The Employee Retirement Income Security Act does not preempt an Arkansas state law that requires ERISA plans to report certain compensation information about their pharmacy benefit managers, an Illinois district court ruled in Central States, Southeast and Southwest Areas Health and Wellness Fund et al. vs. McClain.
Rule 128 from the Arkansas Insurance Department provides state-level regulation of PBMs and mandates that health benefit plans and health care payers disclose information that is used to determine if pharmacy compensation programs are “fair and reasonable.” If a program is deemed unfair or unreasonable, the commissioner may require the health benefit plan to pay an additional pharmacy dispensing fee.
The plaintiffs argued that ERISA expressly preempts any state law that may relate to an employee benefit plan and that the rule's reporting and dispensing fee requirements referred to ERISA plans, because the rule imposes obligations directly on plans.
However, the court noted that benefit plans subject to the rule did not necessarily need to be ERISA plans and that the plaintiffs failed to allege that the rule acted exclusively on ERISA plans or that the existence of an ERISA plan was essential to the rule's operation.
“Despite Rule 128’s express reference to self-funded plans and imposition of a reporting requirement similar to one the Supreme Court found to be preempted by ERISA in Gobeille, the district court found that neither the reporting requirement nor the dispensing fee requirement were preempted by ERISA,” according to an analysis of the ruling by the Troutman Pepper Locke law firm.
Although the court’s dismissal of the preemption claim may be viewed as a validation of state laws that regulate PBMs, a growing number of cases involve challenges to state PBM laws under ERISA.
“Nearly every state has implemented laws that seek to impose wide-ranging reforms on PBMs and regulate PBM business practices,” according to NFP, an Aon company. “Nonetheless, courts have remained largely split regarding the applicability of state PBM laws to self-funded plans and whether the ERISA preemption doctrine applies.
As a result, employers should not rely on the assumption that a self-funded plan is automatically exempt from state PBM regulations or reporting obligations. Employers should continue to monitor legal developments in this area and carefully evaluate the scope and applicability of state PBM laws for prescription drug plans.”
Troutman Pepper Lock also encouraged employers to keep an eye on future development in the case, including a possible appeal.
“In the meantime,” they said, “plan sponsors who initially chose to forgo reporting under Rule 128 based on the reasonable assumption that the reporting component of the law would be held to be preempted by ERISA should consider whether to wait for an appeal (and with any luck, a Supreme Court decision of preemption) or to conservatively comply with the reporting requirement now unless and until there are future developments in this area.”
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