Pharm. Care Mgmt. Ass'n v. Tufte

• Decision Date: 07 August 2020
• Docket Number: No. 18-2926,18-2926
• Citation: 968 F.3d 901
• Parties: PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Plaintiff - Appellant v. Mylynn TUFTE, in her official capacity as the State Health Officer of North Dakota; Mark J. Hardy, in his official capacity as the Executive Director of the North Dakota Board of Pharmacy ; Steven P. Irsfeld, in his official capacity as President of the North Dakota Board of Pharmacy ; Wayne Stenehjem, in his official capacity as the Attorney General of North Dakota, Defendants - Appellees
• Court: U.S. Court of Appeals — Eighth Circuit

968 F.3d 901

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Plaintiff - Appellant

v.Mylynn TUFTE, in her official capacity as the State Health Officer of North Dakota; Mark J. Hardy, in his official capacity as the Executive Director of the North Dakota Board of Pharmacy ; Steven P. Irsfeld, in his official capacity as President of the North Dakota Board of Pharmacy ; Wayne Stenehjem, in his official capacity as the Attorney General of North Dakota, Defendants - Appellees

No. 18-2926

United States Court of Appeals, Eighth Circuit.

Submitted: October 15, 2019

Filed: August 7, 2020

Rehearing and Rehearing En Banc Denied September 2, 2020^*

Sarah Hogarth, Michael B. Kimberly, MCDERMOTT & WILL, The McDermott Building, Washington, DC, Alexander J. Kritikos, MCDERMOTT & WILL, Chicago, IL, Robert B. Stock, Mart Daniel Vogel, VOGEL LAW FIRM, Fargo, ND, for Plaintiff - Appellant.

Matthew A. Sagsveen, Assistant Attorney General, ATTORNEY GENERAL'S OFFICE, Bismarck, ND, Robert Thomas Smith, KATTEN & MUCHIN, Washington, DC, for Defendants - Appellees Mylynn Tufte and Wayne Stenehjem.

Howard Robert Rubin, Robert Thomas Smith, KATTEN & MUCHIN, Washington, DC, for Defendants - Appellees Mark J. Hardy and Steven P. Irsfeld.

Before SMITH, Chief Judge, GRUENDER and BENTON, Circuit Judges.

GRUENDER, Circuit Judge.

This case concerns Pharmaceutical Care Management Association's ("PCMA") claim that the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq ., and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("Medicare Part D"), 42 U.S.C. § 1395w-101 et seq. , preempt two sections of the North Dakota Century Code (the "legislation") regulating the relationship between pharmacies, pharmacy benefits managers ("PBMs"), and other third parties that finance personal health services. After PCMA and the State of North Dakota¹ cross-moved for summary judgment, the district court determined that only one provision in the legislation was preempted by Medicare Part D and entered judgment in favor of North Dakota on the remainder of PCMA's claims. We affirm in part, reverse in part, and remand with directions that judgment be entered in favor of PCMA.

PCMA is a national trade association that represents PBMs. PBMs are third-party health plan administrators that manage prescription drug benefits on behalf of health insurance plans. In this role, PBMs negotiate prescription drug prices with drug manufacturers and pharmacies, create networks of pharmacies to fill prescriptions for insured individuals, and process insurance claims when prescriptions are filled.

In 2017, North Dakota passed N.D. Century Code sections 19-02.1-16.1 and 19.02.1-16.2, which, according to North Dakota, "sought to define the rights of pharmacist[s] in relation to [PBMs], and to regulate certain practices by PBMs." The legislation regulates the fees PBMs and "third-party payer[s]" may charge pharmacies, N.D. Cent. Code § 19-02.1-16.1(2) ; limits what copayments PBMs or third-party payers may charge, id. § 19-02.1-16.1(4) ; dictates the quality metrics PBMs and third-party payers may use to evaluate pharmacies and structures how they may reward performance, id. §§ 19-02.1-16.1(3), (11), -16.2(4); prohibits, subject to certain exceptions, PBMs from having "an ownership interest in a patient assistance program and a mail order specialty pharmacy," id. § 19.02.1-16.2(3); regulates benefits provisions and plan structures, id. §§ 19-02.1-16.1(3), (4), (5) (8), (9), (11), -16.2(5); and requires certain disclosures on the part of PBMs and prohibits PBMs from setting limits on information pharmacists may provide patients, id. §§ 19-02.1-16.1(6), (7), (10), -16.2(2). A PBM or third-party payer that violates any section of the legislation is guilty of a class B misdemeanor. Id. §§ 19-02.1-16.1(12), -16.2(6).

Shortly after the legislation's enactment in 2017, PCMA filed a complaint seeking a declaration of preemption and an injunction prohibiting the enforcement of the legislation. At summary judgment, the district court determined that none of the statutory provisions were preempted by ERISA and that only one of the provisions was preempted by Medicare Part D. PCMA appeals, renewing its argument that both ERISA and Medicare Part D preempt the entire legislation.

We review de novo the district court's preemption and statutory interpretation rulings. Pharm. Care Mgmt. Ass'n v. Rutledge , 891 F.3d 1109, 1112 (8th Cir. 2018). With certain limited exceptions, ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a) (emphasis added). "The breadth of this section is well known," Rutledge , 891 F.3d at 1112, and courts have struggled for decades to cabin its reach in order to prevent the clause from becoming "limitless," Gobeille v. Liberty Mut. Ins. , 577 U.S. ––––, 136 S. Ct. 936, 943, 194 L.Ed.2d 20 (2016) ; N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. , 514 U.S. 645, 655-56, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995) (rejecting an "uncritical literalism" that extends ERISA's preemption clause to the "furthest stretch of its indeterminacy"); see also Cal. Div. of Labor Standards Enf't v. Dillingham Constr., N.A., Inc. , 519 U.S. 316, 335, 117 S.Ct. 832, 136 L.Ed.2d 791 (1997) (Scalia, J., concurring) (counseling courts to avoid reading the clause too broadly because, "as many a curbstone philosopher has observed, everything is related to everything else").

Endeavoring to clarify ERISA's "unhelpful text," Travelers Ins. , 514 U.S. at 656, 115 S.Ct. 1671, the Supreme Court has determined the clause preempts a state law that "relates to" an ERISA plan by having an impermissible "reference to" or "connection with" an ERISA plan, id. Here, we need not address the "connection with" element of the analysis because we conclude the legislation is preempted due to its impermissible "reference to" ERISA plans. See Pharm. Care Mgmt. Ass'n v. Gerhart , 852 F.3d 722, 730 (8th Cir. 2017) ("Where a State law is preempted because it has a prohibited ‘reference to’ ERISA or ERISA plans, we need not reach the question of whether it is also preempted under the ‘connection with’ prong of the analysis.").

A state law has an impermissible "reference to" ERISA plans where it (1) "acts immediately and exclusively upon ERISA plans" or (2) "where the existence of ERISA plans is essential to the law's operation." Gobeille , 136 S. Ct. at 943. PCMA asserts that the legislation is preempted because it imposes requirements by reference to ERISA plans through its definitions of "third-party payers" and "plan sponsors." According to PCMA, these references "ensure[ ] that the existence of an ERISA plan triggers application" of the legislation's provisions. The district court disagreed, determining that, because the legislation also covers entities that are not ERISA plans, it neither acts immediately and exclusively upon ERISA plans nor does it make the existence of an ERISA plan essential to the operation of the regulatory scheme. We agree with PCMA that the legislation is preempted because its references to "third-party payers" and "plan sponsors" impermissibly relate to ERISA benefit plans.

Sections 19-02.1-16.1 and -16.2 regulate "[p]harmacy benefits manger[s]" and "[t]hird-party payer[s]." N.D. Cent. Code §§ 19-02.1-16.1(1), -16.2(1). They then define a "[p]harmacy benefits manager" as "a person that performs pharmacy benefits management ... for a ... third-party payer ." Id. § 19-03.6-01(4) (emphasis added). "Third-party payer" is defined as "an organization other than the patient or health care provider involved in the financing of personal health services." Id. § 19-03.6-01(6). This definition includes ERISA plans, which are necessarily "involved in the financing of personal health services" and are distinct from "the patient or health care provider." See id. ; 29 U.S.C. § 1002(1) (explaining that, for the purposes of ERISA, an employee benefit plan is one that is established "for the purpose of providing" "medical, surgical, or hospital care or benefits"). The legislation also regulates "[p]lan sponsor[s]," which it defines as "the employer in the case of an employee benefit plan established or maintained by a single employer, or the employee organization in the case of a plan established or maintained by an employee organization." N.D. Cent. Code § 19-03.6-01(5) (emphasis added). This definition is taken verbatim from ERISA, see 29 U.S.C. § 1002(16)(B), and these "plan sponsors," depending on their functions, may qualify as ERISA fiduciaries, see id. § 1002(21)(A).

Two of our prior cases dictate that regulating by implicit reference to ERISA plans results in preemption. First, in Gerhart , we determined that an Iowa statute was preempted because it had a prohibited "reference to" ERISA. 852 F.3d at 729-30. Although we found that the Iowa act at issue contained an "express reference" to ERISA, see id. at 729, we also noted that "the Iowa law ... makes implicit reference to ERISA through regulation of PBMs who administer benefits for ‘covered entities,’ which, by definition, include health benefit plans and employers, labor unions, or other groups ‘that provide[ ] health coverage,’ " id. (emphasis added). We explained that because "[t]hese entities are necessarily subject to ERISA regulation," the requirements "necessarily affect[ ] ERISA plans," and, as a result, the Iowa law contained an "impermissible reference to" ERISA. Id. at 729-30.

One year later, in Rutledge , we followed this reasoning in evaluating an Arkansas statute that was "similar in purpose and effect" to the Iowa law at issue in Gerhart . See Rutledge , 891 F.3d at 1112. There, we determined the Arkansas law contained an impermissible "reference to" ERISA plans, see id. at 1112-13, because the challenged law regulated PBMs that administered a "pharmacy benefits plan or program," see Ark. Code....