Summary

The United States Court of Appeals for the Eighth Circuit recently held that ERISA expressly preempts an Iowa law that imposes onerous regulatory requirements on pharmaceutical benefit managers operating in Iowa. The reversal carries national significance and was unanimous.

In Depth

On January 11, 2017, the United States Court of Appeals for the Eighth Circuit reversed an Iowa federal district court’s dismissal of the Pharmaceutical Care Management Association (PCMA)’s complaint and entered judgment in favor of PCMA on its ERISA express preemption claims, conclusively terminating the litigation in PCMA’s favor. The Eighth Circuit’s decision in Pharmaceutical Care Management Association v. Gerhart, No. 15-3292, is of nationwide importance to the pharmacy benefit manager (PBM) industry and the broader health care industry.

The case arose out of a 2014 Iowa law that imposed onerous regulations on PBMs operating in Iowa. PBMs administer prescription drug benefits to over 220 million Americans covered by health benefit plans governed by ERISA. The Iowa law interfered with PBMs’ discretion to negotiate prices with retail pharmacies, required PBMs to report proprietary information on their pricing methodologies and interfered with claims-processing procedures.

PCMA’s federal court complaint alleged several theories, including express preemption under the Employee Retirement Income Security Act of 1974 (ERISA). The Iowa federal district court later dismissed PCMA’s claims.

On appeal, a unanimous panel of the Eighth Circuit reversed the Iowa federal district court’s dismissal of PCMA’s ERISA express preemption claims, holding that the Iowa law impermissibly interferes with the PBM function of ERISA plans operating in Iowa. The court explained that the Iowa law “imposes mandates and restrictions on a PBM’s relationship with Iowa and its pharmacies that run counter to ERISA’s intent of making plan oversight and plan procedures uniform.” Significantly, the Eighth Circuit also accepted PCMA’s invitation not only to reverse the district court’s dismissal, but also to enter judgment as a matter of law for PCMA on its purely legal claims—terminating the litigation in PCMA’s favor in a single stroke.

The Eighth Circuit’s decision not only has significance because of its effects in Iowa, but also because of its national implications. Several other states are considering enacting legislation similar to the Iowa law. The court’s decision, which is binding precedent in the seven states of the Eighth Circuit (Arkansas, Iowa, Minnesota, Nebraska, North Dakota and South Dakota), may help stem the advance of similar legislation in states outside the Eighth Circuit that would impermissibly encroach upon the PBM function of ERISA health plans.