Wyoming Discount Pharmacy LLC v. Dept of Health and Human Services ( 2020 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
WYOMING DISCOUNT PHARMACY LLC, UNPUBLISHED
MAYA PHARMACY, LLC, SEAWAY July 23, 2020
PHARMACY, PC, REDFORD DISCOUNT
PHARMACY, PLLC, FORD TEL DRUGS, INC.,
doing business as VITAL PHARMACY, KAY
PHARMACY, INC., doing business as KAY
PHARMACY, KAY PHARMACY & HME, and
KAY PHARMACY & HOME MEDICAL
EQUIPMENT, and KIRTLAND CORP., doing
business as NEW MILLENNIUM DRUGS,
Plaintiffs-Appellants,
v No. 348464
Court of Claims
DEPARTMENT OF HEALTH AND HUMAN LC No. 18-000237-MM
SERVICES,
Defendant-Appellee.
Before: FORT HOOD, P.J., and JANSEN and TUKEL, JJ.
PER CURIAM.
Plaintiffs, Wyoming Discount Pharmacy LLC (Wyoming); Maya Pharmacy, LLC (Maya);
Seaway Pharmacy, PC (Seaway); Redford Discount Pharmacy, PLLC (Redford); Ford Tel Drugs,
Inc. (Ford Tel), doing business as Vital Pharmacy; Kay Pharmacy, Inc. (Kay), doing business as
Kay Pharmacy, Kay Pharmacy & HME, and Kay Pharmacy & Home Medical Equipment; and
Kirtland Corp. (Kirtland), doing business as New Millennium Drugs, appeal as of right an order
issued by the Court of Claims, granting summary disposition in favor of defendant, the Department
of Health and Human Services (DHHS). Plaintiffs challenged a number of defendant’s audits in
which defendant concluded that Medicaid had overpaid plaintiffs for services. The Court of
Claims granted summary disposition under MCR 2.116(C)(4) (lack of subject-matter jurisdiction)
because all plaintiffs failed to exhaust their administrative remedies by not completing the
administrative review procedure. The Court of Claims also granted summary disposition under
MCR 2.116(C)(7) (waiver) as to plaintiffs Wyoming, Redford, and Kirtland because they released
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any related claims against defendant in the repayment agreements they entered into with defendant.
The Court of Claims lastly granted summary disposition under MCR 2.116(C)(8) (failure to state
a claim) as to all plaintiffs, holding that plaintiffs’ complaint failed to state an actionable due-
process claim, and failed to state a claim under the Administrative Procedures Act (APA), MCL
24.201 et seq., because the APA does not require defendant to promulgate formal rules governing
the challenged audits. We affirm.
I. BACKGROUND
Defendant’s Office of Inspector General (OIG) conducted audits of payments to
pharmacies for prescriptions filled through Medicaid, as authorized by MCL 333.26368 and
various sections of the Michigan Medicaid Provider Manual. The Manual includes a provision
authorizing prepayment and postpayment audits for the purpose of confirming that a provider
billed Medicaid for medications actually dispensed. The Manual also contains provisions directing
providers to maintain certain fiscal records for seven years and specifically directing pharmacies
to maintain documentation showing compliance with Medicaid policies, such as accurate
information about the number of days’ supply of a prescription as well as the number of
prescriptions filled but not picked up. Specific to pharmacies, the Manual also states:
In addition to all other documentation required under state law, federal law, and
MDHHS policy, pharmacy providers must maintain invoices, manufacturer and/or
wholesaler sales records, distributor delivery records to the provider, inventory
transfer records, provider payment records, and all other records necessary to
support the size and quantity of the goods paid for by Medicaid during the
audit/review period. Failure to do so will result in the recoupment of pharmacy
funds related to unsupported Medicaid claims. In the event inventory for any such
product cannot be substantiated through reliable documentation for the beginning
of the audit/review period, MDHHS may assume that the beginning and ending
inventory quantities are the same for that product. For the purposes of this policy,
the “audit/review period” shall be a period defined by MDHHS.
OIG audited the plaintiff pharmacies to determine whether they could substantiate their
billings for prescriptions to Medicaid. OIG mailed notices of preliminary findings to each
pharmacy, stating what records were reviewed and concluding that each pharmacy was overpaid.
The notices stated that the pharmacies could notify OIG of their disagreement or submit additional
documentation. Wyoming, Seaway, Redford, Kay, and Kirtland responded with additional
documentation, which led OIG to reduce the assessments of the amounts overpaid. Maya and Ford
Tel also responded, but without submitting additional documentation. OIG slightly reduced Ford
Tel’s overpayment assessment and maintained the original overpayment assessment against Maya.
The final notices stated that the pharmacies could notify OIG of their disagreement or request an
internal conference or administrative hearing, while failure to respond within 30 days would result
in the initiation of recovery. Wyoming, Redford, and Kirtland entered into repayment agreements
that included a provision in which the pharmacy agreed to release any claims against defendant
related to the overpayment reviews. Maya entered into a settlement agreement with defendant.
Seaway, Ford Tel, and Kay requested administrative hearings. By the time defendant filed its
motion for summary disposition in the Court of Claims, Ford Tel and Kay had received final
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administrative orders, and Seaway was awaiting a final administrative decision. None of the
plaintiffs fully exhausted the administrative remedies available to them.
Plaintiffs filed a complaint in the Court of Claims, challenging the manner in which the
audits were conducted. Plaintiffs’ allegations cited the provisions in the Manual governing
document retention and the purpose of the audits, and plaintiffs summarized the procedural history
of each pharmacy’s audit. Plaintiffs stated that the documents listed in the Manual would have
produced accurate results, but they alleged that defendant used a “workflow tool” known as a
“Drug Utilization Report (‘DUR’)” that did not accurately reflect the information sought and that
inevitably led to discrepancies between plaintiffs’ prescriptions and plaintiffs’ billings. Plaintiffs
claimed that defendant’s failure to promulgate rules governing the audits violated the APA.
Plaintiffs further claimed that defendant’s failure to announce an audit procedure violated
plaintiffs’ right to due process by failing to provide adequate notice and a meaningful opportunity
to be heard.
Defendant moved for summary disposition under MCR 2.116(C)(4), (C)(7), and (C)(8).
Defendant argued that the Court of Claims lacked subject-matter jurisdiction because plaintiffs
failed to exhaust their administrative remedies by failing to see the administrative process through
to completion. Defendant alleged in the alternative that summary disposition was appropriate
under MCR 2.116(C)(7) as to Wyoming, Redford, and Kirtland because they agreed to release
their claims against defendant. Lastly, defendant argued that plaintiffs failed to state a claim upon
which relief could be granted because the APA did not require defendant to promulgate a rule
governing the audit process and because plaintiffs had notice of the overpayment findings and an
opportunity to contest them. The Court of Claims agreed with defendant and granted summary
disposition in defendant’s favor under MCR 2.116(C)(4), (C)(7), and (C)(8).
II. DISCUSSION
“This Court reviews de novo a trial court’s ruling on a motion for summary disposition.”
Anzaldua v Neogen Corp, 292 Mich App 626, 629; 808 NW2d 804 (2011). This Court also reviews
de novo matters of subject-matter jurisdiction. Polkton Charter Twp v Pellegrom, 265 Mich App
88, 98; 693 NW2d 170 (2005). “Although this Court reviews constitutional questions de novo,
unpreserved issues are reviewed for plain error affecting substantial rights.” Saginaw Ed Ass’n v
Eady-Miskiewicz, 319 Mich App 422, 450-451; 902 NW2d 1 (2017).
A. EXHAUSTION OF ADMINISTRATIVE REMEDIES
Plaintiffs first argue that they were not required to exhaust their administrative remedies
because they raised a purely constitutional claim and because they are challenging only the absence
of an audit procedure, not the results of their individual audits. We disagree.
“Summary disposition for lack of jurisdiction under MCR 2.116(C)(4) is proper when a
plaintiff has failed to exhaust its administrative remedies.” Citizens for Common Sense in Gov’t v
Attorney General, 243 Mich App 43, 50; 620 NW2d 546 (2000). When reviewing a summary
disposition ruling under MCR 2.116(C)(4), this Court considers the pleadings in addition to other
documentation. L & L Wine & Liquor Corp v Liquor Control Comm, 274 Mich App 354, 356;
733 NW2d 107 (2007).
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When a state agency has “an administrative grievance procedure subject to judicial
review,” the plaintiff must generally exhaust its administrative remedies “before filing suit in the
circuit court.” Rudolph Steiner Sch of Ann Arbor v Ann Arbor Charter Twp, 237 Mich App 721,
731; 605 NW2d 18 (1999). “It is presumed that an administrative agency will correct its errors if
given a chance to do so.” Papas v Mich Gaming Control Bd, 257 Mich App 647, 664; 669 NW2d
326 (2003). The exhaustion requirement serves several purposes: “(1) an untimely resort to the
courts may result in delay and disruption of an administrative scheme; (2) any type of appellate
review is best made after the agency has developed a full record; (3) resolution of the issues may
require the technical competence of the agency, and (4) the administrative agency’s settlement of
the dispute may render a judicial resolution unnecessary.” Genesis Ctr PLC v Fin & Ins Serv
Comm’r, 246 Mich App 531, 543; 633 NW2d 834 (2001). Exhaustion of administrative remedies
is not required, however, “before filing a claim based on a constitutional issue.” Blair v Checker
Cab Co, 219 Mich App 667, 671; 558 NW2d 439 (1996).
First, plaintiffs raised a statutory claim that is subject to the exhaustion requirement. The
second count of plaintiffs’ complaint raised a statutory claim under the APA, alleging that
defendant violated the APA by failing to promulgate rules governing the audit process to which
plaintiffs were subjected. Plaintiffs continue to make this argument. Therefore, plaintiffs’ claim
is not purely constitutional.
Second, as the Court of Claims noted, factual development would aid judicial review of
plaintiffs’ due-process claim. Both plaintiffs’ APA claim and due-process claim are premised on
defendant’s alleged failure to establish an audit process. This overlap demonstrates why
exhaustion of plaintiffs’ administrative remedies was required. Courts will not unnecessarily reach
constitutional issues that are adequately remedied through other avenues. Booth Newspapers, Inc
v Univ of Mich Bd of Regents, 444 Mich 211, 234; 507 NW2d 422 (1993). Although an
administrative agency does not have the authority to rule on a constitutional claim, it “has a duty
to interpret its enabling statutes in ways that avoid raising constitutional issues.” Saginaw Ed
Ass’n, 319 Mich App at 450 n 7. A successful APA claim may have obviated the necessity of
pursuing a due-process challenge, but plaintiffs’ failure to pursue an APA claim fully in the
administrative proceeding leaves unanswered the question whether it would have been necessary
for a court to reach the constitutional claim.
Moreover, exhaustion of administrative remedies would have allowed for further factual
development, which was necessary in this case because, again, as the Court of Claims noted,
plaintiffs’ procedural due-process challenge was “intertwined with factual issues that should have
been the subject of administrative proceedings.” For example, plaintiffs describe the auditors’ use
of a workflow tool that allegedly inflated the overpayment amounts. Factual development of
information that was contained in the document used and what documentation defendant should
have used instead would help illuminate the bases of plaintiffs’ claims—statutory and
constitutional. Although plaintiffs insist that they are not challenging the results of the individual
audits, it is not clear why plaintiffs could not have produced their proposed alternative
documentation in an administrative proceeding to show why the audit process itself was
inadequate. Further, defendant clearly used some kind of procedure to conduct the audits,
demonstrated by the notices of preliminary findings summarizing the documents reviewed and the
results of that review. Factual development of the types of records requested, the records produced,
and what information those records did or did not contain, in addition to whether these records are
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typically requested and reviewed during these types of audits, would aid in the evaluation of
plaintiffs’ claims. Accordingly, plaintiffs’ contention that defendant used no procedure at all
oversimplifies the matter and underestimates the usefulness of factual development.
Plaintiffs state that defendant should be judicially estopped from arguing that plaintiffs
failed to exhaust their administrative remedies because defendant has argued in other proceedings
that constitutional claims are beyond the scope of administrative proceedings. Judicial estoppel
prevents a party from gaining an unfair advantage by taking inconsistent positions in different
cases. Spohn v Van Dyke Pub Sch, 296 Mich App 470, 488-489; 822 NW2d 239 (2012). In this
case, defendant is arguing that plaintiffs should have participated fully in the available
administrative review process because their claims, which include an APA claim, are not solely
constitutional and because plaintiffs’ claims require factual development. In raising these
arguments, defendant implicitly agrees that administrative remedies for purely constitutional
claims need not be exhausted. Therefore, plaintiffs have not shown that defendant has taken
inconsistent positions by arguing in another case that a purely constitutional claim is not subject
to administrative review.1
With all of that in mind, we conclude that, as a result of the APA claim and the necessity
of factual development of the bases of plaintiffs’ claims, the Court of Claims did not err by
concluding that plaintiffs’ failure to exhaust their administrative remedies was a ground for
1
We note plaintiffs’ reliance on Bauserman v Unemployment Ins Agency, ___ Mich App ___, ___;
___ NW2d ___ (2019) (Docket No. 333181). In that case, the plaintiffs alleged that the defendant
agency had garnished income tax returns and wages
(1) without providing “required notice of the bases asserted for disqualification [of
unemployment benefits,]” or a hearing, (2) by not allowing plaintiffs to present
evidence in their own defense, and (3) by using an automated computerized system
“for the detection and determination of [alleged] fraud cases,” which does not
comport with due process. [The p]laintiffs specifically alleged that the Agency uses
the Michigan Integrated Data Automated System (MiDAS), “an automated
decision-making system” to spot suspected fraud in the receipt of unemployment
benefits, and that MiDAS “initiates an automated process” that can result in an
individual being disqualified from receiving benefits, as well as having penalties
imposed and being subjected to criminal prosecution. All of this, [the] plaintiffs
allege[d], occurs without [the] plaintiffs being provided with notice, an opportunity
to be heard and being allowed to present evidence in their defense. [Bauserman,
____ Mich App at ___; slip op at 1, 11 (first alteration in original).]
In this case, there is no doubt that plaintiffs were afforded notice and an opportunity to challenge
the audits. Moreover, as further addressed in section C. 2. of this opinion, we agree with the Court
of Claims that plaintiffs failed to state a cognizable due-process claim to begin with. Lastly,
Bauserman came to this Court on remand from the Supreme Court to specifically address whether
the plaintiffs in that case alleged a cognizable constitutional tort claim without reference to any
other claim the Bauserman plaintiffs could have made that would have required exhaustion of
administrative remedies. With all of that in mind, we conclude that Bauserman is not controlling.
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summary disposition under MCR 2.116(C)(4). Although plaintiffs’ failure to exhaust
administrative remedies is dispositive, to be thorough, we address additional issues raised by
plaintiffs and addressed by the Court of Claims below.
B. RELEASE
Plaintiffs argue that Wyoming, Redford, and Kirtland could not have waived their
constitutional rights because they could not make a knowing, intelligent, and voluntary waiver in
the absence of a transparent audit procedure. We disagree.
Summary disposition “is appropriate because of release.” MCR 2.116(C)(7). A party may
use documentation to support a motion for summary disposition under MCR 2.116(C)(7). Clay v
Doe, 311 Mich App 359, 362; 876 NW2d 248 (2015). “The contents of the complaint are accepted
as true unless contradicted by documentation submitted by the movant.” Maiden v Rozwood, 461
Mich 109, 119; 597 NW2d 817 (1999). The pleadings and any evidence submitted should be
construed in the light most favorable to the nonmoving party. Anzaldua, 292 Mich App at 629.
“The scope of a release is governed by the intent of the parties as it is expressed in the release. If
the text in the release is unambiguous, the parties’ intentions must be ascertained from the plain,
ordinary meaning of the language of the release.” Rinke v Auto Moulding Co, 226 Mich App 432,
435; 573 NW2d 344 (1997). In this case, Wyoming, Redford, and Kirtland entered into repayment
agreements with defendant in which the three plaintiffs agreed to “fully and finally release”
defendant “from any claims” the undersigned plaintiffs “have asserted, could have asserted or may
assert in the future against defendant” related to the overpayment cases. This language expresses
a clear intent to release defendant from all claims plaintiffs could assert against defendant in
relation to the overpayments. Accordingly, the Court of Claims did not err by interpreting this
language to bar the claims of plaintiffs Wyoming, Redford, and Kirtland against defendant.
We reject plaintiffs’ assertion that they were incapable of making a knowing, intelligent,
and voluntary waiver of their constitutional rights. Plaintiffs’ allegations regarding the
deficiencies in the way the audits were conducted show that plaintiffs knew why the audit
procedure was inadequate when they went through it. Additionally, the notices of preliminary
findings described the review process and the overpayment amount calculated, and the notices
invited plaintiffs to communicate with defendant about how that amount was calculated and how
it could be challenged. It is unclear why plaintiffs would not have had enough information to
conclude, in their opinion, that the procedure used to audit them was constitutionally inadequate
before signing the agreements containing the release. The Court of Claims properly concluded
that Wyoming, Redford, and Kirtland waived their claims, including their constitutional claim,
against defendant in relation to the audits.
C. FAILURE TO STATE A CLAIM
Plaintiffs lastly argue that the Court of Claims erred by concluding that plaintiffs failed to
state a claim on which relief could be granted. We disagree.
Summary disposition under MCR 2.116(C)(8) is proper when “[t]he opposing party has
failed to state a claim on which relief can be granted.” “A motion for summary disposition under
MCR 2.116(C)(8) tests the legal sufficiency of a claim by the pleadings alone.” Smith v Stolberg,
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231 Mich App 256, 258; 586 NW2d 103 (1998). “All well-pleaded factual allegations are accepted
as true and construed in a light most favorable to the nonmovant.” Maiden, 461 Mich at 119.
Summary disposition under MCR 2.116(C)(8) is warranted when no factual development could
possibly justify recovery. Adair v Michigan, 470 Mich 105, 119; 680 NW2d 386 (2004).
1. APA
Plaintiffs argue that they stated a claim under the APA by arguing that defendant was
required to promulgate rules governing the audits conducted in this case under MCL 24.233(1)
and (2). We disagree.
Statutory interpretation begins with the language of the statute for the purpose of
determining and giving effect to the Legislature’s intent. Potter v McLeary, 484 Mich 397, 410-
411; 774 NW2d 1 (2009). “All other things being equal, a more specific statutory provision
controls over a more general statutory provision.” Telford v Michigan, 327 Mich App 195, 199;
933 NW2d 347 (2019). “A statute must be read in conjunction with other relevant statutes to
ensure that the legislative intent is correctly ascertained. The statute must be interpreted in a
manner that ensures that it works in harmony with the entire statutory scheme.” Bush v Shabahang,
484 Mich 156, 167; 772 NW2d 272 (2009).
MCL 24.233(1) and (2) govern the promulgation of rules describing an agency’s structure
and operation and rules describing an agency’s procedures. The APA defines a “rule” and the
relevant exception as follows:
“Rule” means an agency regulation, statement, standard, policy, ruling, or
instruction of general applicability that implements or applies law enforced or
administered by the agency, or that prescribes the organization, procedure, or
practice of the agency, including the amendment, suspension, or rescission of the
law enforced or administered by the agency. Rule does not include any of the
following:
* * *
(q) A policy developed by the department of health and human services
under the authority granted in section 111a of the social welfare act, 1939 PA 280,
MCL 400.111a, to implement policies and procedures necessary to operate its
health care programs in accordance with an approved state plan or in compliance
with state statute. [MCL 24.207(q).]
MCL 400.111a states that defendant’s director
may establish policies and procedures that he or she considers appropriate, relating
to the conditions of participation and requirements for providers established by
[MCL 400.111b] and to applicable federal law and regulations, to assure that the
implementation and enforcement of state and federal laws are all of the following:
(a) Reasonable, fair, effective and efficient.
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(b) In conformance with law.
(c) In conformance with the state plan for medical assistance adopted under
section 10 and approved by the United States department of health and human
services. [MCL 400.111a(1) (emphasis added).]
MCL 400.111a(7)(d) permits defendant to “[r]ecover payments to a provider in excess of the
reimbursement to which the provider is entitled.” When the agency seeks to recoup overpayment
for services, the burden is on the healthcare provider to show that it did not seek excessive payment
for services, not on the agency to show that it erroneously overpaid the provider. Rutherford v
Dep’t of Social Servs, 193 Mich App 326, 329; 483 NW2d 410 (1991).
These provisions show that defendant was not required to promulgate rules to recover
overpayments. The word “may” is generally permissive unless context requires it to be interpreted
in a mandatory sense. Mull v Equitable Life Assurance Society of the US, 444 Mich 508, 519; 510
NW2d 184 (1994). In this case, in light of the APA’s exemption of MCL 400.111a from the
rulemaking requirement in MCL 24.207(q), the word “may” in MCL 400.111a is properly read as
permissive. Plaintiffs maintain that MCL 24.207(q) still requires defendant to establish a “policy
in lieu of promulgating a rule.” This distinction is not supported by the general definition of a rule
in MCL 24.207 or the exception to that definition in MCL 24.207(q), both of which refer to a
“policy” as one of many forms a “rule” may take. The permissive language of MCL 400.111a
shows that defendant is not required to formulate “policies and procedures” governing
participation in Medicaid. In short, the APA does not require defendant to promulgate a rule as
prescribed by the APA or a policy governing the challenged audits, and the Court of Claims did
not err by concluding that plaintiffs failed to state a claim under the APA.
Moreover, plaintiffs’ argument is inconsistent with the allegations in the complaint.
Plaintiffs stated that the Medicaid Provider Manual directs pharmacies to maintain certain types
of documents substantiating the “the size and quantity of goods” billed to Medicaid. Plaintiffs
similarly stated that the Medicaid Provider Manual “only establish[ed] what types of records
pharmacies must maintain to demonstrate that a sufficient inventory was purchased to justify the
quantity billed to Medicaid.” By plaintiffs’ admission, the Manual directed pharmacies to maintain
certain records and for what purpose. In a comparable case involving a motor fuel tax, an agency
bulletin, which was excluded from the APA’s definition of a rule under a different exception,
specified what invoices should be maintained and adequately supported the results of an audit
because the taxpayer failed to produce the type of invoices described in the bulletin. By Lo Oil Co
v Dep’t of Treasury, 267 Mich App 19, 44-46; 73 NW2d 822 (2005). In this case, plaintiffs’
allegations show that plaintiffs were well aware of what documents to maintain and the purpose
of the audits, so they should not have been surprised by how their billing of services to Medicaid
could be questioned during an audit. As pharmaceutical providers, plaintiffs should know what
documentation is required to substantiate their claims for payment of medications prescribed and
dispensed, and they bore the burden of showing that the overpayment results were inaccurate.
Plaintiffs further alleged that OIG did not review the appropriate documents during the
audits and specified what type of information OIG should have reviewed. Plaintiffs alleged that
no established procedure existed to allow the pharmacies to challenge the overpayment
assessments before describing the procedure that was used in their individual audits. Plaintiffs
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stated that they could not challenge the overpayment assessments until the process was complete.
However, plaintiffs also alleged that all but one of the pharmacies challenged the preliminary
findings, and all of the pharmacies that challenged the preliminary findings had their overpayment
assessments reduced. When a provider has notice of the method used to calculate the overpayment
and an opportunity to contest that method and the result reached, the agency has not violated the
APA. Rutherford, 193 Mich App at 330. Plaintiffs alleged that they did not have notice of the
method used to calculate the overpayments, but their allegations related to what types of
documents they should maintain and the purpose of the audits, and six of seven pharmacies’
successful efforts to reduce the overpayment assessments, undermine plaintiffs’ general theme that
they had no way of knowing how to defend against an audit.
Plaintiffs also cited OIG’s implementing legislation, MCL 333.26368(III)(A)(14) and (15),
in support of their APA claim. MCL 333.26368 authorized the creation of the OIG, and the cited
provisions state as follows:
(A) The Office of Health Services Inspector General shall conduct and
supervise activities to prevent, detect, and investigate fraud, waste, and abuse in
Health Services Programs. Specifically, the Office shall do all of the following:
* * *
(14) Promulgate rules or regulations relating to fraud, waste, and abuse
under Sections 6, 9, and 10 of The Social Welfare Act, 1939 PA 280, MCL 400.6,
400.9, and 400.10, or other applicable law.
(15) Develop procedures to collect overpayments, restitution amounts, and
settlement proceeds. [MCL 333.26368(III)(A)(14) and (15).]
Plaintiffs argue that the Court of Claims ignored the “other applicable law” clause, which refers to
the APA. As previously discussed, the APA’s definition of a rule does not apply. Therefore,
plaintiffs’ reading of this statute to refer to the APA is unavailing, and the Court of Claims did not
err by concluding that plaintiffs failed to state a claim under the APA or the enabling legislation.
2. DUE PROCESS
Plaintiffs also argue that they stated an actionable due-process claim when they alleged
that defendant deprived plaintiffs of property without giving plaintiffs notice and an opportunity
to be heard. We disagree.
“[P]rocedural due process requires that a party be provided notice of the nature of the
proceedings and an opportunity to be heard by an impartial decision maker at a meaningful time
and in a meaningful manner.” Mettler Walloon, LLC v Melrose Twp, 281 Mich App 184, 213-
214; 761 NW2d 293 (2008). Plaintiffs’ allegations refer to the types of documents to be
maintained and for how long, and the purpose of the audits. Plaintiffs further alleged that they
each received a notice of preliminary findings, that six of the seven pharmacies responded to the
notices, and that the overpayment assessments were reduced for all six of the pharmacies that
challenged the results. These allegations demonstrate that plaintiffs received notice of the
overpayment assessments. The six pharmacies’ responses to the notices and the reduction of all
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of the challenged overpayment assessments show that plaintiffs had a meaningful opportunity to
be heard. Accordingly, the Court of Claims did not err by concluding that plaintiffs failed to state
a procedural due-process claim.
Plaintiffs further argue that the balancing test stated in Mathews v Eldridge, 424 US 319;
96 S Ct 893; 47 L Ed 2d 18 (1976), and employed by the Court of Claims, does not apply to their
claim because they are challenging the total absence of a procedure, not the sufficiency of an
existing procedure. The Court of Claims applied the balancing test to evaluate the alternative
procedures posited by plaintiffs.2 In Mathews, 424 US at 334, the United States Supreme Court
stated that “resolution of the issue whether the administrative procedures provided here are
constitutionally sufficient require analysis of the governmental and private interests that are
affected.” In this case, plaintiffs likewise challenge the constitutional sufficiency of the
administrative procedures made available, so the governmental and private interests affected must
be analyzed. Accordingly, their proposed alternative procedures were subject to the Mathews
balancing test.
Plaintiffs argue in the alternative that, applying Mathews, defendant used the wrong
documentation without adequate safeguards to deprive plaintiffs of their property and that the
publication of an audit process would impose only a minimal burden on the government.
[D]ue process generally requires consideration of three distinct factors: First, the
private interest that will be affected by the official action; second, the risk of an
erroneous deprivation of such interest through the procedures used, and the
probable value, if any, of additional or substitute procedural safeguards; and finally,
the Government’s interest, including the function involved and the fiscal and
2
We should again address plaintiffs’ reliance on Bauserman in this regard. In Bauserman, we
noted that a cognizable constitutional tort had been alleged when the plaintiffs alleged that the
defendant “systemically, and by way of concerted and coordinated actions, unlawfully intercepted
[the plaintiffs] state and federal tax refunds, garnished their wages, and forced [the] plaintiffs to
repay unemployment benefits that they had lawfully received.” Bauserman, ___ Mich App at ___;
slip op at 11. Again, Bauserman involved circumstances in which the plaintiffs alleged that they
were not provided notice of the bases for their disqualification of unemployment benefits, were
not provided a hearing, and were not permitted an opportunity to present evidence in their defense.
Id. We also noted that we afforded “significant weight to the outrageousness of the misconduct”
in that case:
[The] plaintiffs allege that the [defendant], relying on an automated system,
systemically engaged in a series of concerted actions that wrongfully accused
thousands of innocent citizens of this state of fraud and the unlawful receipt of
unemployment benefits without grounds for doing so. [Id. at ___; slip ip at 16.]
Again, there are no allegations in this case that plaintiffs were not presented an opportunity to be
heard. Plaintiffs only argue that the administrative remedies offered to them were insufficient.
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administrative burdens that the additional or substitute procedural requirement
would entail. [Mathews, 424 US at 334-335.]
In this case, plaintiffs focus on the second element, weighing the risk of an erroneous deprivation
against the benefit of alternative procedural safeguards. Plaintiffs’ proposal that a published audit
procedure would protect against the deprivation in this case is inconsistent with their allegations
that they knew what documents should be retained and for how long, in addition to the purpose of
the audit.
Plaintiffs further argue that defendant “arbitrarily chose to use a workflow tool rather than
a billing report that led to predetermined false and inflated deficiencies against” plaintiffs.
Plaintiffs do not establish what additional procedure defendant should have used, however, when
they argue that defendant should have used different documents, i.e., different evidence. This
Court has held that a “ ‘paper hearing,’ ” in which the decision maker reviewed documentation
without hearing oral testimony, adequately accounted for the risk of erroneous deprivation.
English v Blue Cross Blue Shield of Mich, 263 Mich App 449, 462; 688 NW2d 523 (2004). In this
case, plaintiffs had the opportunity to present what they believed to be the correct records after
receiving the notices of preliminary findings, and plaintiffs alleged that Wyoming, Seaway,
Redford, Kay, and Kirtland did so. Plaintiffs’ repeated assertions that they could not possibly
know what to anticipate without a published audit procedure are undermined by their allegations
regarding what documents they were required to maintain and the purpose of the audits.
Ultimately, procedural due process requires nothing more than notice and an opportunity
to respond to the evidence. Hinky Dinky Supermarket, Inc v Dep’t of Community Health, 261
Mich App 604, 607; 683 NW2d 759 (2004). The admitted ability of the pharmacies to respond to
the notices of preliminary findings and to have the amount of the overpayments reduced as a result
of those responses demonstrates that plaintiffs received what process was due. That defendant did
not promulgate and publish official rules for plaintiffs to review about the initial audit process is
not dispositive on the issue.
Lastly, we note plaintiffs’ argument that defendant violated their right to substantive due
process by conducting the audits arbitrarily without established procedures and without adequate
training for the auditors. Plaintiffs first criticize the Court of Claims for failing to address
plaintiffs’ right to substantive due process. Substantive due process asks whether the government
arbitrarily deprived a party of a protected interest. Landon Holdings, Inc v Grattan Twp, 257 Mich
App 154, 173; 667 NW2d 93 (2003). In contrast, procedural due process concerns the safeguards
protecting against the deprivation of a protected interest, and it requires notice and an opportunity
to be heard. Mettler Walloon, 281 Mich App at 213-214. In this case, plaintiffs alleged that they
were deprived of notice and a meaningful opportunity to be heard regarding the audits, which were
not conducted pursuant to a predetermined procedure. To the extent that plaintiffs described the
procedure as unfair and arbitrary, they did so in the context of outlining why they did not have
adequate notice and an opportunity to be heard. That is, plaintiffs did not raise a substantive due-
process claim in the Court of Claims, and the court did not fail to address a claim that plaintiffs
did not raise. Plaintiffs cannot rely on a claim that was not raised in the complaint to argue that
the Court of Claims erred by concluding that plaintiffs failed to state a claim. Accordingly,
plaintiffs’ substantive due-process claim raised on appeal does not overcome the Court of Claims’s
determination that plaintiffs’ complaint failed to state a claim on which relief could be granted.
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In addition, plaintiffs cite the APA and the enabling legislation, MCL 333.26368, as the
basis for the procedural and substantive due-process claims. We have already concluded that
plaintiffs did not assert a viable claim under the APA and the enabling legislation. Moreover, if
plaintiffs had a viable statutory claim, a constitutional due-process claim would be unnecessary.
III. CONCLUSION
In summation, plaintiffs assert numerous legal challenges—the APA, OIG’s enabling
legislation, procedural due process, and substantive due process—with the same recurring theme
that defendant’s audits were conducted in the total absence of any policies or guidance. Plaintiffs’
own allegations contradict this claim, particularly in light of the process afforded plaintiffs to
present evidence via administrative procedures and to be heard. For all of the reasons detailed
above, the trial court did not err in granting summary disposition to defendant.
Affirmed.
/s/ Karen M. Fort Hood
/s/ Kathleen Jansen
/s/ Jonathan Tukel
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