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Michigan Supreme Court Refuses to Reconsider its Decision to Reject Class Action Against Pharmacies for Allegedly Overcharging Medicaid for Generic Prescription Drugs

On August 5, 2014, the Michigan Supreme Court (the "Court") declined to reconsider its decision to reject two class actions and a qui tam action against CVS Caremark Corporation, Rite Aid of Michigan, Inc., and several other pharmacies. The lawsuits were based on allegations that the companies had overcharged Medicaid for generic prescription drugs.

The underlying case was argued before the Court on January 16, 2014, and the Court ruled against the plaintiffs on June 11, 2014. The plaintiffs argued that the pharmacies violated Michigan Public Health Code, MCL 333.17755(2), which requires a pharmacist to “pass on the savings in cost” when dispensing a generic drug instead of a brand name drug.

In the Court's opinion, Chief Justice Robert Young Jr. wrote that the plaintiffs failed to adequately plead their cause of action because they attempted to extrapolate to all of the defendants a single set of data regarding costs - specifically the wholesale costs from one Kroger pharmacy in West Virginia - as the basis for their complaint.

The plaintiffs argued that the Michigan defendants' costs were not materially different from the West Virginia Kroger's data set because their purchasing power was substantially the same. However, Young explained that “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.”

In this case, the plaintiffs' allegations could not be based on such "tenuous and conclusory" facts because of the heightened pleading standards required for fraud claims. Moreover, the plaintiffs' pleading approach was "overbroad" in that they failed to identify the specific transactions in which generic drugs were dispensed in place of brand-name drugs.

If you have any questions about this case, or healthcare law issues in general, please contact Attorney Jack Siebers.

Categories: Medicare/Medicaid, Pharmacy

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