On May 10, 2024, the Oklahoma Insurance Department filed a Petition with the Supreme Court of the United States seeking a Writ of Certiorari in Pharmaceutical Care Management Association v. Mulready to challenge an August 2023 decision from the Tenth Circuit Court of Appeals which nullified a 2019 Oklahoma law regulating the conduct of Pharmacy Benefit Managers (“PBMs”). The Tenth Circuit’s decision in Mulready has caused a “circuit split” between the Tenth and Eighth Circuits, presenting a scenario under which the Supreme Court often chooses to review a lower court’s decision in order to resolve conflicting decisions between federal courts of appeals. The two issues Oklahoma presented to the Supreme Court for review are: (1) whether ERISA preempts state laws that regulate PBMs; and (2) whether Medicare Part D preempts state laws that limit the conditions PBMs may place on pharmacy participation in preferred networks.
The Tenth Circuit’s Mulready decision creates a clear conflict with the Supreme Court’s decision in Rutledge v. Pharmaceutical Care Management Association and the Eighth Circuit’s application of Rutledge in Pharmaceutical Care Management Association v. Wehbi. In particular, the Tenth Circuit expressly rejected the Eighth Circuit’s view that state laws limiting a PBMs ability to impose network-participation conditions are laws that merely regulate a noncentral “matter of plan administration” and are not sufficient to trigger ERISA preemption. The Tenth Circuit also departed from the Eighth Circuit over Medicare Part D preemption as applied to state PBM laws. Whereas the Eighth Circuit held that “Part D ‘preempts only those [state laws] that … regulate the same subject matter as … federal Medicare Part D standards[,]” the Tenth Circuit rejected this holding, concluding that the Part D preemption analysis does not “require[e] such a close match between federal and state standards.” Accordingly, the Tenth Circuit’s Mulready decision presents a circuit split on whether ERISA and Part D preempt state laws related to pharmacy licensing and the conditions PBMs may place on pharmacy participation in preferred networks.
This article provides a general history of state regulation of PBMs. It also discusses how state action to curb abusive PBM practices has caused this circuit split.
BACKGROUND
PBMs serve as middlemen between plan sponsors and pharmacies. They contract with plan sponsors to manage the prescription drug benefits of plan beneficiaries and to create pharmacy networks in which those beneficiaries can fill their prescription drugs. In Medicare Part D, PBMs contract with pharmacies seeking network participation by offering standard terms and conditions on a largely take-it-or-leave-it basis. PBMs also own pharmacies that compete with independent pharmacies and national pharmacy chains (e.g., Walgreens). For years, PBMs have gone unregulated while, at the same time, becoming incredibly large and profitable. In the absence of oversight and accountability, PBMs have engaged in a variety of abusive practices that have forced independent pharmacies to close permanently. PBMs have also implemented policies that force patients to abandon independent pharmacies and, instead, fill their prescriptions at PBM-affiliated pharmacies.
In response to growing complaints, states began passing laws to preserve the right of independent pharmacies to participate in plan networks free from PBMs’ predatory and discriminatory business practices. Among the first to take action was Arkansas when it passed the Patient’s Right to Pharmacy Choice Act (“Arkansas Act”). The Arkansas Act required, amongst other things, that PBMs “reimburse pharmacies at a price equal to or higher than ‘the pharmacy acquisition cost – the amount that a pharmaceutical wholesaler charges for a pharmaceutical product as listed on the pharmacy’s billing invoice.’” Shortly thereafter, the Pharmaceutical Care Management Association (“PCMA”), an organization created to advance the interests of PBMs, challenged the Arkansas Act arguing that it was preempted under ERISA and Medicare Part D. PCMA’s challenge eventually reached the Supreme Court. On December 10, 2020, the Supreme Court held, in Rutledge v. PCMA, that the Arkansas Act was not preempted by ERISA because the law did not “require providers to structure benefit plans in particular ways” or “requir[e] payment of specific benefits.”
A few months before the Supreme Court decided Rutledge, Oklahoma Governor Kevin Stitt signed Oklahoma’s Patient’s Right to Pharmacy Choice Act (“Oklahoma Act”) into law. One of the main purposes of the Oklahoma Act was to promote patient access to providers and prohibit PBMs from curtailing a patient’s right to seek care from the provider of their choosing. One week prior to the Oklahoma Act taking effect, but before the Supreme Court decided Rutledge, PCMA filed an application in the District Court of Oklahoma to enjoin the Oklahoma Act from taking effect in Pharm. Care Mgmt. Ass’n v. Mulready. The four provisions at issue were:
- The Access Standards Provision: For the purpose of promoting patient access to providers, the Act imposes retail pharmacy network access requirements. The Act helps to achieve this goal by requiring that a certain percentage of covered individuals (ranging from 70% to 90% depending on the geographic region) are within a certain mile-radius of a retail pharmacy. For example, PBMs must ensure that at least 90% of Covered Individuals residing in urban areas live within two (2) mile radius of a participating retail pharmacy.
- The Discount Prohibition Provision: This provision prohibits PBMs from limiting a patient’s right to seek care from retail or mail-order pharmacies participating in the PBMs network. This prohibition extends to incentives or cost-sharing reductions to entice patients to use one pharmacy (often a PBM-affiliated pharmacy) and not the other (often an independent pharmacy).
- The Any Willing Provider (AWP) Provision: This provision prohibits PBMs from denying pharmacies the opportunity to participate in PBMs’ networks so long as those pharmacies are willing and able to meet the terms and conditions of participation.
- The Probation Provision: This provision prohibits PBMs from denying, limiting or terminating a pharmacy’s contract based on the employment status of any employee who has an active license to dispense, despite that employee being placed on “probation” by the State Board of Pharmacy.
Ultimately, the District Court denied PCMA’s request to enjoin these provisions from taking effect, finding that PCMA failed to show a likelihood of success on the merits. The Oklahoma Act took effect on November 1, 2019.
Shortly after the Oklahoma Act took hold and the Supreme Court decided Rutledge, PCMA renewed its challenge in the District Court of Oklahoma arguing that the provisions above were preempted by both ERISA and Medicare Part D. The District Court rejected PCMA’s ERISA arguments in light of the Rutledge decision, holding that the challenged provisions did not have an impermissible connection with ERISA plans of the Act’s provisions. However, the District Court agreed that Medicare Part D preempted certain provisions in the Oklahoma Act (except for the AWP Provision) by regulating the same subject of Medicare Part D preemption. PCMA appealed the District Court’s ERISA ruling on four provisions of the Oklahoma Act and the District Court’s Part D ruling the AWP Provision.
THE TENTH CIRCUIT DECISION
I. ERISA
The Employee Retirement Income Security Act (“ERISA”) is legislation, codified at 29 U.S.C. Chapter 18, that is meant to protect workers who, among other things, are insured through their employers’ health plans by regulating those plans in a uniform manner throughout the country. To aid in maintaining this uniformity, Congress included a “preemption” clause in the Act, which is meant to prevent states from passing laws that would govern ERISA plans and create a patchwork of 50 different plans throughout the states. However, the Court in Rutledge unanimously held that ERISA preemption is not absolute, as stated above. It was against this backdrop that the Tenth Circuit in Mulready examined the Oklahoma Act.
In its decision on ERISA preemption, the Tenth Circuit grouped together the Access Standards, Discount Prohibition, and AWP Provision, terming them “network restrictions” and held that these provisions were all impermissibly connected with ERISA plans because they operate to reduce the PBM-network-design options available to plans. Regarding the Probation Prohibition, the court held this prohibition’s trivial effect on plans nevertheless implicated “a central matter of plan administration” and consequently concluded that this provision was also preempted. Notably, the Tenth Circuit’s holding on this Probation Prohibition diverged from the Eighth Circuit’s ruling in Wehbi with regard to two North Dakota laws that resemble the Probation Prohibition thereby creating a circuit split. Of note, the SCOTUS is more likely to grant petitions for certiorari when it involves a circuit split.
II. MEDICARE PART D
The Tenth Circuit held that Part D preempted the AWP Provision as applied to Part D plans. Agreeing with PCMA that the Part D preemption provision is akin to “field preemption,” the Tenth Circuit concluded that because the AWP Provision is not a licensing or plan solvency law expressly carved out from Part D’s preemption provision, it is preempted by the Medicare Part D statute even though there was no “specific federal-state overlap.” Significantly, this conclusion departs from the Eighth Circuit decision in Rutledge – which the Supreme Court left intact – holding that Part D preemption depends on “whether Congress or CMS has established standards in the area regulated by the state law and whether the state law acts with respect to those standards.” The Tenth Circuit expressly disagreed, finding that the Eighth Circuit’s view was inconsistent with the plain language of the Part D preemption provision. Instead, the Tenth Circuit reasoned that “allowing States to regulate Part D plans above what Part D already requires would ‘detract[] from the integrated scheme of regulation created by Congress.”’ Thus, the Tenth Circuit rejected the Eighth Circuit’s reasoning in Wehbi, and concluded that the AWP Provision was preempted by Medicare Part D. Again, this represents a circuit split that makes it more likely that the SCOTUS will decide to take up the case.
III. NEXT STEPS
In light of the circuit split between the Eighth and Tenth Circuits, the Oklahoma Insurance Department filed a Petition for a Writ of Certiorari with the Supreme Court on May 10th, asking the high court to review the Tenth Circuit’s decision on both ERISA preemption and Medicare Part D preemption. The Supreme Court has extended the deadline for PCMA to file its response to the Petition for Writ of Certiorari to June 14, 2024. Once PCMA files its Opposition, the Petition and Opposition will be distributed to the Court by June 28, 2024 (unless that date is extended). Oklahoma may then file a Reply to PCMA’s Opposition. Significantly, if the Supreme Court grants the Petition, this does not mean the Court has decided in favor of Oklahoma on the merits, but only that the Court has decided the matter is significant enough that the Court must hear and decide it on the merits, likely during the Court’s next term.
The Court will often take up cases when they demonstrate a circuit split, as there is here because of the Tenth Circuit’s disagreement with the Eighth Circuit’s Wehbi opinion. The Court desires to prevent diverging threads of federal law because they threaten the uniformity of the law. Thus, the Supreme Court very often seeks to resolve a circuit split to maintain that uniformity and may take up Mulready to resolve its differences with Wehbi and determine which circuit has best interpreted the scope of ERISA and Medicare preemption. Additionally, Mulready tests the limits of Rutledge, and the Court may want to take up the case to further define the limits of Rutledge, especially since the United States filed an amicus brief in the Tenth Circuit in support of upholding the Oklahoma Act. If the United States again provides its position on this case, that will be another signal that the Court is more likely to grant Certiorari.
The Supreme Court does not typically decide petitions for a Writ of Certiorari from late June to late September. So, in this case, it is unlikely that the Court will decide the Petition until this Fall. If the Court grants Certiorari, a new briefing schedule will be established and Oklahoma will be given 30 days to submit its “merits” brief, to which PCMA will then have 30 days to respond. Assuming the Court grants Certiorari in late September or early October, the earliest possible date for the Court to hear argument would be Winter of 2025, with a decision possible thereafter in or before June 2025. While the SCOTUS grants a relatively small percentage of Petitions for Certiorari, given the impact of this case on States’ rights, as well as the circuit split and the apparent need to provide federal district courts and courts of appeals with guidance on the impact of Rutledge, we believe this Petition stands a good chance of being granted.
How Frier Levitt Can Help
Frier Levitt represents pharmacies and other healthcare providers across the United States in challenging PBM audits, network access issues, unlawful reimbursement practices, and related conduct. We have also assisted many state pharmacy organizations in drafting proposed legislation that will withstand legal challenges by organizations such as PCMA and corresponding judicial scrutiny. Our attorneys have significant experience filing amicus briefs in lawsuits of consequence for our pharmacy and provider clients. Indeed, Frier Levitt previously filed an Amicus Brief on behalf of the Community Oncology Association (“COA”) in the Rutledge matter, advocating for the interests not only of COA’s members, but the patients to whom they provide life-saving cancer care on a daily basis. Contact us today to speak with a Frier Levitt attorney about how your practice or association may leverage the various federal and state laws that have been enacted to protect providers and patients from abusive PBM practices.
