Pharm. Care Mgmt. Ass'n v. Rutledge

• Decision Date: 01 March 2017
• Docket Number: CASE NO. 4:15–CV–00510 BSM
• Citation: 240 F.Supp.3d 951
• Parties: PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Plaintiff v. Leslie RUTLEDGE, in her official capacity as Attorney General of the State of Arkansas, Defendant
• Court: U.S. District Court — Eastern District of Arkansas

240 F.Supp.3d 951

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Plaintiff

v.Leslie RUTLEDGE, in her official capacity as Attorney General of the State of Arkansas, Defendant

CASE NO. 4:15–CV–00510 BSM

United States District Court, E.D. Arkansas, Western Division.

Signed March 1, 2017

Andrew W. London, Catherine Deneke, Dean Richlin, Kristyn Marie DeFilipp, Foley Hoag LLP, Boston, MA, Lyn Peeples Pruitt, Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., Little Rock, AR, for Plaintiff.

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

ORDER

BRIAN S. MILLER, UNITED STATES DISTRICT JUDGE

Plaintiff Pharmaceutical Care Management Associations's (PCMA) motion for summary judgment [Doc. No. 75] is granted in part and denied in part, and defendant Leslie Rutledge's (State of Arkansas) motion for summary judgment [Doc. No. 77] is granted in part and denied in part. The joint motions to extend time [Doc. Nos. 103, 104] are denied as moot, and this case is dismissed with prejudice.

I. BACKGROUND

Independent community pharmacies have had to eliminate employees during the last five to ten years due to the financial hardships they have faced. Pl.'s Resp. Def.'s Statement Material Fact ¶¶ 18, 22–24, 28, 44, Doc. No. 85–1. The Arkansas legislature passed and amended Arkansas Code Annotated section 17–92–507 et seq. in an attempt to address this issue. Act 1194 was passed in 2013 to "Provide for the Transparency of Maximum Allowable Cost Lists for Prescription Drugs," S.B. 1138, 89th Gen. Assemb., Reg. Sess. (Ar. 2013), and Act 900 was passed in 2015 to "Amend the Laws Regarding Maximum Allowable Cost Lists; and to Create Accountability in the Establishment of Prescription Drug Pricing." S.B. 688, 90th Gen. Assemb., Reg. Sess. (Ar. 2015).

A. Act 900 of 2015

Act 900 amended Act 1194 in a number of ways. First, it defines "[p]harmacy acquisition cost" as "the amount that a pharmaceutical wholesaler charges for a pharmaceutical product as listed on the pharmacy's billing invoice." Ark. Code Ann. § 17–92–507(a)(6). Second, it provides that a pharmacy benefits manager ("PBM") must:

[u]pdate its Maximum Allowable Cost List on a timely basis, but in no event longer than seven (7) calendar days from an increase of ten percent (10%) or more in the pharmacy acquisition cost from sixty percent (60%) or more of the pharmaceutical wholesaler doing business in the state or a change in the methodology on which the Maximum Allowable Cost List is based or in the value of a variable involved in the methodology.

Id. § 507(c)(2). Third, it requires a PBM to:

Provide a reasonable administrative appeal procedure to allow pharmacies to challenge maximum allowable costs and reimbursements made under a maximum allowable cost for a specific drug or drugs as: (a) not meeting the requirement of this section or (b) being below the pharmacy acquisition cost.

Id. § 507(c)(4)(A)(i). Fourth, it requires PBMs to permit the challenging pharmacy to reverse and rebill each claim affected by the inability to procure the drug at a cost that is equal to or less than the cost on the relevant maximum allowable cost ("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. § 507(c)(4)(C)(iii). Fifth, it provides that a

pharmacy or pharmacist may decline to provide the pharmacy services to a patient or pharmacy benefits manager if, as a result of a Maximum Allowable Cost List, a pharmacy or pharmacist is to be paid less than the pharmacy acquisition cost of the pharmacy providing pharmacist services.

Id. § 17–92–507(e) (commonly known as the "decline-to-dispense" provision).

B. PCMA, MAC Lists, and Pharmaceutical Reimbursement Scheme

PCMA is a national trade association representing the eleven largest PBMs in the country. Def.'s Resp. Pl.'s Statement Material Fact ¶ 1, Doc. No. 89. None of PCMA's member PBMs are incorporated in Arkansas, but they have contracts covering beneficiaries in Arkansas. Id. ¶ 19.

PBMs act as intermediaries between health plans and pharmacies. Generally, when a patient is prescribed a drug by a physician, the patient presents the prescription to a pharmacist. The pharmacist, who buys drugs from wholesalers, dispenses the drug to the patient. Often, the patient does not pay the full price that the pharmacist receives for the drug but instead pays a portion, or copay, if the patient is a member of a health plan that covers part of the drug's cost.

The market for purchasing prescription drugs is national, id. ¶ 21, and PBMs perform such services as processing claims, generating reports and data, and managing clinical and financial information as well as retail and mail-order drug sales. Pl.'s Resp. Def.'s Statement Material Fact ¶ 5. PBMs also calculate benefit levels and make disbursements. Def.'s Resp. Pl.'s Statement Material Fact ¶ 2. To carry out these services, PBMs aggregate market data to create confidential maximum allowable cost ("MAC") lists. MAC lists are used to set reimbursement rates for pharmacies filling generic prescriptions. Wholesaler pricing information is one type of data used by PBMs to create MAC lists. Pl.'s Resp. Def.'s Statement Material Fact ¶ 69. This information is available through pricing guides such as Medispan and, in some cases, is made available by wholesalers. Id. ¶¶ 69–71.

Contracts between PBMs and pharmacies create pharmacy networks. Def.'s Resp. Pl.'s Statement Material Fact ¶ 12. These contracts generally require pharmacies to fill prescriptions and dispense prescription medications regardless of the amount that the pharmacy will be reimbursed. Pl.'s Resp. Def.'s Statement Material Fact ¶ 81. These contracts also allow pharmacies to appeal unfavorable reimbursement decisions. Id. ¶ 75. PBMs often select pharmacies willing to take lower reimbursements in exchange for being placed in a preferred network and receiving patronage from beneficiaries of the plans serviced by the PBMs. Id. ¶ 80; Def.'s Resp. Pl.'s Statement Material Fact ¶ 13.

C. PCMA's Challenge to Act 900

PCMA challenges Act 900 claiming that it (1) is preempted by ERISA; (2) is preempted by Medicare Part D; (3) violates the Commerce Clause of the United States Constitution; (4) violates the Contract Clauses of the United States Constitution and the Arkansas Constitution; and (5) is so vague as to violate the Due Process Clauses of the United States Constitution and the Arkansas Constitution. Both parties move for summary judgment on all claims.

II. LEGAL STANDARD

Summary judgment is appropriate when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a) ; Anderson v. Liberty Lobby Inc. , 477 U.S. 242, 249–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Once the moving party demonstrates that there is no genuine dispute of material fact, the nonmoving party may not rest upon the mere allegations or denials in the pleadings. Holden v. Hirner , 663 F.3d 336, 340 (8th Cir. 2011). Instead, the nonmoving party must produce admissible evidence demonstrating a genuine factual dispute that requires resolution at trial. Id. Importantly, when considering a motion for summary judgment, all reasonable inferences must be drawn in a light most favorable to the nonmoving party. Holland v. Sam's Club , 487 F.3d 641, 643 (8th Cir. 2007). When both parties move for summary judgment, all justifiable inferences must be drawn in favor of the losing party. Murphy Expl. & Prod. Co. v. Oryx Energy Co. , 101 F.3d 670, 673 (Fed. Cir. 1996). The evidence is not weighed, and no credibility determinations are made. Jenkins v. Winter , 540 F.3d 742, 750 (8th Cir. 2008).

III. DISCUSSION

A. ERISA Preemption

PCMA's motion for summary judgment is granted on its claim that Act 900 is ERISA preempted, and the State of Arkansas's motion is denied because Act 900 is invalid as applied to PBMs in their administration and management of ERISA plans.

Initially, a decision consistent with that reached by the Southern District of Iowa in Pharmaceutical Care Management Association v. Gerhart , No. 4:14-CV-000345, 2015 WL 10767327 (S.D. Iowa Sept. 8, 2015) was reached. The Southern District of Iowa and this court independently reached the same conclusions when analyzing similar statutes. Iowa Code section 510B.8 is similar to Act 900 in a number of ways, and the Northern District of Iowa held that the Iowa statute was not preempted by ERISA. While preparing this order, however, the Eighth Circuit Court of Appeals reversed the Southern District of Iowa. See Pharm. Care Mgmt. Ass'n v. Gerhart , 852 F.3d 722 (8th Cir. 2017)reh'g denied. In that the Eighth Circuit's opinion controls, this ruling has been revised to conform to that opinion.

In Gerhart , the Eighth Circuit held that Iowa Code section 510B.8, which is similar to Act 900 in many of the ways that it regulates PBMs and MAC pricing, is preempted by ERISA because it interferes with nationally uniform plan administration. Gerhart held that the Iowa statute interferes with uniform plan administration by requiring PBMs, as third-party administrators, to provide a procedure by which pharmacies can contest and appeal MAC reimbursements because doing so restricts an administrator's control in the calculation of drug benefits and removes the ability to conclusively determine final drug benefit payments and monitor funds. See id. , 852 F.3d at 730–31. Similarly, section 507(c)(4) of Act 900 requires PBMs to provide a "reasonable administrative appeal procedure" that allows pharmacies to challenge MAC costs and to reverse and rebill the claim in question.

Gerhart also held that the Iowa law interferes with uniform plan administration by restricting the class of drugs PBMs may place on MAC lists and by restricting the sources from which PBMs may obtain pricing information...