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Benefits

Eighth Circuit: State’s PBM Law Preempted by ERISA, Unenforceable

EBIA  

EBIA  

Pharmaceutical Care Management Assoc. v. Tufte, 2020 WL 4554980 (8th Cir. 2020)

Available at https://ecf.ca8.uscourts.gov/opndir/20/08/182926P.pdf

A federal appeals court has ruled that a state law regulating the relationship between pharmacies, pharmacy benefit managers (PBMs), and other third parties that finance health services is preempted by ERISA and, therefore, unenforceable. A trade association that represents PBMs (third-party health plan administrators that manage prescription drug benefits on behalf of health plans by, e.g., negotiating prescription drug prices with drug manufacturers and pharmacies, creating pharmacy networks, and processing claims) appealed to the Eighth Circuit after a trial court ruled that only one provision in the PBM law was preempted by Medicare Part D (as to Medicare Part D plans) and none were preempted by ERISA. Among other things, the law regulated the fees PBMs could charge pharmacies, limited what copayments PBMs could charge, regulated benefits provisions and plan structures, and required certain disclosures.

Citing the general rule that ERISA preempts state laws that have an impermissible “reference to” or “connection with” an ERISA plan, the Eighth Circuit agreed with the PBM trade association that the entire law was preempted by ERISA. The court explained that a state law has an impermissible reference to ERISA plans if (1) it “acts immediately and exclusively upon ERISA plans” or (2) “the existence of ERISA plans is essential to the law’s operation,” and concluded that the PBM law was preempted because it imposed requirements by reference to ERISA plans through its definitions of “third-party payers” and “plan sponsors.” The court rejected the state’s argument that because the legislation also covered entities that are not ERISA plans, it neither acted immediately and exclusively upon ERISA plans nor made the existence of an ERISA plan essential to the operation of the regulatory scheme. Relying on Eighth Circuit precedent (see, e.g., our Checkpoint article), the court ruled that a law that implicitly regulates ERISA plans as part of its regulatory scheme is preempted by ERISA and cannot be saved merely because the reference also includes entities not covered by ERISA.

EBIA Comment: The attempt to delineate the reach of ERISA’s broad preemption provision is ongoing. The Eighth Circuit’s reversal of the trial court’s position is in line with other cases that support ERISA preemption of various laws regulating PBMs. But further delineation seems likely, as the Supreme Court will address this issue next term when it reviews one of the precedential Eighth Circuit cases relied on here. For more information, see EBIA’s ERISA Compliance manual at Sections XXXIX.C (“State Laws That ‘Relate to’ ERISA Plans Are Generally Preempted”) and XXXIX.H.8.c (“Pharmacy Benefit Managers (PBMs)”). See also EBIA’s Self-Insured Health Plans manual at Section V.E (“ERISA Preemption and the Application of State Mandates”).

Contributing Editors: EBIA Staff.

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