Pharm. Care Mgmt. Ass'n v. Rutledge

• Decision Date: 08 June 2018
• Docket Number: No. 17-1629,No. 17-1609,17-1609
• Parties: PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Plaintiff–Appellant v. Leslie RUTLEDGE, in her official capacity as Attorney General of Arkansas, Defendant–Appellee Arkansas Pharmacists Association ; National Community Pharmacists Association, Amici on Behalf of Appellee(s). Pharmaceutical Care Management Association, Plaintiff–Appellee v. Leslie Rutledge, in her official capacity as Attorney General of Arkansas, Defendant–Appellant National Community Pharmacists Association; Arkansas Pharmacists Association, Amici on Behalf of Appellant(s).
• Court: U.S. Court of Appeals — Eighth Circuit

891 F.3d 1109

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Plaintiff–Appellant

v.Leslie RUTLEDGE, in her official capacity as Attorney General of Arkansas, Defendant–Appellee

Arkansas Pharmacists Association ; National Community Pharmacists Association, Amici on Behalf of Appellee(s).

Pharmaceutical Care Management Association, Plaintiff–Appellee

v.Leslie Rutledge, in her official capacity as Attorney General of Arkansas, Defendant–Appellant

National Community Pharmacists Association; Arkansas Pharmacists Association, Amici on Behalf of Appellant(s).

No. 17-1609

No. 17-1629

United States Court of Appeals, Eighth Circuit.

Submitted: January 9, 2018

Filed: June 8, 2018

Kristyn Marie DeFilipp, Andrew M. London, Dean Richlin, Foley & Hoag, Boston, MA, Lyn Peoples Pruitt, Mitchell & Williams, Little Rock, AR, for Plaintiff–Appellant.

Shawn J. Johnson, Sarah R. Tacker, Attorney General's Office, Little Rock, AR, for Defendant–Appellee.

Daniel Lipton, Howard R. Rubin, Robert Thomas Smith, Katten & Muchin, Washington, DC, for Amicus on Behalf of Appellee(s).

Before LOKEN, BEAM, and KELLY, Circuit Judges.

BEAM, Circuit Judge.

In this dispute between a pharmacy trade association, Pharmaceutical Care Management Association (PCMA) and the State of Arkansas, PCMA appeals the district court's ruling that an Arkansas state statute is not preempted by Medicare Part D, 42 U.S.C. § 1395w–26(b)(3), and the State of Arkansas appeals the district court's ruling that the statute is preempted by ERISA, 29 U.S.C. § 1144(a). Because the state statute in question is preempted by both ERISA and the Medicare Part D statutes, we affirm in part, reverse in part, and remand.

I. BACKGROUND

In 2015, the Arkansas General Assembly passed a state law which attempted to govern the conduct of pharmacy benefits managers ("PBMs")—the entities that verify benefits and manage financial transactions among pharmacies, healthcare payors, and patients. PBMs are intermediaries between health plans and pharmacies, and provide services such as claims processing, managing data, mail-order drug sales, calculating benefit levels and making disbursements. Pharmacies acquire their drug inventories from wholesalers. The patient buys the drug from the pharmacy, but often at a lower price due to participation in a health plan that covers part of the price. Further, the PBMs create a maximum allowable cost ("MAC") list which sets reimbursement rates to pharmacies dispensing generic drugs. Contracts between PBMs and pharmacies create pharmacy networks. Based upon these contracts and in order to participate in a preferred network, some pharmacies choose to accept lower reimbursements for dispensed prescriptions. Thus, unfortunately, a pharmacy might actually lose money on a given prescription transaction.

In an attempt to address the trend in Arkansas of significantly fewer independent and rural-serving pharmacies in the state, the state legislature adopted Act 900, Arkansas Code Annotated § 17–92–507, an amendment to the state's then-existing MAC law, to "Amend the Laws Regarding Maximum Allowable Cost Lists; to Create Accountability in the Establishment of Prescription Drug Pricing." 2015 Ark. Laws Act 900, S.B. 688 (Ark. 2015). The Act mandates that pharmacies be reimbursed for generic drugs at a price equal to or higher than the pharmacies' cost for the drug based on the invoice from the wholesaler. It did this by defining "pharmacy acquisition cost" as the amount charged by the wholesaler as evidenced by the invoice. Ark. Code Ann. § 17–92–507(a)(6). The Act further imposes requirements on PBMs in their use of the MAC lists by making them update the lists within at least seven days from the time there has been a certain increase in acquisition costs. Id. § 17–92–507(c)(2). The Act also contains administrative appeal procedures, id. § 17–92–507(c)(4)(A)(i), and allows the pharmacies to reverse and re-bill each claim affected by the pharmacies' inability to procure the drug at a cost that is equal to or less than the cost on the relevant MAC list where the drug is not available "below the pharmacy acquisition cost from the pharmaceutical wholesaler from whom the pharmacy or pharmacist purchases the majority of prescription drugs for resale." Id. § 17–92–507(c)(4)(C)(iii). Finally, the Act contains a "decline-to-dispense" option for pharmacies that will lose money on a transaction. Id. § 17–92–507(e).

PCMA brought this action on behalf of its members, the nation's leading PBMs, claiming Act 900 is preempted by both ERISA and Medicare Part D, and also that it is unconstitutional on a number of other grounds not at issue on appeal (because PCMA did not appeal the district court's adverse ruling on these claims). The district court agreed that the pertinent portions of Act 900 were preempted by ERISA based upon controlling Eighth Circuit case law. See Pharm. Care Mgmt. Ass'n v. Gerhart, 852 F.3d 722 (8th Cir. 2017). However, the district court found that Medicare Part D did not preempt Act 900, nor was the law unconstitutional on any of the several bases advanced by PCMA. PCMA appeals the Medicare Part D ruling, and the state cross-appeals the ERISA ruling.

II. DISCUSSION

We review de novo the district court's preemption/statutory interpretation rulings. Id. at 726.

A. ERISA Preemption

ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plans." 29 U.S.C. § 1144(a). The breadth of this section is well known. See New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995). A state law is preempted if it " ‘relates to’ " an ERISA plan by having " ‘a connection with or a reference to such a plan.’ " Express Scripts, Inc. v. Wenzel, 262 F.3d 829, 833 (8th Cir. 2001) (quoting Travelers, 514 U.S. at 656, 115 S.Ct. 1671 ). In Gerhart, we held that an Iowa statute, similar in purpose and effect to Act 900, was preempted by ERISA because it had a prohibited "reference to" ERISA, and because it interfered with national uniform plan administration. 852 F.3d at 729, 731. The district court found that Gerhart controlled the outcome of the ERISA preemption claim in the instant case. We agree. The Iowa statute in Gerhart required PBMs to provide information regarding their pricing methodologies to Iowa's insurance commissioner at the commissioner's request. Id. at 727. The statute further limited the types of drugs to which a PBM could apply MAC pricing and limited the sources from which a PBM obtained pricing information. Id. Finally, the statute required PBMs to provide information regarding their pricing methodologies in their contracts with pharmacies and to provide procedures by which pharmacies could comment on and appeal MAC price lists or rates, with potential retroactive payment to pharmacies for incorrect pricing. Id. We held that the Iowa statute both explicitly and implicitly referred to ERISA by regulating the conduct of PBMs administering or managing pharmacy benefits, and also had a connection with ERISA. It was therefore preempted. Id. at 729–30.

The state argues that Gerhart should be limited to its consideration of the Iowa Act’s "express reference" to ERISA, and that Gerhart's "implicit reference" analysis is dicta inconsistent with Supreme Court precedent. We disagree. In addition to finding that Iowa Code § 510B.8 had a prohibited express reference to ERISA, the Gerhart court found that the "Iowa law also 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.’ These entities are necessarily subject to ERISA regulation." 852 F.3d at 729. None of the state's arguments convince us that we are not completely bound by a prior panel's reasoning on the exact question before us. Nor do we believe Gerhart to be inconsistent with the Supreme Court's precedent in Travelers or De Buono v. NYSA–ILA Medical and Clinical Services Fund, 520 U.S. 806, 117 S.Ct. 1747, 138 L.Ed.2d 21 (1997). While both cases indicate there is generally a presumption against preemption, De Buono, 520 U.S. at 813, 117 S.Ct. 1747 ; Travelers, 514 U.S. at 654, 115 S.Ct. 1671, where, as here, the state law both relates to and has a connection with employee benefit plans, the presumption is gone and the law is preempted. Cal. Div. of Labor Standards Enf't v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 324–25, 117 S.Ct. 832, 136 L.Ed.2d 791 (1997). The district court correctly found that Act 900 was preempted by ERISA.

B. Medicare Part D and Preemption

Medicare Part D is a comprehensive statutory and regulatory scheme for prescription drugs, which aims to balance cost with access to those drugs. The Part D program funds prescription drug benefits through payments from the Medicare government trust fund, and beneficiaries generally get prescriptions through a Part D network provider. See 42 C.F.R. §§ 423.120, 423.124. The statute prohibits both federal and state interference in negotiations between Part D sponsors and pharmacies (known as the "non-interference" clause, 42 U.S.C. § 1395w–111(i) ). The federal scheme preempts a state law when (1) Congress or the Centers for Medicare and Medicaid Services (CMS) has established "standards" in the area regulated by the state law; and (2) the state law acts "with respect to" those standards. Id. § 1395w–26(b)(3) Conflict between the state law and the federal standard is unnecessary. PCMA argues the district court erred in holding that Act 900 was not preempted by Medicare Part D. It contends that Act 900 acts "with respect to" two standards created by Congress and CMS for Medicare Part D–the Negotiated Prices Standard, and the Pharmacy Access Standard.

1. Negotiated Prices Standard

42 U.S.C. § 1395w–102 sets forth several requirements for standard...