• Pharmaceutical Care Mgmt. Assoc. v. District of Columbia No. 1:04-cv-01082-RMU (D.C. Cir. July 9, 2010)
  • October 5, 2010 | Authors: Matthew T. Fornataro; Arthur N. Lerner
  • Law Firm: Crowell & Moring LLP - Washington Office
  • The United States Court of Appeals for the District of Columbia Circuit found certain provisions of Title II of D.C.’s Access Rx Act of 2004 (Title II), as  applied to a pharmaceutical benefits manager (PBM) under contract with an employee benefit plan (EBP), preempted by ERISA.  The Court found that ERISA does preempt the fiduciary duty, fiduciary standard, disclosure of conflicts, disclosure of substitution, and substitution pass back provisions of Title II (§§ 48-832.01(a), (b)(1), and (d)), because they relate to an EBP and require an EBP that deals with PBMs to conduct itself in a certain way.  But the Court found that ERISA does not preempt the usage pass back, disclosure of purchases, disclosure of terms, and confidentiality provisions of Title II (§§ 48-832.01(b)(2) and (c)), because EBP’s can choose to waive these provisions in their PBM/EBP contracts.

    The Pharmaceutical Care Management Association (PCMA), a national trade organization representing PBMs had filed this suit alleging that ERISA preempted Title II because Title II relates to an Employee Benefit Plan (EBP).  ERISA  itself states that it preempts “any and all State laws insofar as they ... relate to any employee benefit plan.  Furthermore, “a state law relates to an EBP if it has a connection with or references an EBP.” 

    In determining whether Title II relates to an EBP, the Court found that “[t]he administration of employee benefits clearly is an area of core ERISA concern.”  The Court also found that Title II’s provisions affect ERISA plans as Title II “regulate[s] the administration of employee benefits” and its purpose “is to prescribe the way PBMs decide which pharmaceuticals to provide to plan beneficiaries and to prevent PBMs from inflating the price the plan pays for those pharmaceuticals.”  Therefore, the Court found that Title II relates to an EBP.

    The Court rejected the District’s argument that the provisions of Title II qualify as state law that Congress did not intend ERISA to preempt because Title II does not regulate “relationships among ERISA entities.” The Court also rejected the District’s argument that these provisions allow plan administrators to freely structure their plans, as EBPs can decide between internally administering their pharmaceutical benefits or contracting with a PBM (and thus adhering to Title II’s requirements).