241 So. 3d 573
Miss.2018Background
- Mississippi sued Watson (and others) alleging Watson caused publication of inflated Average Wholesale Prices (AWP) that Mississippi Medicaid relied on to set drug reimbursement, leading to overpayments.
- Mississippi Medicaid calculated Estimated Acquisition Cost (EAC) as a discount off AWP (varied over time); it subscribed to First DataBank, which published manufacturer-reported AWPs.
- The chancery court found Watson submitted fabricated AWP/Suggested Wholesale Price figures (tied to generic-designation requirements, not actual transaction prices), knowing Medicaid would rely on them and that industry "marketed the spread."
- Trial court found Watson liable for common-law fraud and violations of the Mississippi Consumer Protection Act (MCPA), awarding civil penalties ($5,241,000), compensatory damages ($7,141,552), and punitive damages ($17,879,500); post-judgment interest of 3% on damages was awarded.
- On appeal, Mississippi Supreme Court affirmed the chancery court on fraud, MCPA liability, damages, and punitive award; the State’s cross-appeal (seeking MCPA compensatory recovery) was rejected due to statutory prerequisites for private actions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraud — falsity of AWP | Watson caused publication of false/fabricated AWPs that were not true averages and thus misrepresented prices. | AWP is an industry term/term of art ("suggested" or "sticker" price); industry and Medicaid knew AWP did not mean literal average, so no false statement. | Court: AWP submissions were false because Watson knew First DataBank presented AWP as a "suggested wholesale price" or average and Watson's numbers were fabricated for generic designation; verdict for State affirmed. |
| Fraud — intent & marketing the spread | Watson intended deception and profited by "marketing the spread," inducing pharmacies to prefer Watson products. | No intent to deceive; conduct consistent with industry custom. | Court: Intent inferred from conduct, internal communications, and knowledge Medicaid would rely on published AWPs; intent to deceive found. |
| Reliance / knowledge by Medicaid | Medicaid reasonably relied on AWP as a benchmark despite knowing it was not a literal average; had no knowledge of extent/fabrication. | Medicaid knew AWP was unreliable and thus could not reasonably rely; OIG warnings and discounts showed awareness. | Court: Medicaid reasonably relied on AWP as a starting point; prior warnings did not eliminate right to rely because Medicaid did not know AWPs bore no rational relation to transaction prices. |
| MCPA liability | Publishing AWPs with no predictable relation to actual prices is an unfair/deceptive practice under MCPA. | The chancery court applied an outdated "capacity to deceive" standard; FTC target‑audience test should control and preclude liability. | Court: MCPA guidance allows reliance on FTC/federal precedents; conduct was deceptive under either standard; MCPA violation affirmed. |
| Punitive damages | State sought punitive damages for willful/fraudulent conduct. | Watson argued punitive award rested on irrelevant evidence and industry norm; also that defendant lacked net worth (some entities). | Court: Statutory factors satisfied (reprehensibility, duration, concealment, motive); punitive award affirmed. |
| Cross-appeal — MCPA compensatory damages | State argued it should recover compensatory damages under MCPA (§75-24-15/§75-24-11). | Watson argued State failed to comply with statutory informal dispute-resolution prerequisite for private actions. | Court: State not entitled to compensatory recovery under MCPA because private-action prerequisites (informal dispute settlement) apply and were not met; court declined to rule on §75-24-11 remedy not preserved below. |
Key Cases Cited
- Trim v. Trim, 33 So.3d 471 (Miss. 2010) (elements of intentional/fraudulent misrepresentation)
- Sapukotana v. Sapukotana, 179 So.3d 1105 (Miss. 2015) (fraud must be proved by clear and convincing evidence)
- Rhyne v. Gammil, 60 So.2d 500 (Miss. 1952) (statement maker cannot shift burden of verification when all facts in maker's possession)
- FTC v. Raladam Co., 316 U.S. 149 (U.S. 1942) (deceptive practice analysis: capacity or tendency to deceive)
- In re Lupron Mktg. & Sales Practices Litig., 295 F. Supp. 2d 148 (D. Mass. 2003) (distinguishing "sticker" vs. deceptive prices in pharma marketing)
- State v. Abbott Laboratories, 829 N.W.2d 753 (Wis. Ct. App. 2013) (affirming judgment where fictitious AWPs caused Medicaid overpayments)