Pharm. Care Mgmt. Ass'n v. Mulready

78 F.4th 1183

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Plaintiff - Appellant, v. Glen MULREADY, in his official capacity as Insurance Commissioner of Oklahoma;Oklahoma Insurance Department, Defendants - Appellees.Association of Federal Health Organizations; State of Minnesota;State of Arizona; State of Arkansas; State of California; State of Colorado;State of Connecticut; State of Delaware; State of Florida; State of Hawaii;State of Idaho; State of Illinois; State of Indiana; State of Kansas;State of Kentucky; State of Maine; State of Maryland; State of Massachusetts;State of Michigan; State of Mississippi; State of Nebraska;State of Nevada; State of New Jersey; State of New Mexico; State of New York;State of North Carolina; State of North Dakota; State of Oregon;State of Rhode Island; State of South Carolina; State of South Dakota; State of Texas;State of Utah; State of Virginia; State of Washington;District of Columbia; the National Community Pharmacists Association;American Pharmacists Association; National Association of Chain Drug Stores, Inc.;American Pharmacies, Inc.; Oklahoma Pharmacists Association; United States of America, Amici Curiae.

No. 22-6074

United States Court of Appeals, Tenth Circuit

FILED August 15, 2023

Appeal from the United States District Court for the Western District of Oklahoma (D.C. No. 5:19-CV-00977-J),

Kristyn M. DeFilipp of Foley Hoag LLP, Boston, Massachusetts (Dean Richlin and Andrew M. London of Foley Hoag LLP, Boston, Massachusetts; Joel W. Harmon and Mary H. Tolbert of Crowe & Dunlevy, Oklahoma City, Oklahoma, with her on the briefs), for Plaintiff-Appellant.

Zach West, Director of Special Litigation, Oklahoma Office of the Attorney General (Garry M. Gaskins, II, Solicitor General; Will Flanagan, Assistant Solicitor General, with him on the briefs), Oklahoma City, Oklahoma, for Defendants-Appellees.

Benjamin W. Snyder, Assistant to the Solicitor General (Seema Nanda, Solicitor of Labor; Wayne R. Berry, Acting Associate Solicitor for Plan Benefits Security; Jeff Hahn, Garrett Traub, and Isidro Mariscal, Attorneys, Office of the Solicitor, Plan Benefits Security Division, U.S. Department of Labor; Brian M. Boynton, Principal Deputy Assistant Attorney General; Alisa B. Klein and Anna O. Mohan, Attorneys, Appellate Staff, Civil Division, U.S. Department of Justice, with him on the amicus brief), Washington, D.C., for amicus curiae the United States of America.

Anthony F. Shelley of Miller & Chevalier Chartered, Washington, D.C.; and David M. Ermer of Ermer & Suter, PLLC, Washington, D.C., filed an amicus brief on behalf of Plaintiff-Appellant, for the Association of Federal Health Organizations.

Keith Ellison, Attorney General, State of Minnesota; Angela Behrens, Stephen Melchionne, and Allen Cook Barr, Assistant Attorneys General, St. Paul, Minnesota, filed an amicus brief on behalf of Defendants-Appellees, for the States of Minnesota, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Texas, Utah, Virginia, Washington, and the District of Columbia.

Robert T. Smith and Howard R. Rubin of Katten Muchin Rosenman LLP, Washington D.C., filed an amicus brief on behalf of Defendants-Appellees, for The National Community Pharmacists Association, the American Pharmacists Association, the National Association of Chain Drug Stores, Inc., American Pharmacies, Inc., and the Oklahoma Pharmacists Association.

Before PHILLIPS, MURPHY, and ROSSMAN, Circuit Judges.

PHILLIPS, Circuit Judge.

The Constitution ordains a federal system under which the federal and state governments share power. But when federal and state laws collide, the Constitution is clear: Federal law wins. This case is about a collision between federal law and Oklahoma law.

In 2019, the Oklahoma legislature unanimously passed the Patient's Right to Pharmacy Choice Act, Okla. Stat. tit. 36, § 6958 et seq. The Act, along with later regulations promulgated by the Oklahoma Insurance Department, sought to regulate pharmacy benefit managers (PBMs)—third-party intermediaries between pharmacies and health plans. In response to the Act's passage, the Pharmaceutical Care Management Association (PCMA), a trade association representing PBMs, sued to invalidate the Act, alleging that the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., and Medicare Part D, 42 U.S.C. § 1395w-101 et seq., preempted the Act. The district court ruled that ERISA did not preempt the Act but that Medicare Part D preempted six of the thirteen challenged provisions. PCMA now appeals the court's ERISA ruling on four provisions of the Act and the court's Medicare Part D ruling on one provision.

Exercising jurisdiction under 28 U.S.C. § 1291, we hold that ERISA and Medicare Part D preempt the four challenged provisions, and we reverse.

BACKGROUND

I. Factual Background

We begin with some context about the prescription-drug market and then discuss the Act's history and passage.

A. The Prescription-Drug Market

Filling doctors' prescriptions is a part of everyday life. Pharmacists dispense the prescribed drugs, and consumers pay, either by themselves or with copayments between them and their insurers. But beneath these commonplace transactions lies a complex web of contracts and business relationships, anchored by five key players: drug manufacturers, wholesalers, pharmacies, health plans, and PBMs.

Drug manufacturers make drugs and drug ingredients, which they sell to wholesalers, who then sell to pharmacies. Pharmacies are places where patients fill prescriptions. Pharmacies that have a brick-and-mortar storefront are called retail pharmacies, and pharmacies that dispense drugs through the mail are called mail-order pharmacies. Retail pharmacies may belong to a chain, such as CVS or Walgreens, or they may be independently owned.

Many patients access prescription drugs through health plans that offer prescription-drug benefits. Health plans, which include employer-sponsored plans and Medicare plans, help pay for their beneficiaries' healthcare needs, such as by covering prescription-drug costs. Employer-sponsored plans can be fully insured, meaning the plans buy health insurance for their employees, or they can be self-insured, meaning the employers collect premiums from employees, pay those employees' medical claims, and bear the insurance risk. Except for plans offered by governmental entities and churches, all employer-sponsored plans are governed by ERISA. 29 U.S.C. § 1003(a)-(b).

Medicare is a federal health-insurance program for people over 65 years old, certain people with disabilities, people with amyotrophic lateral sclerosis, and people with end-stage renal disease. 42 U.S.C. §§ 426, 426-1. Along with providing hospital insurance (Medicare Part A) and medical insurance (Medicare Part B), Medicare contains a prescription-drug benefit program (Medicare Part D). Id. §§ 1395w-101, -102. Part D-eligible individuals can access prescription-drug coverage by joining a Part D plan. These plans are offered by private insurers, which must comply with Medicare requirements.

Yet health-plan beneficiaries cannot access every drug at every pharmacy. This would be prohibitively expensive for plans, which must control costs. Rather, each plan sets terms for its beneficiaries to use the plan's prescription-drug benefits. These terms include what drugs the plan covers (the formulary), how much the plan will pay for those drugs (the cost-sharing terms), and at which pharmacies beneficiaries can have prescriptions filled (the pharmacy network). Together, the formulary, cost-sharing terms, and pharmacy network comprise the plan's prescription-drug-benefit design or structure.

Finally, we meet the fifth key player: PBMs, "a little-known but important part of the process," Rutledge v. PCMA, — U.S. —, 141 S. Ct. 474, 478, 208 L.Ed.2d 327 (2020), and the center of this appeal. PBMs are third-party entities that oversee health plans' prescription-drug benefits. As intermediaries, they contract with manufacturers to negotiate rebates on drugs, contract with health plans to manage the plans' prescription-drug benefits, and contract with pharmacies to design pharmacy networks. PBMs also offer options for health plans to structure their benefits. Because of the economic efficiencies and administrative savvy that PBMs afford, most health plans choose to work with PBMs to manage their prescription-drug benefits. The parties estimate that PBMs manage the drug benefits for over 2.4 million Oklahomans. Nationally, PBMs are ubiquitous, administering the drug benefits for around 270 million people—"[n]early everyone with a prescription drug benefit." App. vol. 2, at 472-73 (Caldwell Decl.).

One advantage to a plan's using a PBM is access to the PBM's pharmacy networks. After all, most plans do not assemble their own pharmacy networks; they rely on PBMs to do the heavy lifting. Leveraging their relationships with plans, PBMs contract with pharmacies to set prices and terms for beneficiary access. PBMs can then package those pharmacies into networks. Depending on a plan's goals, it may choose to offer its beneficiaries more or fewer pharmacy options, as tailored by the PBM's network. For example, a plan serving employees across a wide geographic area may want to include more pharmacies in its network. By hiring a PBM to fine-tune its network, a plan can promote a higher quality of care and can reduce other costs to beneficiaries, such as insurance premiums.

PBMs also help keep plans' costs low by offering several other options for refining plan networks. Some of the more common network designs and features include two-tiered networks (standard and preferred), mail-order pharmacies, and specialty pharmacies....