Express Scripts, Inc. v. Wenzel
| Decision Date | 12 June 2000 |
| Docket Number | No. 98-4285-CV-C-5-ECF.,98-4285-CV-C-5-ECF. |
| Citation | 102 F.Supp.2d 1135 |
| Parties | EXPRESS SCRIPTS, INC., et al., Plaintiffs, v. Keith WENZEL, Defendant. |
| Court | U.S. District Court — Western District of Missouri |
David M. Harris, Dawn M. Johnson, Greensfelder, Hemker & Gale, P.C., St. Louis, MO, for Express Scripts, Inc., Associated Industries of Missouri, Missouri Chamber of Commerce, St. Louis Area Business Health Coalition, plaintiffs.
Charles W. Hatfield, Eric Michael Walter, Ronald Molteni, Missouri Attorney General's Office, Jefferson City, MO, for Keith Wenzel, defendant.
This case involves whether a Missouri statute and its accompanying regulations are preempted by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq. The challenged state law essentially forbids health maintenance organizations ("HMOs") from requiring their enrollees to have their prescriptions filled by mail service pharmacies rather than retail pharmacies. The statute accomplishes this goal by regulating the contracts that HMOs enter with pharmacies. See Mo.Rev.Stat. §§ 354.535.3 and 354.535.4 and 20 C.S.R. 400-7.400 (). Plaintiffs assert that H.B. 335 "relates to" employee welfare benefit plans regulated by ERISA, and is therefore preempted. See 29 U.S.C. § 1144(a)(2)(A) (). Defendant Keith Wenzel, the Director of the Missouri Department of Insurance, denies this assertion and argues that the law constitutes permissible state regulation of insurance. See 29 U.S.C. § 1144(b) ().
Pending before the Court are cross-motions for summary judgment. After considering the parties' briefs and the oral argument presented on May 31, 2000, the Court concludes that Missouri's statute is not preempted by ERISA.
The material facts in this case are few and undisputed. Plaintiff Express Scripts, Inc. ("Express Scripts") provides prescription drugs through the mail to enrollees of HMOs throughout the United States, including Missouri. Some of these HMO memberships were purchased by ERISA-governed health plans in Missouri. Before H.B. 335 went into effect, Express Scripts was the exclusive provider of 90-day supplies of drug prescriptions for several Missouri-licensed HMO clients. Because of the statute, Express Scripts is no longer the exclusive provider to these customers. Express Scripts and several other Plaintiffs1 seek a judgment that H.B. 335 is preempted by ERISA.
ERISA regulates employee welfare benefit plans, which include "any plan, fund, or program ... established or maintained by an employer or by an employee organization, or by both, [that] was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, medical, surgical, or hospital care or benefits." 29 U.S.C. § 1002(1). Thus, when an employer establishes or maintains an ERISA-governed employee health plan, these plans may be either self-funded or insured. In self-funded plans, the employer bears ultimate financial responsibility for paying plan expenses. In insured plans, the employer contracts with a third-party, typically a licensed entity such as an indemnity insurer or an HMO, which assumes the financial risk for providing a specified scope of benefits and performing related administrative services.
Employers who provide insured ERISA health plans contract with indemnity insurers, HMOs, or other entities that bear the risk that the employees will require medical care. An indemnity insurer is a company that provides reimbursement for specified medical expenses in exchange for payment of premiums. This form of health coverage is primarily a financing system as opposed to a health care delivery system. When the insured patient incurs a health care expense, the insurer indemnifies the patient for that loss up to a specified limit. By contrast, HMOs create comprehensive health care delivery networks to provide physician, hospital, and pharmacy services to enrollees. HMOs create these networks by entering a series of contracts with providers. These contracts typically include a rate or reimbursement that the provider agrees to be paid for the covered services.
HMOs in Missouri have been subject to functionally the same regulation by the Missouri Department of Insurance as that applied to indemnity insurance companies. For example, both types of entities are subject to similar financial reporting requirements, statutory net worth requirements, and periodic examination by the Missouri Department of Insurance. Rates for health care provided by HMOs and indemnity insurers are both calculated by actuarial analysis, and the risk that the cost of health care benefits will exceed prepaid revenues is essentially the same for both types of entities.
In Missouri, HMOs are required to contract with a certain number and type of providers in order to maintain adequate networks. HMOs usually require enrollees to pay only nominal copayments for each service the patient receives from a participating provider, such as $10.00 for a doctor's office visit. Typically, enrollees face higher copayments unless they obtain care from the HMOs' participating providers. HMOs also sometimes encourage enrollees to obtain services from certain subsets of participating providers. They do this through "benefit design," which is structuring the benefit program in such a way that it creates incentives such as lower copayments for enrollees to use one participating provider instead of another.
To provide pharmacy services for enrollees, Missouri-licensed HMOs may use a combination of both retail and mail service pharmacies. Retail pharmacies are stores, such as Walgreens, where an enrollee can purchase prescription medications. The advantage of retail pharmacies is their ability to immediately fill prescriptions that are needed for emergency or acute care needs. Mail service pharmacies, as their name implies, fill enrollees' prescriptions through the mail. Mail service pharmacies have been used by HMOs in Missouri to fill "maintenance prescriptions," 90-day supplies of drugs used to treat conditions such as arthritis and high blood pressure. Patients receiving maintenance prescriptions usually must take their medication every day without interruption, and consequently must have a supply of their prescriptions at all times. Customers obtaining maintenance prescriptions from a retail pharmacist had the opportunity to consult with the pharmacist in person, while customers obtaining such prescriptions through the mail could only speak "with a strange pharmacist through a toll-free number." Def.'s Ex. 6 at 3. Several retail pharmacists have testified that customers have come to their stores seeking short-term prescription refills to meet their needs until a mail service pharmacy is able to send a 90-day supply of the medication. Express Scripts takes 10 to 14 days to fill a mail order prescription. Thus, even HMOs that use mail service pharmacies to provide maintenance prescriptions continue to have retail pharmacies in their networks to fill prescriptions of 30 days or less.
The Missouri legislature has passed a statute, H.B. 335, that forbids HMOs from charging patients higher fees for filling their prescriptions at local pharmacies rather than through mail order pharmacies, as long as the local pharmacies meet the HMOs' specified price requirements:
Every health maintenance organization shall apply the same coinsurance, copayment and deductible factors to all drug prescriptions filled by a pharmacy provider who participates in the health maintenance organization's network if the provider meets the contract's explicit product cost determination. If any such contract is rejected by any pharmacy provider, the health maintenance organization may offer other contracts necessary to comply with any network adequacy provisions of this act. However, nothing in this section shall be construed to prohibit the health maintenance organization from applying different coinsurance, copayment and deductible factors between generic and brand name drugs.
Mo.Rev.Stat. § 354.335.3. Regardless of whether local pharmacies agree to meet an HMO's price requirements, H.B. 335 also forbids HMOs from limiting the quantity of drugs a patient may purchase from a local pharmacy:
Health maintenance organizations shall not set a limit on the quantity of drugs which an enrollee may obtain at any one time with a prescription, unless such limit is applied uniformly to all pharmacy providers in the health maintenance organization's network.
Mo.Rev.Stat. § 354.335.4. Thus, the statute requires HMOs to allow patients to choose between having their maintenance prescriptions filled by a retail pharmacy or a mail service pharmacy, assuming that both kinds of pharmacies are in the HMOs' networks. However, if a retail pharmacy in the network refuses to meet the HMOs' price cost determination, then the HMO may use "benefit design" to encourage enrollees to use the mail service pharmacy.
One legislative purpose in enacting H.B. 335 was to preclude the practice of HMOs from differentiating between pharmacies within their networks by allowing only mail-order pharmacies to fill certain long-term or high volume prescriptions while limiting retail pharmacies to shorter or lesser quantity prescriptions. Another purpose was to allow patients insured through HMOs the option to choose between having their maintenance prescriptions filled at a local retail pharmacy or by mail order. [Harlan Aff. at ¶ 6].
Many ERISA plans provide health care benefits by contracting with HMOs. However, HMOs are just one type of health care service provider capable of administering pharmacy benefits to an ERISA plan's...
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