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A recent federal case centers on whether ERISA preempts state attempts to regulate restrictive pharmacy benefit manager (“PBM”) networks. On April 4, 2022, in the case of Pharmaceutical Care Management Association (PCMA) v. Mulready, the U.S. District Court for the Western District of Oklahoma held that an Oklahoma state law regulating PBMs is not preempted by ERISA.  The case has been appealed to the 10th Circuit, and a decision is expected in the coming months.

The Patient’s Right to Pharmacy Choice Act was enacted by the state of Oklahoma in 2019 with the stated purpose to “establish minimum and uniform access to a provider and standards and prohibitions on restrictions of a patient’s right to choose a pharmacy provider.”  Four of the requirements of the Oklahoma law are being considered on appeal:

  1. The Retail-Only Pharmacy Access Standards require a PBM to ensure that a brick-and-mortar pharmacy within the pharmacy network is located within a set number of miles from at least 90 percent of covered individuals (or 70 percent in rural areas).
  2. The Probation-Based Pharmacy Limitation Prohibition prohibits a PBM from denying, limiting or terminating a provider’s contract because an employee of the provider is on probation status with the Board of Pharmacy.
  3. The Any Willing Provider Provision prohibits a PBM from denying participation in its preferred network to any provider who is willing to accept the terms and conditions agreed to by other providers in the preferred network.
  4. The Cost-Sharing Discount Prohibition prohibits PBMs from requiring or incentivizing individuals to use cost-sharing discounts in order to receive prescription drugs from any in-network pharmacy.

ERISA Section 514(a) preempts “any and all State laws insofar as they may now or hereafter relate to any [ERISA plan].”  The Supreme Court has interpreted this section to mean that a state law may be preempted if it has a “connection with” an ERISA plan and “governs a central matter of plan administration or interferes with nationally uniform plan administration.” For Mulready, the central question is whether this Oklahoma law “relates to” and has a “connection with” a central matter of plan administration sufficient to trigger ERISA preemption.

The District Court held that none of the four provisions of the state law was preempted by ERISA.  The Court reasoned that while these provisions may alter the incentives and limit some of the options that an ERISA plan can use, none of the provisions forces ERISA plans to make any specific choices.  Since the plan is still free, in the face of the state law, to choose between multiple options in its plan design, the District Court held that ERISA preemption is not triggered and that the state law would stand in its entirety.

The U.S. Department of Labor, in its amicus brief to the 10th Circuit filed alongside the Department of Justice, largely disagreed with the District Court’s conclusion, arguing that, although ERISA does not preempt the state law as it applies directly to PBMs, it should be held to preempt at least the first, third, and fourth requirements described above to the extent they apply to ERISA plans.  The brief argues that, under current Supreme Court precedent, preemption applies whenever a state law impacts plan structure and benefit design, not “only if they foreclose plans from taking any approach save one.”

The 10th Circuit’s coming decision in Mulready could signal whether federal courts will continue to rethink the boundaries of ERISA preemption.  As discussed in our Benefits Update dated December 16, 2020, the Supreme Court, in Rutledge v. Pharmaceutical Care Management Association (PCMA), held that an Arkansas law setting minimum PBM reimbursement rates was not preempted by ERISA.  The state law at issue in Mulready goes a step further, by directly regulating plan design choices rather than just a plan’s cost incentives as in Rutledge. At oral arguments held on May 16, 2023, the 10th Circuit panel appeared skeptical of Oklahoma’s comparison of this case to Rutledge, given the significantly farther reach of the Oklahoma law into plan design and administration.

The decision in this case may determine whether other states continue to consider similar regulations on PBMs and ERISA plans.  The state of Florida, for example, recently enacted the Prescription Drug Reform Act, its own attempt to regulate PBMs, and the decision in Mulready offers a preview of how courts may evaluate it and other similar state laws in the ERISA preemption context.

Please contact Slevin & Hart for more information about this case and how it could affect your plan.

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