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Alerts and Updates

North Dakota Judge Denies Preliminary Injunction to PBMs

November 20, 2017

North Dakota Judge Denies Preliminary Injunction to PBMs

November 20, 2017

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In April 2017, North Dakota Governor Doug Burgum signed laws that provide comprehensive reforms to the operations of PBMs, including changes to much of the tight restrictions and fees PBMs place on network pharmacies. 

On November 7, 2017, in the matter of Pharmaceutical Care Management Association v. Mylynn Tufte et al., No. 17-cv-141 (D.N.D. 2017), Chief Judge Daniel Hovland of the U.S. District Court for the District of North Dakota denied preliminary injunction to Pharmaceutical Care Management Association’s (PCMA) bid to enjoin recently enacted legislation impacting pharmacy benefit managers (PBMs) in the state of North Dakota.

In April 2017, North Dakota Governor Doug Burgum signed into law S.B. 2258 and S.B. 2301, now codified as N.D.C.C. §§ 19-02.1-14.2 and 19-02.1-16.1, which became effective August 1, 2017. The laws provide comprehensive reforms to the operations of PBMs, including changes to much of the tight restrictions and fees PBMs place on network pharmacies. Following are some of the more prominent requirements of the laws, which dramatically challenge current PBM operations:

  • PBMs are prohibited from charging pharmacies certain fees, including fees that are imposed after the point of sale, also known as DIR fees.
  • PBMs are required to share the amount of reimbursement paid to a pharmacy for a prescription.
  • Pharmacies are allowed to disclose relevant payment information to patients, including the amount a PBM reimburses a pharmacy for a prescription.
  • PBMs cannot prevent a pharmacy from mailing prescriptions to a patient as an ancillary service of a pharmacy.
  • PBMs cannot impose accreditation standards on pharmacies to enter into their networks beyond preexisting federal and state licensing requirements.
  • PBMs that have ownership interests in a pharmacy must disclose the difference in the amount paid to the pharmacy and the amount charged to a plan sponsor (i.e., health insurer or employer) for a prescription.
  • PBMs cannot own mail-order or specialty pharmacies unless the PBM agrees “not to participate in a transaction that benefits the PBM instead of another person owed a fiduciary duty.”
  • A pharmacy can dispense any medication allowed under its license, including specialty medication.

PCMA, the national trade association representing PBMs, filed suit against the North Dakota State Health Officer Mylynn Tufte and other North Dakota officials, seeking to enjoin the above discussed legislation by alleging that the laws are preempted by the federal Employee Retirement Income Security Act of 1974 (ERISA). Judge Hovland found, in a well-reasoned opinion, that the laws neither reference ERISA plans nor have a connection with ERISA plans saving them from preemption. He further found that even if they did relate to or had a connection with ERISA plans, the laws are preserved under ERISA’s savings clause as they “regulate insurance” within the meaning of the savings clause. Accordingly, in denying PCMA’s preliminary injunction, Judge Hovland determined PCMA’s claims, with respect to ERISA preemption, did not have a likelihood of success on the merits.

Conclusion

The pharmacy industry has been long waiting for reforms to occur to what commentators have routinely characterized as unfair practices by PBMs. While many pharmacies, large and small, retail and specialty, have pushed forward efforts for PBM industry reform, the government is always in the best position to provide relief by passing laws like the North Dakota legislation. The laws have imposed significant changes to the ways in which PBMs are allowed to conduct business with pharmacies in the state of North Dakota.

While the laws only pertain to those pharmacies operating in North Dakota, they have national implications. The laws serve as a model for other states that are or want to consider offering up a framework for PBM reform. If the North Dakota provisions withstand PCMA’s continued scrutiny through its lawsuit, such provisions can permeate nationally as the pushback the pharmacy industry has been longing for.

Duane Morris attorneys will continue to monitor developments in this case and other related litigation as it arises, and report on issues that might be important to our clients and others in the industry.

For Further Information

If you have any questions about this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, any of the attorneys in our Pharmacy Litigation Practice Group, or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.