As a result of the Tenth Circuit’s refusal to stay the implementation of its decision, Oklahoma will not be allowed to enforce the challenged state law provisions.

A decision from the United States Court of Appeals for the Tenth Circuit, which found that several provisions of an Oklahoma law regulating pharmacy benefit managers (PBMs) were preempted by federal law, will remain in place for now after a panel denied Oklahoma’s motion to stay the mandate on January 2, 2024. Although the stay would have allowed Oklahoma to enforce the challenged provisions while it pursues review by the Supreme Court of the United States, the impact of the Tenth Circuit’s decision is limited to Oklahoma and will not apply to other states in which similar laws have been passed.

Indeed, the 2019 Oklahoma law at issue, the Patient’s Right to Pharmacy Choice Act, is one of many laws passed by state legislatures to rein in tactics employed by PBMs that are intended to eliminate or minimize competition from independent pharmacies. The Oklahoma law set out to “establish minimum and uniform access to a provider and standards and prohibitions on restrictions of a patient’s right to choose a pharmacy provider” and aimed at bolstering the bargaining power of independent Oklahoma pharmacies.

To do so, the Oklahoma law imposed three major restrictions on PBMs:

1. An “access standard” requiring that PBMs comply with certain geographic criteria, such as concentrating 90 percent of their beneficiaries within certain mileage radii of network pharmacies;
2. A discount provision preventing PBMs from promoting in-network pharmacies to beneficiaries by offering cost-sharing discounts, like reduced copays; and
3. An any-willing-provider requirement that PBMs allow all pharmacies that are willing and able to accept the PBMs’ terms and conditions for network participation.

One week before the law would have taken effect, the Pharmaceutical Care Management Association (PCMA), a lobbying group that represents PBMs, sued to invalidate the Oklahoma law, alleging that Employee Retirement Income Security Act (ERISA) and Medicare Part D laws preempted several challenged provisions, including the three aforementioned restrictions.

The district court, adhering to the U.S. Supreme Court’s seminal decision in Rutledge Pharmaceutical Care Management Assoc.,[1] concluded that none of the three major restrictions were sufficiently related to ERISA to warrant preemption. However, the Tenth Circuit disagreed, finding the Oklahoma law violated ERISA by limiting the options employers could use to structure their benefits. PCMA argued, and the Tenth Circuit agreed, that by limiting or directing the ways in which employers could structure benefit plans, the law’s restrictions affected the governance of matters central to plan administration sufficient to trigger ERISA preemption under Rutledge.

As a result of the Tenth Circuit’s refusal to stay the implementation of its decision, Oklahoma will not be allowed to enforce the challenged state law provisions. However, the Tenth Circuit’s decision has no direct impact on other similar state laws regulating PBMs. Nor does it have any direct impact on the activities aimed at PBM reform currently ongoing at the federal level, from the Federal Trade Commission’s Section 6(b) study of PBMs, to bills being considered by Congress, such as H.R. 5378, The Lower Costs, More Transparency Act, which passed the House of Representatives on December 11, 2023, and is to be considered in early 2024 by the Senate.

For More Information

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

Notes

[1] 141 S. Ct. 474, 479 (2020). Duane Morris attorneys authored an amicus brief in the Rutledge matter on behalf of the National Association of Specialty Pharmacies. PCMA also challenged the Arkansas law at issue in Rutledge.

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.