On November 17, the U.S. Court of Appeals for the Eighth Circuit (Eighth Circuit) issued its decision in Pharmaceutical Care Management Association v. Wehbi, et al., ruling that North Dakota’s PBM regulation laws (the Challenged Provisions) are not preempted under the federal Employee Retirement Income Security Act (ERISA).  The Eighth Circuit decided, however, that three groups of the Challenged Provisions are preempted by the Medicare program.  Overall, the decision will likely protect state 340B anti-discrimination laws from ERISA preemption challenges for states in the Eighth Circuit, which include Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.

The Challenged Provisions.  The Challenged Provisions, among other things, protect North Dakota pharmacies from certain PBM contracting practices.  The provisions (1) prohibit PBMs from charging fees associated with claims processing; (2) permit pharmacies to retain member copays; (3) prohibit PBMs from restricting pharmacies from mailing prescriptions to patients; (4) prohibit PBMs from limiting what drugs pharmacies may dispense under their state licenses; (5) require PBMs to utilize unbiased nationally recognized quality assurance measures and systems for network pharmacies; (6) prohibit PBMs from having an ownership interest in a patient assistance program and a mail order specialty pharmacy, unless the PBM agrees to not participate in transactions that benefit the PBM; (7) prohibit PBMs from charging retroactive fees; (8) prohibit PBMs from requiring pharmacy accreditation standards or recertification requirements that are inconsistent with, more stringent than, or in addition to federal and state requirements for pharmacy licensure; and (9) prohibit PBMs from restricting pharmacies from disclosing certain information to patients.

ERISA Preemption Standard.  The Eighth Circuit stated that a state law is preempted by ERISA if it has an impermissible connection with or impermissibly references ERISA plans.  The court held that a state law has an impermissible “connection with” ERISA plans only if (1) it “governs . . . a central matter of plan administration”; (2) it “interferes with nationally uniform plan administration”; or (3) “acute, albeit indirect, economic effects” of the state law “force an ERISA plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers.”  This connection-with standard is “primarily concerned with preempting laws that require providers to structure benefit plans in particular ways, such as by requiring payment of specific benefits or by binding plan administrators to specific rules for determining beneficiary status.”  A state law has an impermissible “reference to” ERISA plans if the state law “acts immediately and exclusively upon ERISA plans” or “the existence of ERISA plans is essential to the law’s operation.”

None of the Challenged Provisions Are Preempted under ERISA. The Eighth Circuit decided that none of the Challenged Provisions are preempted by ERISA as applied to ERISA plans, frequently citing the U.S. Supreme Court Case Rutledge v. PCMA, which was decided late last year.  In Rutledge, the Supreme Court decided that ERISA did not preempt state laws that set minimum rates that PBMs must reimburse pharmacies, which would generally include 340B discriminatory reimbursement laws, but the court left open the question of whether other forms of state PBM regulation laws could be preempted by ERISA.  The Eighth Circuit has now decided that state laws regulating other forms of PBM practices are not preempted by ERISA.  In theory, 340B-protective state laws, such as laws that guarantee a patient’s right to choose a pharmacy that participates in the 340B program or a law that prohibits a PBM from charging an assessment to a pharmacy based on its participation in the 340B program, should be protected under the Eighth Circuit’s ERISA analysis.

Three Sets of Provisions Are Preempted under Medicare.  The Eighth Circuit decided that three sets of the Challenged Provisions are preempted by the Medicare program because they regulate the same subject matter as Medicare law, regulations, or standards.  Those provisions (1) prohibit a PBM from restricting pharmacies from disclosing certain information to patients; (2) require PBMs to utilize certain unbiased quality assurance measures or systems; and (3) prohibit PBMs from directly or indirectly charging or holding a pharmacy responsible for retroactive fees or clawbacks.  It is important to note that the Eighth Circuit decided that these three sets of North Dakota laws are only preempted with respect to Medicare Part D plans.  These laws, and other similar state laws, remain legally valid as applied to other plans according to the Eighth Circuit.

The Eighth Circuit’s decision may also impact other preemption challenges that are premised on the 340B statute.  Unlike the Medicare statute, which contains an express preemption clause and specifically addresses pharmacy contract negotiations, the 340B statute neither contains an express preemption clause nor addresses pharmacy contracting.  State laws that prohibit discriminatory contracting with 340B pharmacies, such as those prohibiting manufacturers from directly and indirectly discriminating against contract pharmacies, may therefore survive manufacturers’ preemption challenges.  Powers will continue to monitor the impact of the Eighth Circuit’s decision on states’ efforts to enact 340B anti-discrimination laws and whether the Pharmaceutical Care Management Association will appeal the Eighth Circuit’s decision to the Supreme Court.