State PBM Regulation: The Struggle Continues – Tenth Circuit Decision Latest to Rule on ERISA, Part D Preemption

On April 4, 2022, in Pharmaceutical Care Management Association (PCMA) v. Mulready, the US Court of Appeals for the Tenth Circuit ruled on PCMA’s claim that Oklahoma’s Patient’s Right to Pharmacy Choice Act (Act), Okla. Stat. tit. 36, § 6958, and seq.was preempted under ERISA and Medicare Part D.

PCMA asserted that ERISA preempted provisions of the law regulating Any Willing Provider, Okla. Stat. tit. 36, § 6962(B)(4); Retail-Only Pharmacy Access Standards, Okla. Stat. tit. 36, § 6961(A), (B); Affiliated Pharmacy Prohibitions, Okla. Stat. tit. 36, § 6961(C); Probation-Based Pharmacy Limitations, Okla. Stat. tit. 36, § 6962(B)(5); Network Provider Restrictions, Okla. Stat. tit. 36, § 6963(D); Cost Sharing Discount Provisions, Okla. Stat. tit. 36, § 6963(E); Promotional Materials Supplies; Ok so. Stat. tit. 36, § 6961(D), Post-Sale Price Reduction Prohibition, Okla. Stat. tit. 36, § 6962(B)(6), and the Affiliated Pharmacy Price Match, Okla. Stat. tit. 36, § 6962(B)(3). PCMA contended that these provisions had an impermissible connection with ERISA because they directly affected ERISA plans by dictating network composition, cost-sharing differentials, and communications with beneficiaries, or, in some cases, the benefit design of a plan. The court held that ERISA did not preempt any of these provisions. The court acknowledged that these provisions might alter the incentives and limit some of the options that an ERISA plan can use, and would have some effect on the way PBMs pay and/or reimburse pharmacies, but held that they did not impermissibly dictate the design of ERISA plans or force the plans into making any specific choices.

PCMA asserted that Medicare Part D preempted most of the same provisions, as well as a provision that prohibited charging pharmacies a service fee. The scope of Medicare Part D preemption was an issue of first impression for the Tenth Circuit. The decision noted that Medicare Part D incorporates the express preemption provision contained in Medicare Part C. See 42 USC § 1395w-112(g), which states that “the standards established under this part shall supersede any State law or regulation . . . with respect to MA plans which are offered by MA organizations under this part.” 42 USC § 1395w-26(b)(3). The court held that preemption exists where “(1) Congress or the Centers for Medicare and Medicaid Services (CMS) has established ‘standards’ in the area regulated by state law; and (2) the state law acts ‘with respect to those standards,’” citing CMAM v. Rutledge891 F.3d 1109, 1113 (8th Cir. 2018), another challenge by PCMA to state regulation of PBMs.

The court held that some of the Oklahoma provisions were preempted by Part D, but not others. The most significant aspect of the court’s decision was to preempt the Oklahoma Service Fee Prohibition, Affiliated Pharmacy Price Match, and Post-Sale Price Reduction Prohibition as being incompatible with the Medicare Part D “non-interference” law, which prohibits interference with the negotiations between Part D Sponsors and pharmacies and prohibits any requirement of a particular formulary or price structure for the reimbursement of covered part D drugs. See 42 USC § 1395w-111(i). This ruling could spark additional debate over the proposed technical changes for the 2023 Medicare Advantage and Part D contract year (87 Fed. Reg. 1842; C&M Client Alert) regarding the reporting of Part D pharmacy direct and indirect remuneration (DIR), and about how much authority CMS has to regulate in the area of ​​service fees or retrospective changes in pharmacy reimbursement.

The Tenth Circuit also preempted Oklahoma’s Retail-Only Pharmacy Access Standards act because CMS has established standards regarding convenient access to network pharmacies.

The court did not preempt the Oklahoma any willing provider restrictions, affiliated pharmacy and network provider restrictions, and probation-based pharmacy limitations, on the basis that there were no Part D standards to act “with respect to.”

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