Pharm. Care Mgmt. Ass'n v. Gerhart

• Decision Date: 11 January 2017
• Docket Number: No. 15-3292,15-3292
• Citation: 852 F.3d 722
• Parties: PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Plaintiff-Appellant v. Nick GERHART, In his official capacity as Insurance Commissioner of the State of Iowa; Thomas J. Miller, In his official capacity as Attorney General of the State of Iowa, Defendants-Appellees National Community Pharmacists Association; Iowa Pharmacy Association, Amici on Behalf of Appellees
• Court: U.S. Court of Appeals — Eighth Circuit

852 F.3d 722

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Plaintiff-Appellant

v. Nick GERHART, In his official capacity as Insurance Commissioner of the State of Iowa; Thomas J. Miller, In his official capacity as Attorney General of the State of Iowa, Defendants-AppelleesNational Community Pharmacists Association; Iowa Pharmacy Association, Amici on Behalf of Appellees

No. 15-3292

United States Court of Appeals, Eighth Circuit.

Submitted: June 14, 2016

Filed: January 11, 2017

Corrected: January 12, 2017

Rehearing and Rehearing En Banc Denied February 16, 2017^*

Counsel who presented argument on behalf of the appellant was M. Miller Baker, of Washington, DC. The following attorneys also appeared on the appellant brief; Jason Michael Casini, of Des Moines, IA., Charles Robert Quigg, of Washington, DC., Mark Jacob Altschul, of Chicago, IL.

Counsel who presented argument on behalf of the appellee and appeared on the brief was Jordan Esbrook, AAG, of Des Moines, IA.

The following attorneys appeared on the amicus brief in support of appellees; Robert Thomas Smith, of Washington, DC., Howard R. Rubin, of Washington, DC., Gary W. Howell, of Chicago, IL., Daniel Lipton, of Washington, DC.

Before MURPHY and SHEPHERD, Circuit Judges, and PERRY¹ , District Judge.

PERRY, District Judge.

This case involves the question of whether the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001, et seq. , expressly preempts section 510B.8 of the Iowa Code. The district court determined that it did not and dismissed Pharmaceutical Care Management Association's (PCMA's) complaint seeking a declaration of preemption. We reverse and remand with direction that judgment be entered for PCMA.

Iowa Code § 510B.8 regulates how pharmacy benefits managers (PBMs) establish generic drug pricing, and requires that certain disclosures on their drug pricing methodology be made to their network pharmacies as well as to Iowa's insurance commissioner. Shortly after the statute went into effect, PCMA brought this action against Iowa's insurance commissioner and its attorney general (collectively, "the State"), seeking a declaration that the statute places restrictions and requirements on PBMs that impermissibly reference or are connected with ERISA plans, thus making the statute expressly preempted by ERISA. PCMA further sought a declaration that the statute violates the dormant Commerce Clause of the United States Constitution.

The district court granted the State's motions to dismiss these claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, and PCMA appeals.² We review de novo the district court's grant of a Rule 12(b)(6) motion to dismiss, accepting the facts alleged in the complaint as true. Gorog v. Best Buy Co. , 760 F.3d 787, 792 (8th Cir. 2014) ; Hafley v. Lohman , 90 F.3d 264, 266 (8th Cir. 1996). We also review de novo the question of whether ERISA preempts a State law, given that it is a matter of federal law involving statutory interpretation. See Shea v. Esensten , 208 F.3d 712, 717 (8th Cir. 2000).

I.

PCMA is a national trade association representing PBMs. PBMs are third-party plan administrators who manage and administer prescription drug benefits on behalf of health plans subject to ERISA, as well as for non-ERISA plans.

The retail pharmacies in a PBM's network fill prescriptions of health plan participants with drugs the pharmacies purchase from wholesalers or manufacturers. When a plan participant fills a prescription at a pharmacy, the pharmacy checks with the PBM to determine coverage and obtain copayment information. After the pharmacy fills the prescription, the PBM reimburses the pharmacy at a contractually-agreed rate, minus the copay collected by the pharmacy from the plan participant. The PBM then separately bills the health plan at the rate negotiated between the PBM and the health plan.

Contracts between PBMs and their network pharmacies contain agreements about the maximum amount that the PBM will reimburse a pharmacy for generic drugs. To determine this maximum amount, PBMs use what is called a "maximum allowable cost" (MAC) methodology. Each PBM uses its own methodology and develops its own price list for generic drugs. PCMA claims that the reimbursement limits established by the PBMs through their MAC price lists motivate pharmacies to seek and purchase generic drugs at the lowest available prices, which ultimately results in a cost-effective benefit to health plans.

In early 2014, the Iowa General Assembly passed an "Act Relating to the Regulation of Pharmacy Benefits Managers." The Act was signed into law on March 14, 2014, and became effective July 1, 2014. The Act added a new section to Chapter 510B of the Iowa Code, namely section 510B.8, which provides as follows:

1. The commissioner may require a pharmacy benefits manager to submit information to the commissioner related to the pharmacy benefits manager's pricing methodology for maximum reimbursement amount.

2. For purposes of the disclosure of pricing methodology, maximum reimbursement amounts shall be implemented as follows:

a. Established for multiple-source prescription drugs prescribed after the expiration of any generic exclusivity period.

b. Established for any prescription drug with at least two or more A-rated therapeutically equivalent, multiple-source prescription drugs with a significant cost difference.

c. Determined using comparable prescription drug prices obtained from multiple nationally recognized comprehensive data sources including wholesalers, prescription drug file vendors, and pharmaceutical manufacturers for prescription drugs that are nationally available and available for purchase locally by multiple pharmacies in the state.

3. For those prescription drugs to which maximum reimbursement amount pricing applies, a pharmacy benefits manager shall include in a contract with a pharmacy information regarding which of the national compendia is used to obtain pricing data used in the calculation of the maximum reimbursement amount pricing and shall provide a process to allow a pharmacy to comment on, contest, or appeal the maximum reimbursement amount rates or maximum reimbursement amount list. The right to comment on, contest, or appeal the maximum reimbursement amount rates or maximum reimbursement amount list shall be limited in duration and allow for retroactive payment in the event that it is determined that maximum reimbursement amount pricing has been applied incorrectly.

Iowa Code § 510B.8. In short, Subsection 1 requires PBMs to provide information regarding their pricing methodologies to Iowa's insurance commissioner at the commissioner's request; Subsection 2 limits the types of drugs to which a PBM can apply MAC pricing and limits the sources from which a PBM may obtain pricing information; and Subsection 3 requires PBMs to provide information regarding their pricing methodologies in their contracts with pharmacies and to provide procedures by which pharmacies can comment on and appeal MAC price lists or rates, with potential retroactive payment to pharmacies for incorrect pricing.

Two months after § 510B.8 went into effect, appellant PCMA brought this declaratory judgment action seeking, inter alia , a declaration that the statute is expressly preempted by ERISA. The State moved to dismiss PCMA's claim of express preemption under Fed. R. Civ. P. 12(b)(6), arguing that the claim failed to state a claim upon which relief can be granted. The district court granted the motion after concluding that, while the statute "does regulate an area of ERISA concern by regulating PBMs" in the manner prescribed, it does not unduly restrict the administration of any ERISA plan, require a particular price or pricing methodology for drugs, or mandate the provision of any benefits. Because PBMs continue to have "sufficient choice and control," the district court found the statute not to have an impermissible connection with ERISA.

The district court also found the statute not to impermissibly reference ERISA, concluding that the existence of ERISA plans is not essential to the law's operation and, further, that the statute does not act "immediately and exclusively" on ERISA plans. The district court further found that, while the definitions portion of the statute makes a specific and express reference to ERISA, the reference is too far removed from § 510B.8 to find that § 510B.8 itself references ERISA.

II.

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). A State law " ‘relates to’ an ERISA plan and is preempted if it has ‘a connection with or a reference to such a plan.’ " Express Scripts, Inc. v. Wenzel , 262 F.3d 829, 833 (8th Cir. 2001) (quoting New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co. , 514 U.S. 645, 656, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995) ). A State law need not act directly on an ERISA plan in order to be preempted. Id. (citing Ingersoll-Rand Co. v. McClendon , 498 U.S. 133, 139, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990) ). Where a State law indirectly forces a plan administrator to make a particular decision or take a particular action, the law may be held to "relate to" employee benefit plans. Id. (citing Metro. Life Ins. Co. v. Massachusetts , 471 U.S. 724, 739, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985) ).

A State law has an impermissible "reference to" ERISA plans where it "acts immediately and exclusively upon ERISA plans ... or where the existence of ERISA plans is essential to the law's operation[.]" Gobeille v. Liberty Mut. Ins. Co. , ––– U.S. ––––, 136 S.Ct. 936, 943, 194 L.Ed.2d 20 (2016) (internal citation and quotation marks omitted). A State law has an impermissible "connection with" ERISA plans where it "governs ... a central matter of plan administration" or "interferes with nationally uniform plan administration." Id. (internal citation and quotation marks omitted). ERISA...