Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—MinnAppCt: Pharmacies May Be Liable For Failing to Pass On Generic Drug Savings , (May 7, 2013)

By Jody Coultas, J.D.

A district court erred in dismissing Minnesota Prevention of Consumer Fraud Act (CFA) and Private Attorney General Statute claims filed by a group of union-sponsored health-benefit plans, alleging that a number of pharmacies failed to pass on generic drug cost savings to customers, according to a Minnesota appellate court (Graphic Communications Local 1B Health & Welfare Fund “A” v. CVS Caremark Corporation, May 6, 2013, Kalitowski, T.).

Pharmacies acquire generic prescription drugs at a lower cost and sell them at substantial discounts as compared to brand-name drugs. Minnesota law requires that pharmacies pass on any cost savings realized by the generic prescription drugs to customers. The health benefit plans alleged that the pharmacies failed to pass on their costs savings to purchasers.

A district court held that the health benefit plans failed to plead that the pharmacies had a duty to disclose their acquisition costs and that omitting the acquisition costs was material, failed to plead a causal nexus between the actions and injuries, and could not show a public benefit.

The district court erred in requiring the health benefit plans to plead that the pharmacies had a duty to disclose their costs for acquiring generic drugs, according to the court. The court held that, at this stage of the litigation, the health benefit plans were only required to allege that a failure to disclose acquisition costs and subsequent overcharges were material omissions. There was no controlling Minnesota precedent supporting the district court’s holding that the claims fail for failure to allege a duty to disclose.

There was a sufficient connection between the alleged omissions and the alleged overcharges, according to the court. The health benefit plans submitted sufficient evidence of the misrepresentations that were made and how consumers were damaged by the misrepresentations. The alleged chain of causation was also uncomplicated.

Because the CPA claims that the pharmacies deceptively overcharged purchasers for generic prescription drugs involved a public benefit, the court overturned the district court’s ruling. The district court stated that the CFA claims were based on one-on-one transactions and the relief sought was primarily money damages. In order to obtain monetary damages under the private-attorney-general statute, a party must, in addition to proving a statutory violation, show that the action will benefit the public. Because the pharmacies allegedly routinely overcharged customers, it was not a case of a one-on-one transaction. Also, the lawsuit may indirectly lead to changes, including pharmacies passing on cost savings to purchasers.

The case is No. A12-1555.

Attorneys: David L. Hashmall (Felhaber, Larson, Fenlon & Vogt, P.A.) for Graphic Communications Local 1B Health & Welfare Fund “A”. Robert H. Griffith (Foley & Lardner LLP) for CVS Caremark Corporation.

Cases: StateUnfairTradePractices MinnesotaNews