YOUNG, C.J.
This case concerns three actions — two class actions and a qui tam 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 equivalent, 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 brandname 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 Act
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
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.
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).
The other consolidated case is a qui tam action alleging a single claim under the MFCA.
In their first amended complaints, plaintiffs relied on annual reports from some of
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 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.
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.
The order entered in Gurganus's action contained similar language. The trial court also dismissed Gurganus's suit on the separate but related ground that she is not an appropriate qui tam relator under
The Court of Appeals reversed in substantial part, holding that plaintiffs' claims under the MFCA and the HCFCA could proceed. The panel affirmed the trial court's holding that there is no implied right of action under § 17755(2) because the Legislature provided administrative remedies for violations of the statute. However, the panel reversed the trial court's holding that the HCFCA did not allow for a private right of action. Rather, a private cause of action arises out of the "broad and mandatory statement of civil liability in MCL 752.1009...."
Moreover, the Court of Appeals interpreted § 17755(2) as applicable to all transactions in which a generic drug is dispensed, and therefore the statute is not limited only to transactions in which a generic drug is substituted in place of its brand-name equivalent. The Court reasoned that there is no express language in § 17755(2) requiring such a limited interpretation.
The panel also reversed the trial court's holding that plaintiffs had failed to state a claim on which relief could be granted based on the insufficiency of plaintiffs' pleadings. Because a court must accept as true plaintiffs' allegations that the wholesale costs for generic and brand-name drugs do not materially differ from those of the West Virginia Kroger, the Court of Appeals concluded that plaintiffs' claims under the false claim acts could proceed. The Court of Appeals reasoned:
The panel rejected defendants' argument that even assuming violations of § 17755(2) had occurred, a violation of that section does not amount to knowingly submitting a false claim under either the HCFCA or the MFCA. According to the panel, implicit in a pharmacist's submission for payment is the representation that he has complied with the requirement of § 17755(2) to pass along cost savings to the purchaser. If defendants did not, in fact, pass on the required savings to the purchaser, then they concealed material facts and made the purchasers believe the state of affairs was something different than it actually was.
Finally, the Court of Appeals reversed the trial court's ruling that Gurganus was not a proper relator in the qui tam action. Under the MFCA, any person may bring a qui tam action on behalf of the state for a violation of the MFCA, subject to certain
Issues of statutory construction are reviewed de novo,
Whether relief is sought for violation of § 17755(2) itself, or through violations of the HCFCA and the MFCA, § 17755(2) is the basis from which all of plaintiffs' claims derive. In order to properly evaluate whether plaintiffs' allegations pass muster to survive summary disposition, we must first construe § 17755(2) to determine what a plaintiff must allege to sufficiently state a violation.
Section 17755 is a provision in Part 177 of the Public Health Code.
The proper interpretation of Subsection (2) is disputed in the instant case. First, the parties disagree whether Subsection
The goal of statutory interpretation "is to give effect to the Legislature's intent, focusing first on the statute's plain language."
Subsection (1) states, "When a pharmacist receives a prescription for a brand name drug product, the pharmacist may [or, upon request, shall] dispense a lower cost [generic drug]...."
Other textual support only strengthens this interpretation. Subsection (2) itself refers to a "generically equivalent drug product."
Plaintiffs improperly read the first clause of Subsection (2) — which reads, "[i]f a pharmacist dispenses a generically equivalent drug product" — as detached from the remainder of the subsection in order to come to their preferred interpretation that Subsection (2) applies to all
We now turn to the proper interpretation of the phrase "savings in cost." Subsection (2) states that a "pharmacist shall pass on the savings in cost to the purchaser" in a substitution transaction.
Defendants argue that the statute only requires pharmacists to sell the substituted generic drug at the same price that a purchaser would pay had the generic been prescribed in the first instance. In other words, pharmacists are prohibited from increasing the customer's cost of the substituted generic drug. However, this reading ignores the definition in the statute: The amount that a pharmacist must pass on to a purchaser or third-party payer is the difference between the wholesale cost of the two drugs. In other words, "savings in cost" equals the brand-name wholesale cost minus the generic wholesale cost.
Furthermore, a 2013 article in Pharmacy & Therapeutics explained that "patients have taken the same drug prescribed or dispensed under more than one trademark" and provided examples of generic drugs that have multiple brand-name drugs associated with them.
Having construed § 17755(2), we turn to whether plaintiffs' pleadings adequately
Because plaintiffs' claims are based on alleged fraudulent activity, the heightened pleading standard for fraud claims apply. MCR 2.112(B)(1) provides, in full, "In allegations of fraud or mistake, the circumstances constituting fraud or mistake must be stated with particularity."
Plaintiffs' complaints rely on wholesale drug cost data from a single Kroger pharmacy in West Virginia. From that proprietary data, plaintiffs extrapolate thousands of allegedly fraudulent transactions by defendants in violation of § 17755(2). In doing so, plaintiffs rely on various assumptions. These assumptions include (1) each defendant acquires its prescription drugs from just a few wholesalers, (2) the prescription drug purchasing power is substantially the same for all defendants, (3) the wholesale prices each defendant pays are materially the same, and (4) the wholesale prices do not change over time.
When faced with the heightened pleading standard for fraud claims, plaintiffs' claims of § 17755(2) violations cannot survive. Plaintiffs rely on a small set of cost data from a single out-of-state pharmacy during a brief time period to charge numerous Michigan defendants with systematic fraudulent activity across a multiyear period. The connection drawn between the West Virginia data and pharmaceutical sales in Michigan is simply too tenuous and conclusory to state a claim for relief.
Plaintiffs' complaints are also deficient because they fail to particularly allege a single improper substitution transaction. As discussed earlier, § 17755(2) applies only to transactions in which a generic drug is substituted for a brand-name drug. Defendants claim that plaintiffs have not satisfied the heightened pleading requirement because plaintiffs do not identify substitution transactions in their complaints. Instead, plaintiffs only allege generic drug transactions, regardless of whether they are substitution transactions.
Without distinguishing substitution transactions from transactions in which a generic was simply dispensed, plaintiffs' overbroad approach is deficient — especially under the heightened pleading standard. Plaintiffs essentially allege that defendants had a statutory duty to pass on the savings in cost from every sale of a generic drug. Yet as previously discussed, the statute simply does not impose such a duty on pharmacists. By alleging that thousands of generic drug transactions were improper, regardless of whether any of the transactions involved a substitution, plaintiffs failed to plead any transaction proscribed under § 17755(2) because the transactions are not of the type covered by § 17755(2), i.e., substitution transactions.
In addition to violations of § 17755(2), the class action plaintiffs allege violations of the HCFCA and Gurganus alleges violations of the MFCA. Both claims are premised on defendants' alleged violations of § 17755(2). As already outlined briefly, plaintiffs contend that defendants make false statements in contravention of the HCFCA and MFCA when they submit claims for Medicaid or private health insurance reimbursement that are not in compliance with § 17755(2).
Because plaintiffs' complaints do not adequately establish violations of § 17755(2), this Court need not evaluate the propriety of the remainder of plaintiffs' arguments. Assuming for the sake of argument that claims under the HCFCA and MFCA may be derived from violations of § 17755(2), plaintiffs' failure to sufficiently allege violations of § 17755(2) necessarily means that they fail to allege derivative violations of the false claim acts.
The failure of the pleadings thus disposes of the appeal in its entirety. Any discussion of these remaining derivative claims would constitute dicta because it is not necessary to resolve the case before us.
MCL 333.17755(2) requires that when a generic drug is substituted for a brandname drug (and only then), the pharmacist must pass on the difference between the wholesale cost of the brand-name drug and the wholesale cost of the generic drug.
Plaintiffs' allegations, which entirely rely on deriving wholesale costs of drugs for all the Michigan defendants by extrapolating from the wholesale costs in a single data set from a single West Virginia pharmacy, are simply too tenuous to survive summary disposition. Additionally, plaintiffs' approach of identifying all transactions in which a generic drug was dispensed fails to highlight the only relevant transactions — those in which a generic drug was substituted in place of a brand-name drug. This overbroad method of pleading is deficient, especially in light of the requirement that instances of fraud be pleaded with particularity.
Because plaintiffs have failed to allege sufficient facts to state a violation of § 17755(2), plaintiffs' remaining derivative claims under the HCFCA and the MFCA are unsustainable. 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.
MARKMAN, MARY BETH KELLY, ZAHRA, McCORMACK, and VIVIANO, JJ., concurred with YOUNG, C.J.
MICHAEL F. CAVANAGH, J. (concurring only in the result).
Underlying all of plaintiffs' claims in this consolidated appeal is the allegation that defendants violated MCL 333.17755(2) by failing to "pass on the savings in cost" when dispensing generic drugs. I agree with the majority that § 17755(2) could not be clearer that the phrase "savings in cost" means "the difference between the wholesale cost to the pharmacist of the 2 drug products." Further, as the majority explains, a pharmacy's obligation under
It is well established that "fraud is not to be lightly presumed, but must be clearly proved." Palmer v. Palmer, 194 Mich. 79, 81, 160 N.W. 404 (1916). Memorializing this standard, MCR 2.112(B)(1) states that "[i]n allegations of fraud or mistake, the circumstances constituting fraud or mistake must be stated with particularity." See Lawrence M Clarke, Inc. v. Richco Constr., Inc., 489 Mich. 265, 283-284, 803 N.W.2d 151 (2011) (applying MCR 2.112(B)(1) to a common-law-fraud claim). In this case, plaintiffs argue that defendants' alleged failures to pass on the savings in cost under § 17755(2) constitute false claims for healthcare or Medicaid benefits under the Medicaid False Claim Act (MFCA), MCL 400.601 et seq., and the Health Care False Claim Act (HCFCA), MCL 752.1001 et seq.
Generally, when applying the federal heightened pleading standard to claims
For example, the "heightened pleading standard may be applied less stringently when the specific factual information is peculiarly within the defendant's knowledge or control." Apotex, 2012 Utah at ¶ 27 (citation and quotation marks omitted). Also, "where the alleged fraudulent scheme involved numerous transactions that occurred over a long period of time, courts have found it impractical to require the plaintiff to plead the specifics with respect to each and every instance of fraudulent conduct." Id. (citation and quotation marks omitted). See, also, United States ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 557 (C.A.8, 2006) (explaining that the plaintiff was not required "to allege specific details of every alleged fraudulent claim," but the complaint "must provide some representative examples of [the defendants'] alleged fraudulent conduct, specifying the time, place, and content of their acts and the identity of the actors").
Finally, in determining whether a plaintiff's claim under the HCFCA or the MFCA has been pleaded with sufficient particularity, a court should not lose sight of the fact that although one aim of the court rule "is to discourage nuisance suits and frivolous accusations," United States ex rel. Pogue v. Diabetes Treatment Ctrs. of America, Inc., 238 F.Supp.2d 258, 269 (D.D.C., 2002), the purpose of the heightened pleading standard is "to alert defendants `as to the particulars of their alleged misconduct' so that they may respond," Chesbrough v. VPA, PC, 655 F.3d 461, 466 (C.A.6, 2011), quoting United States ex rel. Bledsoe v. Community Health Sys., Inc., 501 F.3d 493, 503 (C.A.6, 2007).
As previously mentioned, a pharmacy's obligation under § 17755(2) is not implicated
Instead of pleading substitution transactions in their complaints, plaintiffs simply list series of transactions in 2008 that represent alleged occasions when defendants merely dispensed generic drugs, with no indication of whether the dispensed generics resulted from the pharmacies' replacement of a brand-name drug with a generic drug.
Given that plaintiffs did not specifically identify in their complaints a single transaction that, if assumed true, would constitute
Similarly, the MFCA states:
The HCFA and the MFCA also define "knowingly." See MCL 752.1002(h); MCL 400.602(f).
The class-action plaintiffs' complaints include nearly identical language demonstrating the gravamen of all plaintiffs' allegations.