United States District Court, D. North Dakota
ORDER GRANTING IN PART AND DENYING IN PART THE
PARTIES' CROSS MOTIONS FOR SUMMARY JUDGMENT
L. HOVLAND, CHIEF JUDGE
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
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
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.
PROVISIONS CONCERNING THE PRACTICE OF
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
• 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
PROVISIONS CONCERNING PHARMACY ACCREDITATION AND
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
• 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.
PROVISIONS CONCERNING PERCEIVED SELF-DEALING AND ABUSIVE
PRACTICES ON THE PART OF PBMS
legislation contains the following provisions concerning
perceived self-dealing and abusive practices on the part of
• 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
• 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
• 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.”
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.
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 OF REVIEW
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
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.
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).
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).
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).
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).
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).
S.B. 2258 AND S.B. 2301 INCLUDE A REFERENCE TO ERISA
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.
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).
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.
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).
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