PBM’s Continue Fight Against State Regulation

Pharmacy Benefit Managers (PBMs) are continuing to fight against state regulation. On Tuesday, the Pharmaceutical Care Management Association (PCMA) filed a new brief with the Eighth Circuit Court of Appeals in opposition to North Dakota Century Code sections 16.1 and 16.2.

In 2017, the North Dakota passed legislation to regulate PBM practices including limiting the fees they may charge pharmacies, limiting copayments, and regulating drug benefit provisions and plan structures. The PCMA, a national trade association representing 11 of the largest PBMs including CVS Health, Express Scripts and OptumRx, filed suit opposing the legislation. Central to the PCMA’s arguments was that the Employee Retirement Income Security Act of 1974 (ERISA) preempted the legislation. In Pharmaceutical Care Management Ass’n v. Tufte, the United States Court of Appeals for the Eighth Circuit ruled in favor of the PCMA based on a 2018 Eighth Circuit decision Rutledge v. PCMA. The Eighth Circuit Court stated in both Tufte and Rutledge that PBM regulations have an implicit reference to ERISA because PBMs administer benefits for “covered entities” which provide health coverage and are subject to ERISA regulation.

Rutledge made its way to the U.S. Supreme Court where in December 2020 the Court issued an 8-0 decision ruling that ERISA does not necessarily preempt legislation regulating PBMs. Justice Sonya Sotomayor authored the opinion, stating “ERISA does not preempt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.” ERISA does not preempt the regulations so long as those regulations do not affect employee benefit plans but instead focus on other facets of PBM operations.

In the wake of the Supreme Court’s decision in Rutledge, North Dakota petitioned the Court to review Tufte (now named Wilke v Pharmaceutical Care Management Association). On February 22, 2021, the Supreme Court vacated the Eighth Circuit’s decision in Tufte and remanded the case to the Eight Circuit for further consideration in light of Rutledge.

The status of North Dakota sections 16.1 and 16.2 remains in doubt though as the PCMA continues to argue its case even after the Supreme Court’s decision in February. In its latest brief, the PCMA maintains its position that the North Dakota regulations are preempted by ERISA and that Rutledge does not apply because they are markedly different from the Arkansas laws at issue in Rutledge. The PCMA argues that the Arkansas law in Rutledge was “a mere rate regulation” while the North Dakota laws “directly regulate benefit design and substantive subject matters covered by ERISA.”

The Supreme Court’s decision in Rutledge presents a threat to PBMs operating free of state oversight. With several other states looking to pass laws regulating PBMs, the PCMA is looking to hold them off and get Rutledge interpreted as narrowly as possible. A loss in North Dakota would likely open the gates for more legislation across the country.

Navigating the world of PBMs can be difficult for pharmacies. From applications to audits to recredentialing, the PBM landscape is complex and everchanging. Boesen & Snow has a wealth of pharmacy and PBM experience to help our clients. Contact us and see how we can help your pharmacy with its PBM needs.