On April 4, 2022, U.S. District Judge Bernard M. Jones invalidated parts of Oklahoma’s Patient’s Right to Pharmacy Choice Act (the “Act”) in PCMA v. Mulready et al. concluding that certain provisions in the law were preempted under Medicare Part D. By way of background, the Pharmaceutical Care Management Association (“PCMA”) filed suit in December 2019 alleging that several of the Act’s provisions were preempted under Medicare Part D and the Employee Retirement Income Security Act of 1974 (“ERISA”).
Medicare Part D incorporates the preemption provisions of Medicare Part C, which provides:
The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part.
42 U.S.C. § 1395w-26(b)(3). Appellate courts analyzing Part D preemption have concluded that state laws are preempted where Congress or the Centers for Medicare and Medicaid Services (CMS) have established ‘standards’ in the area regulated by the laws and where the state law acts with respect to those standards.
The district court began by analyzing PCMA’s challenge against the Retail-Only Pharmacy Access Standard provision in the Act. This provision sets the percentage of beneficiaries that must live within an established geographic distance from a network pharmacy. PCMA alleged that this provision acted “with respect to” Part D’s standards for convenient access and was thus preempted. The district court agreed with PCMA’s reasoning that CMS has already established standards regulating convenient access to network pharmacies and thus held that the Retail-Only Pharmacy Access Standard provision is preempted under Part D.
PCMA also sought preemption of Oklahoma’s Service Fee Prohibition, Affiliated Pharmacy Price Match, and Post-Sale Reduction Prohibition. PCMA alleged that these provisions “regulate a Part D sponsor’s payment of claims that conflict with the market-based model Congress created”. Because Part D prohibits interference with negotiations between insurers and pharmacies, and because Part D’s definition of “negotiated price” explicitly contemplates those negotiations, the district court once again agreed with PCMA and concluded that the above provisions were preempted by the Part D statute.
Not all provisions of the Act were preempted by Part D though. For example, PCMA argued that the Any Willing Provider provision was preempted because it acted “with respect to” Part D. This provision requires PBMs to allow any pharmacy to participate in any pharmacy network at preferred participation status so long as the pharmacy is willing to accept the terms and conditions the PBM established for other pharmacies as a condition of participation. Here, the court rejected PCMA’s argument that Part D’s Any Willing Provider provision governed only standard networks, not preferred networks. Thus, the Court held that the Any Willing Provider provision was not preempted under Part D.
Similarly, PCMA sought preemption of Oklahoma’s Affiliated Pharmacy Prohibition and Network Provider Restriction provisions. The former prohibits insurers and PBMs from compelling beneficiaries to use pharmacies directly or indirectly owned by those entities. The latter prohibits insurers or PBMs from limiting beneficiaries’ choice of in-network providers. PCMA argued that Part D already permits the use of preferred pharmacy networks and that these provisions impose additional requirements on when insurers or PBMs may limit beneficiaries’ choice of pharmacy. The district court rejected PCMA’s argument finding that Part D’s standard “simply provides that a Part D plan may include a preferred pharmacy network but does not regulate or provide any standards as to how such preferred pharmacy networks must be structured or managed.” Thus, Oklahoma’s Affiliated Pharmacy Prohibition and Network Provider Restriction provisions were saved from preemption under Part D.
PCMA also alleged that Oklahoma’s Probation-Based Pharmacy Limitation Prohibition and Terminated Payment Requirement infringed upon Part D’s quality assurance standards and were therefore preempted. The former prohibits a PBM from denying, limiting, or terminating a pharmacy’s contract based on the employment status of an employee who has an active license to dispense, despite being placed on “probation”. The latter prohibits PBMs from refusing to pay a pharmacy for covered services in the event the PBM terminates that pharmacy from the network. PCMA argued that these prohibitions acted “with respect to” Part D’s quality assurance measures. The court again rejected PCMA’s argument concluding that these prohibitions did not act “with respect to” Part D’s quality assurance standards and were therefore not preempted.
Finally, PCMA challenged the Act’s Contract Approval Rule provision. This provision requires insurers utilizing the services of PBMs to approve all contracts between the PBM and its retail pharmacy network. PCMA argued that this requirement conflicted with Part D provisions requiring certain terms to be in contracts between plan sponsors and PBMs. The district court disagreed holding that the Contract Approval Rule governed only contracts between PBMs and pharmacies, whereas Part D governed contracts between the plan sponsor and PBMs. Thus, the Contract Approval Rule did not act with respect to Part D and was saved from preemption.
Importantly, the District Court rejected all PCMA’s ERISA preemption arguments after finding that the challenged provisions did not have an impermissible “connection with” an ERISA plan. As previously reported by Frier Levitt, state laws targeting abusive PBM conduct have been under constant scrutiny by the PCMA on ERISA and Part D preemption grounds. While PCMA’s ERISA preemption arguments have been effectively neutralized in light of the Supreme Court’s decision in Rutledge v. Pharmaceutical Care Management Association and the Eighth Circuit’s decision in Pharmaceutical Care Management Associated v. Wehbi, it is clear from the federal court’s decision in Mulready, that Part D preemption still presents an obstacle for states seeking to regulate PBM conduct. Oklahoma has not yet appealed the District Court’s decision. However, if timely appealed, the Tenth Circuit Court of Appeals will have an opportunity to weigh in.
Frier Levitt attorneys 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, contact Frier Levitt to speak with an attorney today.
