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Home > Blog > Eighth Circuit Holds ERISA Does Not Preempt North Dakota Laws Regulating Pharmacy Benefits Managers

Eighth Circuit Holds ERISA Does Not Preempt North Dakota Laws Regulating Pharmacy Benefits Managers

Pharm. Care Mgmt. Ass’n v. Wehbi, No. 18-2926, __F.4th__, 2021 WL 5355916 (8th Cir. Nov. 17, 2021) (Before Smith, Chief Judge, Gruender and Benton, Circuit Judges).

On remand from the Supreme Court in light of its decision in Rutledge v. Pharmaceutical Care Management Association, 592 U.S. ––––, 141 S. Ct. 474, 208 L.Ed.2d 327 (2020), the Eighth Circuit reconsidered whether North Dakota Century Code sections 19-02.1-16.1 and -16.2—laws that regulate pharmacy benefits managers (“PBMs”), entities that manage prescription-drug benefits on behalf of health-insurance plans—are preempted by ERISA and Medicare Part D.

First, the court determined that the challenged provisions do not escape preemption on the basis that they regulate PBMs rather than plans because PBMs manage benefits on behalf of plans such that regulation of PBMs function as regulation of an ERISA plan itself. The court also determined that there is no presumption against preemption on the basis that ERISA and Medicare Part D contain express preemption provisions; the court instead focuses on the plain wording of the clause.

On the issue of ERISA preemption, the court explained that ERISA preempts a state law that relates to an ERISA plan if it has a connection with or reference to an ERISA plan. A state law has an impermissible connection with ERISA plans if it (1) governs a central matter of plan administration; (2) interferes with nationally uniform plan administration; or if (3) the effects of the law force an ERISA plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers.

The court held that none of the challenged provisions meets the connection-with standard for ERISA preemption. Certain provisions of the North Dakota law merely authorize pharmacies to do certain things that involve noncentral matters of plan administration with de minimus economic effects that impact the uniformity of plan administration across states. For example, pharmacies can disclose certain information to the plan sponsor, provide relevant information to a patient, mail or deliver drugs to a patient as an ancillary service, and charge a shipping and handling fee. These provisions do not require the payment of specific benefits. Other provisions of the law which “limit the accreditation requirements that a PBM may impose on pharmacies as a condition for participation in its network” also constitute a noncentral matter of plan administration. While this may cause some disuniformity in plan administration because PBMs must maintain different accreditation requirements in different states, the law does not require payment of specific benefits or bind plan administrators to specific rules for determining beneficiary status. Further, the law’s requirement that PBMs disclose basic information to pharmacies and plan sponsors upon request is a modest disclosure requirement that does not impact the uniformity of plan administration across states. PBMs are not required to report to North Dakota the kind of information that ERISA requires plans to report to the Secretary of Labor. Lastly, the law’s prohibition against PBMs having an ownership interest in a patient assistance program and a mail order specialty pharmacy, unless the PBM agrees to not participate in a transaction that benefits the PBM instead of another person owed a fiduciary duty, may cause a drug to be unavailable to ERISA plans’ North Dakota beneficiaries but the impact of the law on the benefit structure is attributable to the independent actions of PBMs, not to the law itself. In sum, the court found that the North Dakota law does not have an impermissible connection with ERISA plans.

The court next considered whether the law has an impermissible “reference to” ERISA plans by acting immediately and exclusively upon ERISA plans or that ERISA plans are essential to the law’s operation. The court found that the “challenged provisions apply to PBMs not only insofar as they administer ERISA plans but also insofar as they administer non-ERISA plans.” As such, they do not act exclusively upon ERISA plans and ERISA plans are not essential to their operation. The court concluded that the district court properly rejected Plaintiff PCMA’s claims of ERISA preemption. The court did find several of the law’s provisions to be preempted by Medicare Part D.

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