North Dakota, which once lost its fight to regulate PBM practices, gets a rematch

At the U.S. Eighth Circuit Court of Appeals last week, Pharmaceutical Care Management Association (PCMA) and North Dakota delivered oral arguments in litigation over state laws regulating some PBM practices. The proceedings were the latest step in PCMA v Wehbi’s winding path through the courts. The circuit court once sided with the PBM lobbying group, but the U.S. Supreme Court vacated that ruling after it unanimously decided to uphold an Arkansas PBM-regulation law.

The North Dakota laws at issue address, among other things, PBMs’ retroactive extraction of certain fees from pharmacies, restrictions on what pharmacists can discuss with their patients, and limitations on pharmacists’ authority to dispense certain drugs.

In a past life
In 2017, PCMA sued North Dakota officials to strike down the laws, contending that the state laws were superseded by the federal Employment Retirement Income Security Act (ERISA) as well as by Medicare.

ERISA is the primary factor in the case. Congress passed ERISA in 1974 to establish uniform federal standards for employee health plans, among other things. The act expressly preempts state laws that “relate to” an employee benefit plan.

PCMA argues that North Dakota’s laws regulate employee benefit plan design, but that ERISA prohibits such state regulation. For example, North Dakota laws say that PBMs should not be able to require network pharmacies to meet requirements beyond those necessary to be licensed in the state. PCMA says that they should be able to set their own standards because pharmacy networks are an aspect of plan design, which ERISA covers.

Additionally, North Dakota’s laws also make rules about what plans must disclose to beneficiaries, but PCMA asserts that disclosures are covered by ERISA and therefore the state has no authority to regulate them.

North Dakota, however, asserts that its PBM-regulation statutes don’t connect with ERISA because the laws have no bearing on whether a patient is eligible for coverage or whether a drug is covered by a plan. Neither do the laws affect any central matter of plan administration. ERISA applies to fiduciaries, not plans, and PBMs are not fiduciaries. The laws are necessary, the state says, to control PBM business practices that harm patients, pharmacies, and plans.

The case was first heard in U.S. District Court. The district court judge rejected most of PCMA’s arguments, siding with North Dakota. PCMA appealed that ruling, sending the case to the Eight Circuit Court. The circuit court agreed with PCMA that, for the most part, PBMs answer only to federal laws. It reversed the district court decision, essentially voiding the North Dakota laws.

Game changer
That’s how things stood until Rutledge v PCMA reached the Supreme Court. In that case, Arkansas appealed a separate Eighth Circuit Court decision finding that ERISA preempted a law regulating PBM practices; the state appealed and ultimately won its challenge. That had serious implications for North Dakota’s PBM-regulation laws.

Arkansas’ law required PBMs reimburse pharmacies at or above the wholesale costs of generic drugs. Below-cost reimbursement caused some pharmacies to lose money on the prescriptions they filled, threatening their business and patients’ access to their services. The law also forbade PBMs from reimbursing affiliated pharmacies at a higher level than they reimburse other pharmacies (e.g., CVS Health comprises the PBM CVS Caremark and the CVS pharmacy chain). Additionally, it created an avenue for pharmacies to appeal reimbursements lower than wholesale acquisition cost.

PCMA challenged Arkansas’ law on the grounds that it was preempted by ERISA. The U.S. Supreme Court disagreed, unanimously ruling in favor of Arkansas. The Court stated that Arkansas’ law regulated cost, which is not addressed in ERISA.

Since the ERISA-preemption argument is at play in Wehbi, the Supreme Court reversed the lower court’s decision and remanded it to Eighth Circuit to be reheard.

This round
The North Dakota case is important because it will examine the scope of the Rutledge decision. Though the ruling kept Arkansas’s law in place, it did not provide clear answers on the circumstances under which states can regulate PBMs.

In its oral arguments, PCMA maintained that the North Dakota laws differ from Arkansas’ law and therefore the original Eighth Circuit ruling should stand. Even if Arkansas’ regulation of drug costs isn’t preempted by ERISA, the group again asserted that the North Dakota laws pertain to regulations that do illegally “relate to” employee benefits plans.

North Dakota, in contrast, said that in the absence of federal regulations, PBMs have engaged in harmful business practices and have waged war against states that have acted to protect themselves. “PCMA has attempted to weaponize federal preemption to shut down state regulation of PBMs, even in areas where the federal government does not regulate,” the state’s counsel argued. “Neither ERISA nor Medicare preempt the provisions still at issue here.” Plus, he said, PCMA made many of its claims about what constitutes “plan design” in Rutledge as well, and the Supreme Court shot them down.

Defenders of North Dakota’s PBM-regulation laws also rebut PCMA’s contentions: “PBMs are neither ERISA plans nor third parties that administer such plans. They are mere service providers who negotiate at arms-length with ERISA plans,” APhA and other pharmacy organizations wrote in an amicus brief. Therefore, the amicus brief states, ERISA does not apply to the laws at issue.

A bipartisan group comprising attorneys general from 34 states submitted another amicus brief defending North Dakota, according to JD Supra. The brief also argues that “state regulation is necessary to prevent PBMs from imposing self-serving protections that reduce reimbursement rates to pharmacies and maximize rebates to PBMs… ERISA does not preempt North Dakota’s laws because these laws do not alter the substantive coverage of benefit plans.”

Next steps
Experts do not expect a ruling in PCMA v Wehbi for several months. APhA will continue to follow the case’s progress.

Rachel Balick, director of strategic communications