10th Circuit Invalidates OK PBM Law on Basis of ERISA, Medicare Preemption

The U.S. Court of Appeals for the Tenth Circuit recently overturned portions of Oklahoma’s Patient’s Right to Pharmacy Choice Act, a state law regulating pharmacy benefit managers (PBMs), who serve as intermediaries between pharmacies, insurance companies, and drug companies. A three-judge panel reversed a federal district court judge’s April 2022 ruling in finding that the Act’s restrictions on network access and composition violated preemption provisions of the Employee Retirement Income Security Act (ERISA) and Medicare Part D. The case is Pharmaceutical Care Management Association v. Mulready et al., case number 22-6074, U.S. Court of Appeals for the Tenth Circuit.

The Pharmaceutical Care Management Association (PCMA), a trade group representing PBMs, first filed suit challenging four provisions in the Oklahoma law in October 2019, just before the law took effect. Initially, the court stayed the case pending a decision by the U.S. Supreme Court in Rutledge v. PCMA. After the Supreme Court found that the Arkansas state law in that case was not preempted, the parties moved for summary judgment in the Oklahoma case.

Despite the Supreme Court ruling in Rutledge, the Tenth Circuit found that all four of the challenged provisions were preempted by ERISA when applied to ERISA plans. Additionally, the “any willing provider” (AWP) provision was also preempted by Medicare Part D when applied to Medicare Part D plans, as it encroached on “an existing Medicare standard.” AWP provisions force PBMs to allow providers to participate in pharmacy networks if they meet specific standards.

Furthermore, the appellate court found that the Oklahoma law’s network restrictions did more than increase costs. The restrictions focused on PBM pharmacy networks and prevented them from offering some fundamental network designs, such as preferred, mail-order, and specialty pharmacies. Specifically, each offending provision directed or restricted “an element of plan structure or benefit design.” ERISA specifically forbids state law mandates on benefit structures.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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