STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6676

March 12, 1991

PHARMACISTS:

Pharmacists ownership requirements in pharmacy corporations

CORPORATIONS:

Pharmacists ownership requirements in pharmacy corporations

Section 1 of the pharmacy ownership act, 1927 PA 359, as amended by 1977 PA 62 and 1980 PA 99, is an invalid exercise of the state's police power that bears no reasonable relationship to public health, safety and morals, and is in violation of the Due Process Clause of the Fourteenth Amendment.

Honorable Thomas C. Mathieu

State Representative

The Capitol

Lansing, Michigan

You have requested my opinion whether section 1 of the pharmacy ownership act, 1927 PA 359, MCL 338.481 et seq; MSA 14.771 et seq, as amended by 1977 PA 62 and 1980 PA 99, violates the Due Process Clause of the Fourteenth Amendment.

Section 1 of the pharmacy ownership act provides:

From its inception, this statute has contained many exemptions to the 25% ownership requirement by pharmacists. Initially, the act carved out exemptions for persons and corporations owning a drugstore, pharmacy, or apothecary shop at the time of the passage of the act, as well as the administrator, executor, trustee, widow, heirs, or next of kin of a deceased owner of a pharmacy, drugstore, or apothecary shop.

OAG, 1949-1950, No 1193, p 519 (April 5, 1950), considered the constitutionality of the limitation on ownership rights, concluding that it was constitutional and enforceable. The opinion of then Attorney General Stephen J. Roth was that the prohibition against ownership of a retail drug business by persons unskilled in the practice of pharmacy represented a reasonable exercise of the State's police power and, further, that the statutory exemptions were based upon reasonable distinctions between different classes of owners.

However, since the issuance of OAG No 1193, supra, the legislature has added subsections (5), (6) and (7) exempting from the 25% ownership requirement health maintenance organizations, hospitals, and pharmacies in institutions of higher education. These exemptions are in addition to those originally created in this statute.

The practical effect of these exemptions has been to negate any relationship between the act and the public purpose which it was originally intended to serve. The exemptions themselves created a number of nonconforming drugstores; for instance, corporations which had been "grandfathered" under 1927 PA 359 have been permitted to establish additional pharmacies, and ownership of "grandfathered" pharmacies has been inherited without regard to the 25% requirement. Nonconforming hospitals and health maintenance organizations have been permitted to establish additional retail stores outside of their facilities.

In 1966 the Michigan Supreme Court decided SuperX Drugs Corp v State Board of Pharmacy, 378 Mich 430; 146 NW2d 1 (1966), in which the court issued a writ of mandamus compelling the Board of Pharmacy to issue a license to SuperX, a retail drug chain, which had purchased another corporation. The corporation purchased by SuperX had existed prior to 1927. In SuperX, one judge would hold the statute constitutional, four judges would hold it to be unconstitutional, and three judges held that the determination of the constitutional issue was not necessary to resolve the issue before the court regarding the issuance of a writ of mandamus.

After SuperX, supra, regardless of the makeup of their shareholders, all corporations which on the effective date of 1927 PA 359 owned a pharmacy were forever exempt from the requirement that 25% of their stock be owned by pharmacists, and were permitted to acquire additional pharmacies without regard for the 25% ownership requirement. Moreover, this exempt status could be transferred by the operation of mergers and acquisitions to other corporate entities. A corporation which did not even exist in 1927 could acquire an unlimited number of pharmacies in the future simply by merging with any corporation which owned a pharmacy in 1927. In fact, a number of large chain pharmacy corporations now operate in Michigan without regard to the 25% pharmacist ownership requirements solely because each was able to purchase its grandfather status from another corporation, which had existed as a pharmacy prior to 1927.

While in 1927 the Legislature may have intended to protect the public by ensuring at least 25% pharmacist ownership of retail drug businesses, today there is no rational relationship between ownership of 25% of the stock of a corporation and control over the operation of the pharmacy business. While there is a public interest in controlling and regulating the operation of retail drug businesses, this legislation does not accomplish the intended result. As Justice Adams observed in SuperX, supra, p 463, quoting with approval the constitutional principles set forth by Justice Fead in Carolene Products Co v Thomson, 276 Mich 172, 178; 267 NW 608 (1936):

OAG, 1981-1982, No 6033, p 561 (February 4, 1982), applied these same principles to invalidate certain administrative rules promulgated by the Liquor Control Commission. The opinion found that the rules in question, which prohibited the advertising of beer and wine prices, lacked a reasonable relationship to the public purpose of promoting temperance and were, accordingly, invalid as an improper exercise of the police power. That conclusion was affirmed by the Michigan Court of Appeals in Michigan Beer & Wine Wholesalers Assoc v Attorney General, 142 MichApp 294; 370 NW2d 328 (1985).

In North Dakota State Board of Pharmacy v Snyder's Drug Stores, Inc, 414 US 156; 94 SCt 407; 38 LEd2d 379 (1973), the United States Supreme Court upheld the constitutionality of a North Dakota statute requiring that a majority of the stock of a corporate applicant for a permit to operate a pharmacy be owned by registered pharmacists. That case is distinguishable, in at least one very significant respect. The Michigan statute under consideration here merely requires that a pharmacist own 25% of the stock in a pharmacy, with no corresponding requirement of any managerial control by the pharmacist. Thus, the Michigan statute provides absolutely no assurance that the pharmacist-owner will have any effective control in the operation of the pharmacy. The North Dakota statute, in contrast, requires not only that a pharmacist must own a controlling interest in the pharmacy, but also provides that the pharmacist owner(s) must be "actively and regularly employed in and responsible for the management, supervision, and operation of [the] pharmacy." Id, at 158.

Regarding the distinction between ownership and control, the reasoning of Justice Adams in SuperX, supra, pp 466-467, is compelling:

For these reasons, the Michigan statute bears no reasonable relationship to the public interest it is designed to serve, unlike the North Dakota statute which was upheld by the United States Supreme Court.

This conclusion, moreover, does not leave the public unprotected. Pharmacies and pharmacists in Michigan are subject to extensive regulation under the provisions of the Public Health Code, MCL 333.1101 et seq; MSA 14.15(1101) et seq. In order to operate in Michigan, a pharmacy must be licensed. MCL 333.17741(1); MSA 14.15(17741)(1). Pursuant to MCL 333.17741(2); MSA 14.15(17741)(2), the operation of each separate pharmacy location must at all times be under the personal direction of a licensed pharmacist:

A prescription may be dispensed only by a licensed pharmacist (or by the actual physician or other health professional who wrote the prescription). MCL 333.17751(2); MSA 14.15(17751)(2).

It is this comprehensive regulatory scheme set forth in the Public Health Code which effectively protects the public interest by assuring that each pharmacy operation is under the direct control of a licensed pharmacist. The 25% ownership requirement set forth in the pharmacy ownership act, in its present form, does not contribute to and, indeed, is utterly irrelevant to that protection.

It is my opinion, therefore, that section 1 of the pharmacy ownership act, 1927 PA 359, supra, as amended by 1977 PA 62 and 1980 PA 99, is invalid as an improper exercise of the state's police power in that it bears no reasonable relationship to public health, safety and morals, and is in violation of the Due Process Clause of the Fourteenth Amendment.

Frank J. Kelley

Attorney General