Mid-Atlantic Health Law TOPICS

In Pharmaceutical Care Management Association v. District of Columbia, a ruling
trumpeted by the Pharmaceutical Care Management Association (PCMA) as a "clear victory for consumers and payers," the United States District Court for the District of Columbia struck down a portion of a D.C. law that imposed fiduciary duties and disclosure requirements on pharmacy benefit managers (PBMs).
A. The Act
In 2004, in response to rising prescription drug prices, the D.C. City Council passed the Access Rx Act (Act). Title II of the Act provided that PBMs owed a fiduciary duty to "covered entities" (including health plans, government agencies and insurance companies), meaning that the PBM must act in the best interests of the covered entities. Title II also required PBMs to disclose certain financial information.
Specifically, PBMs were required to disclose information to their customers regarding rebates, discounts and all other financial arrangements between PBMs and prescription drug manufacturers or labelers, such as formulary management and drug substitution programs, educational support, and claims processing fees.
The Act also provided that when dispensing prescription drugs, a PBM could substitute a lower-priced therapeutically equivalent drug for a higher-priced drug. However, if the substituted drug cost more than the prescribed drug, the PBM had to disclose to the covered entity the cost of both drugs, and any benefit or payment that directly or indirectly accrued to the PBM as a result of the substitution. The PBM was also required to transfer in full any such benefit or payment to the covered entity.
B. The Decision
The PCMA (a PBM trade association) sought to enjoin the City Council from enforcing Title II of the Act, asserting that the law was preempted, or superseded, by the Employee Retirement Income Security Act of 1974 (ERISA). Generally, to avoid a multiplicity of regulations, ERISA preempts any and all state laws that "relate to" or have a "connection with" an employee health plan.
After two previous decisions by the U.S. District Court for the District of Columbia, and two appeals of those decisions, the District Court, in March of 2009, ruled in favor of the PCMA, finding that Title II of the Act was preempted by ERISA. The court found that "by managing the relationship between an ERISA plan and a third-party service provider instrumental to the administration of the plan," the City Council, through the Act, "improperly inject[ed] state regulation into an area exclusively controlled by ERISA."
In this context, the District Court noted that Congress wanted to achieve uniformity in health plan administration when it enacted ERISA. However, that would be difficult to achieve if the Act were upheld because plans would have to keep certain records in certain states, but not in others, comply with certain fiduciary standards in some states, but not in others, and process claims a certain way in some states, but not in others.
The District Court also found that its decision was bolstered by proposed Department of Labor (DOL) regulations, that require ERISA plans to disclose information about their service providers, and require service providers to disclose certain information to the plans with which they contract. The court found that "because the Act 'creates the potential for the type of conflicting regulation of benefit plans that ERISA was designed to prevent', the Act must yield to ERISA's preemptive force."
C. Split in Circuits
Currently Maine is the only state that imposes fiduciary-disclosure requirements on PBMs similar to those of Title II of the Act. (Maryland does, however, require PBMs to register with the State before providing services in Maryland.)
In fact, the First Circuit Court of Appeals has ruled that the Maine PBM law is not preempted by ERISA, because PBMs are sufficiently distant from employee health plans to escape ERISA preemption. Accordingly, if the Circuit Court of Appeals for the D.C. Circuit upholds the District Court's ruling that the D.C. PBM law is preempted, the conflict between the Circuits would have to be resolved by the U.S. Supreme Court.