Pharm. Care Mgmt. Ass’n v. Mulready, 2023 WL 5218138 (10th Cir. 2023)
The Tenth Circuit has held that ERISA preempts provisions of an Oklahoma law regulating pharmacy benefit managers (PBMs). PBMs manage prescription drug benefits on behalf of health plans by, among other things, negotiating prices with drug manufacturers and contracting with pharmacies to design pharmacy networks. This state law was intended to curtail their power and support independent pharmacies by imposing “network restrictions” that establish geographic parameters for PBM networks; prohibit PBMs from promoting in-network pharmacies by offering cost-sharing discounts; and require that every pharmacy willing to accept the PBM’s terms be allowed into its preferred network. In addition, the law prevents PBMs from terminating a pharmacy’s contract because one of its pharmacists is on probation with the state pharmacy board.
A PBM trade association challenged the law, arguing that it implicitly regulated ERISA plans by mandating benefit plan structures and preventing employers from structuring their plans in certain ways. Examining the network restrictions, the court determined that, together, they would “effectively abolish the two-tiered network structure, eliminate any reason for plans to employ mail-order or specialty pharmacies, and oblige PBMs to embrace every pharmacy into the fold.” In contrast with state PBM laws that have been held not preempted, this law did not merely increase costs or alter incentives for ERISA plans without forcing them to adopt any particular coverage. Rather, the network restrictions governed central matters of plan administration and thus had an impermissible connection with ERISA plans. Similarly, the probation provision effectively dictated which pharmacies must be included in a plan’s PBM network since PBMs could not oppose those employing pharmacists on probation. Thus, the court held that the network restrictions and the probation provision were preempted as applied to ERISA plans. In addition, certain provisions were preempted by Medicare Part D.
EBIA Comment: States will no doubt continue to attempt to rein in the power of PBMs—the court noted that PBMs administer prescription drug benefits for approximately 270 million people—and courts will continue to examine ERISA’s preemptive effect on various state PBM laws. Ultimately, the court suggested, states may have to approach Congress to seek redress for their displeasure with PBMs. 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”).
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