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Pharmaceutical Care Management Association v. Tufte

United States District Court, D. North Dakota

September 5, 2018

MYLYNN TUFTE, in her official capacity as the State Health Officer of North Dakota; MARK J. HARDY, in his official capacity as the Executive Director of the North Dakota Board of Pharmacy; FRAN GRONBERG, in her official capacity as the President of the North Dakota Board of Pharmacy; and WAYNE STENEHJEM, in his official capacity as the Attorney General of North Dakota, Defendants.



         Before the Court are cross motions for summary judgment. The Plaintiff, Pharmaceutical Care Management Association (“PCMA”) filed its motion for summary judgment on January 19, 2018. See Docket No. 33. The Defendants, Mylynn Tufte, Mark Hardy, Fran Gronberg, and Wayne Stenehjem, in their official capacities (collectively “North Dakota”), filed a response in opposition and a cross-motion for summary judgment on March 9, 2018. See Docket Nos. 38 and 39. PCMA filed a response on April 9, 2018. See Docket No. 40. North Dakota filed a reply on April 23, 2018. See Docket No. 42. With the Court's permission, PCMA filed supplemental authority on July 9, 2018. See Docket No. 44. North Dakota filed a response to PCMA's supplemental authority on July 20, 2018. See Docket No. 50. In light of recent case law, both parties also filed supplemental briefing on July 20, 2018. See Docket Nos. 48 and 49. For the reasons set forth below, the Court grants, in part, each motion for summary judgment and denies, in part, each motion for summary judgment.

         I. BACKGROUND

         PCMA is a national trade association representing pharmacy benefit managers (“PBMs”), with its principal place of business in Washington, D.C. See Docket No. 1. PBMs are third-party health plan administrators that manage and administer prescription drug benefits on behalf of health insurance plans. See Docket No. 10-3, p. 3. PBMs negotiate prescription drug prices with drug manufacturers and pharmacies, create networks of pharmacies to fill prescriptions, and process and pay insurance claims. See Docket No. 1, p. 4. When an insured patient fills a prescription, the pharmacy generally contacts a PBM to obtain insurance coverage and copayment information. See Docket No. 39-2, p. 6. After the pharmacy fills the prescription, the PBM reimburses the pharmacy based on a rate set out in a contract between the PBM and the pharmacy. See Docket No. 1, p. 6. The PBM then bills the health insurance plan at a rate negotiated between the PBM and the health insurance plan. See Docket No. 39-2, p. 6. In sum, PBMs are intermediaries between patients' and health insurance plans' demand for prescription drugs and manufacturers' and pharmacies' supply of prescription drugs.

         In April 2017, North Dakota's governor, Doug Burgum, signed Senate Bills 2258 and 2301 into law. See S.B. 2258, 2017 Leg., 65th Sess. (ND 2017); S.B. 2301, 2017 Leg., 65th Sess. (ND 2017). The laws regulate PBMs and pharmacies. According to North Dakota, the legislation “sought to define the rights of pharmacist in relation to [PBMs], and to regulate certain practices by PBMs.” See Docket No. 39-1, p. 2. The legislation contains provisions concerning (1) the practice of pharmacy; (2) pharmacy accreditation and credentialing; and (3) perceived self-dealing and abusive practices on the part of PBMs. The parties contest the validity of various provisions, all of which are summarized below.


         The legislation contains the following provisions concerning the practice of pharmacy:

• S.B. 2258 §1(7) allows pharmacies to disclose “relevant” information to patients, including “the cost and clinical efficacy of a more affordable alternative drug if one is available, ” and it prohibits gag orders on such disclosure.
• S.B. 2258 §1(5) allows pharmacies to disclose to patients or plan sponsors information regarding the amount of reimbursement the pharmacy receives after a prescription drug is dispensed.
• S.B. 2258 § 1(8) authorizes pharmacies to “mail or deliver drugs to a patient as an ancillary service of a pharmacy.” • S.B. 2258 § 1(9) bars contracts that prohibit pharmacies from charging patients shipping and handling fees.
• S.B. 2301 § 1(5) authorizes pharmacies to dispense “any and all drugs allowed” under their license.


         The legislation contains the following provisions concerning pharmacy accreditation and credentialing:

• S.B. 2258 §1(11) prohibits PBMs from requiring “pharmacy accreditation standards or recertification requirements inconsistent with, more stringent than, or in addition to federal and state requirements for licensure as a pharmacy in this state.”
• S.B. 2301 §1(4) similarly prohibits PBMs from requiring, for participation in a PBM's pharmacy network, “accreditation standards or recertification requirements . . . which are inconsistent with, more stringent than, or in addition to the federal and state requirements for licensure as a pharmacy in this state.”
• S.B. 2258 § 1(3) requires PBMS to utilize pharmacy performance standards set by unbiased, nationally recognize entities, and it regulates the fees PBMs may impose based on pharmacy performance standards.


         The legislation contains the following provisions concerning perceived self-dealing and abusive practices on the part of PBMs:

• S.B. 2258 § 1(2) prohibits PBMs and third-party payers from charging pharmacies certain fees, including fees that are imposed after the point of sale, not reported on the remittance advice for a claim, or are not apparent at the time of claim processing.
• S.B. 2258 § 1(4) prohibits copayments that exceed the cost of the medication being purchased, and it bars PBMs from “redact[ing] the adjudicated cost, ” i.e., the amount the PBM or third-party payer reimburses a pharmacy for a prescription.
• S.B. 2258 §1(10) requires PBMs to disclose certain information about their pharmacy networks “to enable the pharmacy to make an informed contracting decision.”
• S.B. 2301 § 1(2) obligates PBMs and third-party payers having ownership interest in a pharmacy to disclose, to plan sponsors, on request, the difference between the amount paid to the pharmacy and the amount charged to the plan sponsor.
• S.B. 2301 § 1(3) prohibits PBMs from having an ownership interest in patient assistance programs or 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.”

         On July 11, 2017, PCMA filed a complaint against State Health Officer Mylynn Tufte; Executive Director of the North Dakota Board of Pharmacy, Mark J. Hardy; President of the North Dakota Board of Pharmacy, Fran Gronberg; and North Dakota's Attorney General, Wayne Stenehjem. See Docket No. 1. PCMA then filed a motion for a preliminary injunction on July 20, 2017. See Docket No. 10. The Court held a hearing regarding PCMA's motion for preliminary injunction on August 22, 2017. See Docket No. 24. On November 7, 2017, the Court denied PCMA's motion for a preliminary injunction. See Docket No. 27. Now the Court considers the parties' cross-motions for summary judgment. See Docket Nos. 33 and 38.


         PCMA argues the legislation places restrictions and requirements on PBMs that are preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., and Medicare Prescription Drug Improvement and Modernization Act of 2003 (“Medicare Part D”), 42 U.S.C. § 1395w-101 et seq. PCMA seeks this Court's declaration that the legislation is expressly preempted by federal law. In opposition, North Dakota contends the legislation regulates areas of concern that have been excepted from federal regulation. As detailed below, the Court concludes the legislation is not preempted by federal law, save one provision requiring PBMs to disclose certain information to health insurance plans, which the Court finds preempted by an overlapping Medicare Part D standard.


         Summary judgment is appropriate when the evidence, viewed in a light most favorable to the non-moving party, indicates no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Davison v. City of Minneapolis, 490 F.3d 648, 654 (8th Cir. 2007); see also Fed.R.Civ.P. 56(a). Summary judgment is not appropriate if there are factual disputes that may affect the outcome of the case under the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue of material fact is not the “mere existence of some alleged factual dispute between the parties.” State Auto Ins. Co. v. Lawrence, 358 F.3d 982, 985 (8th Cir. 2004). Rather, an issue of material fact is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. The moving party always bears the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The non-moving party may not rely merely on allegations or denials; it must set out specific facts showing a genuine issue for trial. Forrest v. Kraft Foods, Inc., 285 F.3d 688, 691 (8th Cir. 2002). The court must view the facts in the light most favorable to the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970).


         The preemption doctrine is rooted in the Supremacy Clause, which states federal law “shall be the supreme Law of the Land . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. Because of the Supremacy Clause's mandate, a state law that conflicts with federal law is without effect. Maryland v. Louisiana, 451 U.S. 725, 746 (1981). Courts have delineated two types of preemption: express and implied. See Gade v. Nat'l Solid Wastes Mgmt. Ass'n, 505 U.S. 88, 98 (1992). Express preemption occurs when Congress has “unmistakably ordained” that its enactments alone are to regulate a subject. Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977). Implied preemption occurs when congressional command is implicitly contained in a statute's structure and purpose. Gade, at 98.

         Congressional intent is at the base of all preemption analysis. Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516 (1992). Courts must start their inquiry with the assumption that the historic police powers of the States were not meant to be superseded by federal law unless that was the “clear and manifest” intent of Congress. Rice v. Sante Fe Elevator Corp., 331 U.S. 218, 230 (1947); see also Cipollone, at 516. This assumption assures the “federal-state balance will not be disturbed unintentionally by Congress or unnecessarily by the courts.” Jones, 430 U.S. at 525. “[A] high threshold must be met if a state law is to be preempted for conflicting with the purposes of a federal Act.” Chamber of Commerce of the U.S. v. Whiting, 563 U.S. 582, 607 (2011) (quoting Gade, 505 U.S. at 110).


         ERISA comprehensively regulates employee welfare benefit plans that “through the purchase of insurance or otherwise, ” provide medical, surgical, or hospital care, or benefits in the event of sickness, accident, disability, or death. 29 U.S.C. § 1002(1). ERISA was intended to:

protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

29 U.S.C. § 1001(b).

         “To meet the goals of a comprehensive and pervasive Federal interest and the interests of uniformity with respect to interstate plans, Congress included an express preemption clause in ERISA for the displacement of State action in the field of private employee benefit programs.” Minn. Chapter of Associated Builders & Contractors, Inc. v. Minn. Dep't of Pub. Safety, 267 F.3d 807, 810 (8th Cir. 2001). The Supreme Court has described the preemption clause as having “a broad scope, and an expansive sweep, ” and being “conspicuous for its breadth.” California Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 324 (1997) (internal citation omitted).

         The scope of ERISA preemption has left courts “deeply troubled.” Prudential Ins. Co. of America v. Nat'l Park Med. Ctr. Inc., 154 F.3d 812, 815 (8th Cir. 1998). Courts have struggled to reconcile the sweeping language of ERISA's preemption clause with the assumption that Congress does not intend to bar state action in fields of traditional state regulation or historic police powers. See New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 654-55 (1995) (“we have never assumed lightly that Congress has derogated state regulation, but instead have addressed claims of pre-emption with the starting presumption that Congress does not intend to supplant state law.”). The Supreme Court has warned that ERISA's preemption clause must not be read to “extend to the furthest stretch of its indeterminacy.” De Buono v. NYSA-ILA Med. and Clinical Services Fund, 520 U.S. 806, 813 (1997).

         The preemption clause specifically provides that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan[.]” 29 U.S.C. § 1144(a) (emphasis added). “Yet, Congress did not define what it meant by state laws that ‘relate to' an ERISA benefit plan anywhere in the statute.” Prudential, 154 F.3d at 819. The Supreme Court has “endeavored with some regularity to interpret and apply the ‘unhelpful text' of ERISA's pre-emption provision.” Dillingham, 519 U.S. at 324 (quoting Travelers Ins. Co., 514 U.S. at 656). The Court's endeavor has resulted in a two-part test. ERISA preempts state laws that (1) include a reference to ERISA plans, or (2) have an impermissible connection with ERISA plans. Gobeille v. Liberty Mut. Ins. Co., 136 S.Ct. 936, 943 (2016).


         Neither S.B. 2258 nor S.B. 2301 contain an explicit reference to ERISA or ERISA plans. ERISA is not mentioned, discussed, defined, or excluded in either bill. However, PCMA argues that both S.B. 2258 and S.B. 2301 contain “implicit” references to ERISA because, within each bill, the terms pharmacy benefit manager, third-party payer, and plan sponsor are defined broadly enough to implicate ERISA health plans. See Docket No. 33-1, pp. 16-18.

         Under the “reference to” inquiry, the Supreme Court has preempted state laws that (1) imposed requirements by reference to ERISA covered programs; (2) specifically exempted ERISA plans from an otherwise generally applicable statute; and (3) premise a cause of action on the existence of an ERISA plan. Prudential, 154 F.3d at 822. An impermissible reference to ERISA occurs when a state law “acts immediately and exclusively upon ERISA plans . . . or where the existence of ERISA plans is essential to the law's operation[.]” Gobeille, 136 S.Ct. at 943 (internal citation and quotation omitted).

         PCMA cites the Eighth Circuit Court of Appeals decision in Pharmaceutical Care Management Association v. Gerhart for the proposition that a general state-law reference broad enough to encompass ERISA plans must result in preemption. 852 F.3d 722 (8th Cir. 2017). In PCMA's words: “A statute that implicitly refers to ERISA plans, such as by including ‘health benefit plans' within its scope, has a prohibited reference to ERISA plans.” See Docket No. 33-1, p. 16. In Gerhart, PCMA sued the state of Iowa seeking a declaration that an Iowa state law regulating how PBMs established generic drug pricing was preempted by ERISA. Id. at 726. The Eighth Circuit held the Iowa statute contained an impermissible reference to ERISA. Id. at 729-30. The court noted that, by its “express terms, ” the Iowa law “specifically exempts certain ERISA plans from its otherwise general application.” Id. at 729. The court held that “[b]ecause of this impermissible reference to ERISA or ERISA plans, [the Iowa law] is preempted under 29 U.S.C. § 1144(a).” Id. at 730. The court also noted the law contained an “implicit reference” to ERISA because it regulated PBMs that administer benefits for plans subject to ERISA. Id. at 729.

         The Eighth Circuit recently commented on the Gerhart holding in Pharmaceutical Care Management Association. v. Rutledge, 891 F.3d 1109 (8th Cir. 2018). The court stated:

The state argues that Gerhart should be limited to its consideration of the Iowa Act's “express reference” to ERISA, and that Gerhart's “implicit reference” analysis is dicta inconsistent with Supreme Court precedent. We disagree. In addition to finding that Iowa Code § 510B.8 had a prohibited express reference to ERISA, the Gerhart court found that the “Iowa law also makes implicit reference to ERISA through regulation of PBMs who administer benefits for ‘covered entities,' which, by definition, include health benefit plans and employers, labor unions, or other groups ‘that provide[ ] health coverage.' These entities are necessarily subject to ERISA regulation.” 852 F.3d at 729.

Id. at 1112 (alteration in original).

         PCMA argues the decisions in Gerhart and Rutledge establish a new rule regarding the “reference to” inquiry. See Docket No. 48, p. 8 (“Rutledge confirmed that an implicit reference to ERISA exists even where the law does not only regulate entities necessarily subject to ERISA regulation.”) (emphasis in original). However, the rule PCMA attempts to distill from Gerhart- that a general state-law provision broad enough to encompass ERISA plans within its scope constitutes an implicit reference to an ERISA plan-would vastly expand the scope of the ERISA preemption doctrine. The Court finds nothing in the Eight Circuit's analysis to indicate such an intent. The Rutledge court explained Gerhart is not “inconsistent with the Supreme Court's precedent in Travelers or De Buono . . . .” 891 F.3d at 1112. Those cases require preemption under the “reference to” inquiry when a state law (1) acts ...

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