Tenth Circuit Holds Oklahoma’s Patient’s Right to Pharmacy Choice Act Is Preempted by Federal Law

In Pharm. Care Mgmt. Ass’n v. Mulready, No. 22-6074, __F.4th__, 2023 WL 5218138 (10th Cir. Aug. 15, 2023), Plaintiff-Appellant Pharmaceutical Care Management Association (PCMA), a trade association representing pharmacy benefit managers (PBMs), brought an action on behalf of its members against Oklahoma’s Insurance Commissioner and the Oklahoma Insurance Department (“Oklahoma”) to challenge Oklahoma’s Patient’s Right to Pharmacy Choice Act and related regulations on the basis that the Act was preempted by ERISA and Medicare Part D. PCMA appealed the district court’s ruling that ERISA did not preempt four provisions of the Act and the court’s ruling that Medicare Part D did not preempt one provision. The Tenth Circuit Court of Appeals reversed the district court and held that: (1) ERISA preempted the Act’s restrictions regarding pharmacies in the PBM network; (2) ERISA preempted the Act’s probation prohibition applying to pharmacists on probation; and (3) Medicare Part D’s preemption clause mandates field preemption; and (4) Medicare Part D preempted the Act’s network restriction requiring PBMs to accept any willing provider.

First, the court held as a threshold matter that the Act does not escape ERISA preemption simply because it regulates PBMs and not health plans. This is because ERISA preempts state laws that have a “connection with” an ERISA plan and the Supreme Court has never recognized a distinction between ERISA plans and third parties. The reality is that PBMs predominate in the prescription-drug-benefit field, and it would be practically impossible for an ERISA plan to manage its own pharmacy benefits and avoid using a PBM. ERISA preemption depends on whether the Act’s PBM regulations have an impermissible connection with ERISA plans.

The court found that the Act’s challenged four provisions can be described as network restrictions and an integrity and quality restriction. PCMA argues that the network restrictions curtail and eliminate certain widely-employed plan structures and impose alternative benefit designs. The court agreed with PCMA that the network restrictions require providers to structure benefit plans in a particular way. “ERISA preempts these provisions because a pharmacy network’s scope (which pharmacies are included) and differentiation (under what cost-sharing arrangements those pharmacies participate in the network), are key benefit designs for an ERISA plan.” The court explained that its decision adheres to Rutledge v. Pharm. Care Mgmt. Ass’n, 141 S. Ct. 474, 478, 208 L. Ed. 2d 327 (2020), because unlike the Arkansas regulations involved in that case, Oklahoma’s network restrictions do more than increase costs; they attempt to govern a central matter of plan administration and interfere with nationally uniform plan administration. The court also found that the Act’s bar on PBMs’ ability to deny, limit, or terminate a pharmacy’s contract because one of its pharmacists is on probation with the Oklahoma State Board of Pharmacy is also preempted by ERISA. By limiting the accreditation requirements that a PBM may impose on pharmacies as a condition for participation in its network, the Act affects the benefits available by increasing the potential providers, and eliminates the choice of one method of structuring benefits. ERISA plans that chose to hire a PBM are limited by statute to using PBM networks of a certain structure. This is why the integrity and quality restriction is preempted by ERISA.

The court concluded: “By passing laws like Oklahoma’s, States have repeatedly expressed their overwhelmingly bipartisan displeasure with the power of PBMs over their citizens’ healthcare decisions. Our role is to answer whether the Act’s four challenged provisions veer into the regulatory lanes that Congress has reserved for itself. For the reasons discussed, we conclude that they do. Though the Act avoids mentioning ERISA plans or Medicare Part D plans by name, it encompasses these plans by striking at the heart of network and benefit design. But the States have an avenue by which to meaningfully seek redress. They may approach Congress, the architect of ERISA and Medicare, to take up the mantle.”