On November 17, 2021, the Eighth Circuit rendered its highly anticipated decision in Pharmaceutical Care Management Associated v. Wehbi, which is the first federal court of appeals decision to apply the ERISA preemption analysis set forth by the Supreme Court of the United States (“SCOTUS”) in its landmark decision last year in Rutledge v. Pharmaceutical Care Management Association. Like Rutledge, Wehbi addressed a North Dakota law regulating PBM conduct and whether that law is preempted under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Medicare Part D statute. Applying SCOTUS’s analysis in Rutledge, the Eighth Circuit held that the North Dakota law is not preempted by ERISA, but also concluded that certain provisions in the law remain preempted under the Medicare Part D preemption analysis. Accordingly, the Eighth Circuit, reversed in part, and affirmed in part, its prior determination that both ERISA and Medicare Part D preempted the North Dakota law.
The challenged state law in Wehbi is North Dakota Century Code sections 19.02.1-16.1 and -16.2 (“ND Law”), which amongst other provisions, seeks to regulate reimbursement paid to pharmacies by PBMs, including post point-of-sale fees; limit what copayments PBMs or third-party payers could charge; prescribe the quality metrics PBMs and third-party payers could use to evaluate the performance of pharmacies; prohibit PBMs from owning patient assistance programs or mail order specialty pharmacies; regulate benefits provisions and plan structures; require certain disclosures on the part of PBMs; and prohibit PBMs from setting limits on information pharmacists may provide patients. In July of 2017, PCMA filed suit and sought an injunction to prevent the ND Law from taking effect. Pharmaceutical Care Management Associated (“PCMA”) argued that the ND Law was preempted under ERISA and Medicare Part D. The district court held that Medicare Part D preempted only section 16.2(2) as applied to Medicare Part D plans, but otherwise rejected the balance of PCMA’s legal arguments. On appeal, the Eighth Circuit initially reversed the trial court’s decision holding that North Dakota’s laws were preempted by ERISA because they referenced ERISA plans and imposed requirements that impermissibly affected the benefits provided by ERISA-covered programs. Since North Dakota did not cross-appeal the district court’s determination that Medicare Part D preempted section 16.2(2), the Eighth Circuit did not address that determination. North Dakota filed a petition for writ of certiorari with SCOTUS to appeal the Eighth Circuit’s ERISA preemption decision.[1]
Following the Eighth Circuit’s initial decision, and while North Dakota’s petition for a writ of certiorari was pending, SCOTUS decided Rutledge in which SCOTUS provided a comprehensive analysis of ERISA preemption law, and ultimately upheld Arkansas’ Act 900 (a similar state law regulating PBM conduct, including pricing). Accordingly, SCOTUS granted North Dakota’s writ of certiorari and immediately remanded Wehbi back to the Eighth Circuit so that the court could reconsider its decision in light of Rutledge.
On remand, the Eighth Circuit concluded that none of North Dakota’s provisions were preempted under ERISA. Specifically, the sections of the ND Law that barred PBMs from prohibiting pharmacies from mailing drugs or providing relevant information to patients were not preempted by ERISA because they constituted, at most, a regulation of a noncentral matter of plan administration that did not bind plan administrators to specific rules regarding benefits or beneficiary status. Similarly, the sections of the ND Law limiting the accreditation requirements PBMs could impose on pharmacies; requiring disclosure of basic information to pharmacies; and those sections that prohibited PBMs from having an ownership interest in patient assistance programs or mail order specialty pharmacies were also held not to be ERISA preempted. In short, the Eighth Circuit concluded that none of the ND Laws provisions had an impermissible “connection with” ERISA. The Eighth Circuit also determined that the ND Law did not impermissibly reference ERISA because the regulations could operate wholly independent from the existence of ERISA plans.
Turning to Medicare Part D preemption[2]: the Eighth Circuit acknowledged that state laws are preempted by Medicare Part D if they either (1) regulate the same subject matter as a federal Medicare Part D standard; or (2) otherwise frustrate the purpose of a federal Medicare Part D standard. The Eighth Circuit analyzed several sections of the ND Law under this framework and determined that some, but not all, of the ND Law was preempted under Medicare Part D. More specifically, the Court determined that the sections of the ND Law prohibiting PBMs from preventing pharmacies from disclosing certain information to patients was preempted under Medicare Part D because the section regulated the same subject matter as 42 U.S.C. § 1395w-104(m) (prohibiting plans from prohibiting pharmacies from disclosing certain information to patients). The ND Law’s provisions prescribing quality metrics that PBMs and third-party payers could use to evaluate the performance of pharmacies were also preempted under Medicare Part D because they regulated the same subject matter as 42 U.S.C. § 1295w-104(c)(1)(A)-(B). Finally, the Eighth Circuit concluded that the regulations governing the collection of retroactive fees from pharmacies were preempted under Medicare Part D because they encroached on territory covered by Medicare Part D standards defined under 42 C.F.R. § 423.464(f)(6) (governing the collection of retroactive fees from pharmacies) and 42 C.F.R. § 423.100 (concerning the imposition of fees that cannot be determined at the point-of-sale).
The legal impact of the Eighth Circuit’s decision in Wehbi will be tested in the coming months and years and has implications far beyond North Dakota. The ruling clears the way for all states to regulate many PBM practices that PCMA argued were exempted by ERISA. States have won a major battle in the fight against regulating abusive PBM conduct by successfully removing a major weapon from the PBMs’ arsenal – ERISA preemption. On the other hand, it seems that the PBMs will live to fight another day as Medicare Part D preemption still seems to be fertile ground to prevent enforcement of State laws that seek to regulate their conduct in the Medicare Part D space. For now, one thing is certain, Wehbi evidences a significant tide shift in the Eighth Circuit with respect to ERISA preemption of state laws regulating PBM conduct. Moreover, for the many states seeking to pass similar laws, Wehbi and Rutledge offer a blueprint to surviving an ERISA preemption attack by the PBMs.
Our attorneys at Frier Levitt have extensive experience dealing with abusive PBM conduct and federal and state laws governing their conduct. If your pharmacy needs help fighting abusive PBM practices, we strongly encourage you to contact Frier Levitt to speak with an attorney.
[1] North Dakota did not challenge the Eighth Circuit’s initial decision on Medicare Part D preemption grounds.
[2] Upon agreement of the parties’ on remand, the Eighth Circuit also decided to revisit its original analysis of Medicare Part D preemption to decide whether the SCOTUS’s decision in Rutledge might impact that analysis, as well.
