Cross-Appellees.
 

Summary

​The defendants in these three consolidated cases operate pharmacies in Michigan. In each case, the defendants were alleged to have charged prices for generic drugs to make a larger profit than the defendants previously made from the sale of equivalent name-brand drugs. MCL 333.17755(2), part of the Public Health Code (PHC), MCL 333.17701 et seq., provides in part that “[i]f a pharmacist dispenses a generically equivalent drug product, the pharmacist shall pass on the savings in cost to the purchaser or to the third party payment source if the prescription purchase is covered by a third party pay contract.”

Marcia Gurganus brought a qui tam action on behalf of the state of Michigan against CVS Pharmacy and other defendants. She asserted that the defendants failed to comply with § 17755(2) when they submitted prescription drug claims for drugs dispensed to Medicaid beneficiaries to the state and failed to pass on the savings in cost obtained by dispensing a generically equivalent drug. Moreover, the defendants violated the Medicaid False Claim Act, MCL 400.601 et seq., which specifically authorizes a qui tam action, Gurganus claimed. But the trial court dismissed her claims, concluding that Gurganus failed to properly plead any violation of § 17755(2), and that she was not a proper qui tam relator under the MFCA.

The other two cases are class action lawsuits, in which the plaintiffs alleged that defendants failed to pass on the savings in cost when they dispensed generic drugs. The class action plaintiffs asserted four claims: (1) a violation of § 17755(2), (2) a violation of the Michigan Consumer Protection Act, MCL 445.901 et seq., (3) unjust enrichment, and (4) a violation of the Health Care False Claim Act, MCL 752.1001 et seq. But as in Gurganus’ case, the trial court dismissed these lawsuits and granted summary disposition in favor of the defendants. The court held that the plaintiffs in each case failed to properly plead their claims, and also concluded that there is no private right of action pursuant to § 17755(2) or the Health Care False Claim Act.


Gurganus and the class action plaintiffs appealed, and in an unpublished opinion, the Court of Appeals held that:

• the trial court erred by dismissing Gurganus’ qui tam complaint on the grounds that it was based on a public disclosure;
• the plaintiffs in the class action lawsuits do not have a private cause of action pursuant to § 17755(2) of the Public Health Code;
• the class action plaintiffs do have a private cause of action pursuant to the Health Care False Claim Act, MCL 752.1009; and
• the trial court erred by granting summary disposition in favor of the defendants, “because we conclude that the qui tam complaint and both class action complaints satisfy the applicable pleading standards.”

 

Qui tam action. One issue was whether Gurganus was qualified to bring a qui tam action. Under the Medicaid False Claim Act, “Any person may bring a civil action in the name of this state under this section to recover losses that this state suffers from a violation of [the MFCA].” MCL 400.610a(1). MCL 400.610a(13) provides:


Unless the person is the original source of the information, a person, other than the attorney general, shall not initiate an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a state or federal legislative, investigative, or administrative report, hearing, audit, or investigation, or from the news media. The person is the original source if he or she had direct or independent knowledge of the information on which the allegations are based and voluntarily provided the information to the attorney general before filing an action based on that information under this section.

 

The defendants argued that certain public information – including a Wall Street Journal article entitled “Why Generic Doesn’t Always Mean Cheap” and public corporate reports that included similar information – constituted “public disclosure of allegations or transactions,” such that Gurganus could not be the “original source” of the information.

But the Court of Appeals rejected that argument, saying that the Wall Street Journal article “merely discusses the fact that large corporations, such as defendants, find ways to maximize profits” – such as filling prescriptions with generic drugs. The article did not suggest that CVS or others were acting unethically or illegally: “Accordingly, we hold that the public disclosures upon which defendants rely do not rise to the level of disclosing any transaction on which the qui tam complaint was based.”

Private Cause of Action Pursuant to § 17755(2). As to the plaintiffs in the two class action cases, the Court of Appeals held that § 17755(2) of the Public Health Code does not create a private cause of action for those who purchase prescription drugs, or for third-party payment sources: “[T]he PHC itself provides a remedy for violation of § 17755(2). Any person, including generic drug purchasers or third party payment sources, may file a complaint with LARA [the Department of Licensing and Regulatory Affairs]. If after investigation the LARA disciplinary subcommittee finds a violation of the PHC, it ‘shall impose’ sanctions. MCL 333.16226. Thus, the PHC provides a remedy for violation of § 17755(2), and the statutory remedy for violation of § 17755(2) is the exclusive remedy.”

The Court of Appeals continued, “Further, we find unavailing plaintiffs’ argument that we should conclude that they are entitled to maintain a private cause of action because the remedies provided by the PHC for a pharmacist’s violation of MCL 333.17755(2) are inadequate…. the adequacy of the statutorily prescribed remedy is not relevant to the determination of the Legislature’s intent to allow for a private cause of action. Accordingly, we conclude that § 17755(2) does not provide the class action plaintiffs with a private cause of action to enforce defendants’ duties pursuant to the statute, and we affirm the trial court’s orders granting summary disposition to defendants in regard to the § 17755(2) claims in both class action lawsuits.”

Private Cause of Action under the HCFCA. The Health Care False Claim Act does create a private cause of action for health care corporations and insurers, the Court of Appeals held.

The act provides in part that “A person who receives a health care benefit or payment from a health care corporation or health care insurer which the person knows that he or she is not entitled to receive or be paid; or a person who knowingly presents or causes to be presented a claim which contains a false statement, shall be liable to the health care corporation or health care insurer for the full amount of the benefit or payment made.” MCL 752.1009.

“The plain language of MCL 752.1009 provides that a person who violates the statute ‘shall be liable’ to the health care insurer ‘for the full amount of the benefit or payment made.’ MCL 752.1009. Therefore, we conclude that the HCFCA, pursuant to MCL 752.1009, creates a private cause of action for health care corporations and health care insurers, and we reverse the trial court’s holding to the contrary,” the Court of Appeals said.

Summary disposition under MCR 2.116(C)(8). The Court of Appeals next turned to the issue of whether the trial court properly granted summary disposition in the three cases.

“Because both the MFCA and the HCFCA are anti-fraud statutes, we conclude that the MFCA claim in the qui tam complaint and the HCFCA claim in the class action complaints must satisfy the heightened pleading standard of MCR 2.112(B)(1),” the panel declared.

“To state a claim under the HCFCA, a plaintiff must allege (1) that a person received a health care benefit or payment from a health care corporation or health care insurer and (2) that the person knew he or she was not entitled to receive or be paid the benefit or payment or that the person knowingly presented or caused to be presented a claim that contained a false statement. See MCL 752.1009. To state a claim under the relevant section of the MFCA, a plaintiff must allege that (1) a person made or presented or caused to be made or presented to an employee or officer of the State a claim under the social welfare act and (2) the person knew the claim was false. See MCL 400.607(1).”

The plaintiffs in all three cases had satisfied pleading requirements, the Court of Appeals said. The complaints included allegations that the defendants had overcharged for generic drugs and that, by doing so, had made a false statement of claim. Although the complaints did not identify each transaction, the complaints did identify specific brand-name drugs and their generic equivalents, named pharmacies allegedly involved in dispensing these drugs, and stated “the date, the brand sales price, the brand acquisition cost, the brand profit, the generic acquisition cost, the maximum generic price, the actual generic sales price, and the overcharge amount in violation of § 17755(2) for each of the identified drugs used as examples,” the appellate panel noted. “The complaints contain these specific allegations for hundreds of different dates in 2008. Relying on their formula to calculate the profits made from the sales of brand name and generic drugs, plaintiffs’ complaints then compare the profits in order to demonstrate violation of § 17755(2).”

The plaintiffs used Kroger’s acquisition costs to suggest that other defendants had similar acquisition costs, the panel explained. “[U]nder MCR 2.116(C)(8), all well-pleaded factual allegations are accepted as true, as well as any reasonable inferences or conclusions that can be drawn from the facts, and are construed in the light most favorable to the nonmoving party…. Under this standard, we conclude that plaintiffs’ claim that defendants’ 2008 acquisition costs for brand name and generic drugs do not vary materially from those of Kroger is not a conclusory statement unsupported by factual allegations, such that it would be insufficient to state a cause of action.”

The Court of Appeals continued, “Moreover, the fact that plaintiffs’ complaints do not allege transactions based on information specific to defendants, and the fact that the complaints rely on some inferences, is not fatal to plaintiffs’ complaints. Plaintiffs are not required to prove their case in their pleadings, and summary disposition is appropriate only if the claim cannot succeed because of some deficiency that cannot be overcome at trial…. Further, we conclude that the pleadings meet the heightened pleading standards for allegations of fraud because the complaints particularly state the circumstances constituting the alleged fraud, and there can be no doubt that the complaints sufficiently apprise defendants of the nature of the case that they must prepare to defend.”

The defendants appealed, and the class action plaintiffs filed a cross-appeal.

In an order dated September 18, 2013, the Supreme Court granted leave to appeal. The Court directed the parties to address: “(1) whether MCL 333.17755(2) provides an implied private cause of action; (2) what is meant by the requirement that a pharmacist shall ‘pass on the savings in cost’ when the pharmacist dispenses a generically equivalent drug product and what constitutes a violation of that requirement; (3) whether this requirement is limited to transactions involving a substitution of a generic drug for a name brand drug, and in this regard, whether § 17755(2) must be read in conjunction with the other subsections of MCL 333.17755; (4) whether submission of a charge for the dispensing of a generic drug that is in violation of this requirement constitutes the making of a false claim under the Medicaid False Claim Act (MFCA), MCL 400.601 et seq. or the Health Care False Claim Act (HCFCA), MCL 752.1001 et seq.; (5) whether use of the remedies provided by the MFCA and the HCFCA is available when Part 177 of the Michigan Public Health Code, MCL 333.17701 et seq. provides administrative remedies for violations of MCL 333.17755; (6) whether the plaintiffs satisfied the heightened pleading requirement applicable to these actions under MCR 2.112(B)(1); and (7) whether plaintiff Marcia Gurganus is qualified to bring a qui tam action in light of the limitations found at MCL 400.610a(13).” The Court also granted the class action plaintiffs’ cross-appeal, “limited to the issue of whether there is a private cause of action under MCL 333.17755(2).”