Pharmaceutical Care Management Ass'n v. Rowe

307 F.Supp.2d 164

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Plaintiff, v. G. Steven ROWE, in his Official Capacity as Attorney General of the State of Maine, Defendant

No. CIV. 03-153-B-W.

United States District Court, D. Maine.

March 9, 2004.

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John J. Aromando, Catherine R. Connors, Pierce, Atwood, Portland, ME, Paul J. Ondrasik, Jr., Martin D. Schneiderman, Steptoe & Johnson, Washington, DC, for Pharmaceutical Care Management Association, Plaintiff.

Andrew L. Black, Maine Assistant Attorney General, Augusta, ME, for Attorney General, ME, Defendant.

ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION

WOODCOCK, District Judge.

On September 3, 2003, the Plaintiff, Pharmaceutical Care Management Association ("PCMA"), filed a Complaint in this Court against the Defendant, G. Steven Rowe, in his official capacity as Attorney General of the State of Maine ("State"), seeking declaratory and injunctive relief from "An Act To Protect Against Unfair Prescriptive Drug Practices" ("UPDPA"), 22 M.R.S.A. § 2699. With the filing of the Complaint, PCMA filed a Motion for Preliminary Injunction. This Court GRANTS the Motion for Preliminary Injunction.

I. Facts and Procedural History

a. Background

The pharmaceutical industry in the United States lies at the center of a complex public policy controversy about the delivery and cost of health care. This lawsuit is a symptom of a larger debate about access, affordability, and efficacy within the American health care system and tests the limits of state attempts to legislate a response. Located in Washington, D.C., PCMA is a trade association of pharmaceutical benefits management companies ("PBMs"). PBMs administer prescriptive drug benefit plans for the more than 200 million Americans covered by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461, and non-ERISA health care plans, self-insured employers, union-sponsored plans, and federal, state, and local government purchasers. They have become a central force in the $175 billion national market for p2escription drugs.¹

PCMA and the State draw strikingly different portraits of the PBM industry. PCMA sees its members as engaging in extraordinarily fierce, industry-wide competition and playing a vital role in the delivery of cost-effective, quality care. PCMA cites studies that indicate its members have saved billions of dollars for their customers and, ultimately, for consumers. PCMA also emphasizes its members' central role in the provision of quality health care: by organizing and rationalizing vast amounts of nationally-based data, the PBMs have been in a unique position to perform drug utilization reviews; avoid dangerous drug combinations, questionable doses, and excessive addictive medications; and engage in medical and pharmacy education.

By contrast, the State sees the PBMs as a highly-concentrated industry, insulated from competitive pressures and garnering enormous profits in an unregulated and secretive niche. The State minimizes the PBMs' role in assuring quality care. It notes that the PBMs (with the exception of mail order services) do not handle drugs, do not purchase or sell drugs, do not prescribe drugs, do not act as insurers, and do not assume risk. In response to PCMA's point about drug utilization reviews, the State raises concerns about the use of "switching" or "intervention" strategies.²

The State contends that unlike virtually every other area of the health care system, PBMs have largely escaped governmental scrutiny. They are not regulated as financial institutions, health care providers, or insurance companies, and have in the past consistently maintained they are not subject to ERISA. This asserted regulatory gap has begun to attract the attention of federal and state government and the State contends the recent Maine legislation is only a harbinger of things to come. The PBMs vigorously deny what they contend are the "scattershot," "inflammatory," and "egregious mischaracterizations" set forth in the State position. Pl.'s Reply Mem. at 1-2.

b. Maine Legislation.

The UPDPA was enacted by the Maine Legislature in 2003 and signed into law by Governor Baldacci on June 13, 2003. The UPDPA itself is succinct, containing only one new statutory section: 22 M.R.S.A. § 2699. The UPDPA consists of a series of definitions and a list of "required practices." A violation of the UPDPA constitutes a violation of the Maine Unfair Trade Practices Act ("UTPA") and subjects the violator to a fine of not more than $10,000. 22 M.R.S.A. § 2699(4).

The UPDPA's dramatic impact on the PBM industry is immediately apparent. It statutorily defines the relationship between a PBM and its clients as a fiduciary relationship, imposing a "fiduciary duty" running from the PBM to each "covered entity." 22 M.R.S.A. §§ 2699(2)(A), (B). The UPDPA imposes extensive duties of disclosure from the PBM to the client, including the duty to disclose: (1) any "conflict of interest"; (2) "all financial and utilization information requested by the covered entity relating to the provision of benefits"; and, (3) "all financial terms and arrangements for remuneration of any kind that apply between the [PBM] and any prescription drug manufacturer or labeler, including, without limitation, formulary management and drug-switch programs, educational support, claims processing and pharmacy network fees...." 22 M.R.S.A. §§ 2699(2)(D)-(E), (G).

While the UPDPA allows a PBM to substitute a lower-priced generic drug for a therapeutically equivalent higher-priced prescriptive drug, 22 M.R.S.A. § 2699(2)(E)(1), it prohibits the PBM from substituting a higher-priced drug for a lower-priced drug unless the substitution is made "for medical reasons that benefit the covered individual" and the "covered entity," 22 M.R.S.A. § 2699(2)(E)(2). The UPDPA also imposes disclosure and approval obligations on the PBM before doing so. Id. Finally, the UPDPA mandates that any benefit the PBM receives from switching to higher-priced drugs or from volume discounting must be passed "in full" to the covered entity. 22 M.R.S.A. §§ 2699(2)(E)(3), (F). The UPDPA contains a limited confidentiality provision, as well: if a covered entity requests financial and utilization information, the PMB may designate the information as confidential and the covered entity is required not to disclose the information except as required by law. 22 M.R.S.A. § 2699(2)(D).

c. Preliminary Injunction Standard.

PCMA's Motion for Preliminary Injunction rests on three theories: (1) preemption under ERISA; (2) unlawful taking of trade secrets in violation of the Takings Clause of the United States Constitution; and (3) a violation of the Commerce Clause of the United States Constitution.

As a plaintiff in a motion for preliminary injunction, PCMA bears the burden of satisfying each element of a familiar four-part test: (1) it must be likely to succeed on the merits; (2) it must suffer from immediate irreparable injury without injunctive relief; (3) the harm to the plaintiff in the absence of an injunction must exceed the harm to the defendant if the injunction is not granted; and, (4) the public interest must be better served by granting the injunction than by denying it. Pharmaceutical Research & Mfrs. of Am. v. Concannon, 249 F.3d 66 (1st Cir.2001) ("PhRMA I"), aff'd, Pharmaceutical Research & Mfrs. of Am. v. Walsh, 538 U.S. 644, 123 S.Ct. 1855, 155 L.Ed.2d 889 (2003) ("PhRMA II"); New Comm. Wireless Servs., Inc. v. SprintCom, Inc., 287 F.3d 1, 8-9 (1st Cir.2002).

In evaluating a motion for preliminary injunction in which the plaintiff is claiming constitutional infirmity and federal preemption, the court must apply some bedrock interpretive principles. First, this Court is required not only to presume the state legislative act is constitutional, but also to apply this presumption with special force, since the UPDPA seeks to regulate an area of public health. See PhRMA II, 123 S.Ct. at 1867; Hillsborough County v. Automated Med. Labs., Inc., 471 U.S. 707, 105 S.Ct. 2371, 85 L.Ed.2d 714 (1985). Second, this Court is charged with avoiding a declaration of unconstitutionality if there is an alternative interpretation that would render the UPDPA lawful. These general principles apply more particularly to a motion for preliminary injunction. Finally, when addressing federal preemption, if the field Congress is said to have preempted has traditionally been occupied by the States, this Court must start with the assumption that the historic powers of the States are not to be superseded by the federal act unless that was the "clear and manifest purpose of Congress." Hillsborough, 471 U.S. at 715, 105 S.Ct. 2371; PhRMA I, 249 F.3d at 75.

II. Likelihood of Success on Merits.³

a. Standing.

As a preliminary matter, this Court must address PCMA's associational standing to pursue this action on behalf of its member.⁴ Under certain circumstances, injury to an organization's members will satisfy the Article III requirement of a case or controversy and the organization will be allowed to litigate in federal court on their behalf. E.g., United Food & Com. Workers Union Local 751 v. Brown Group, 517 U.S. 544, 551, 116 S.Ct. 1529, 134 L.Ed.2d 758 (1996); International Union, United Auto., Aerospace and Agric. Implement Workers of Am. v. Brock, 477 U.S. 274, 281, 106 S.Ct. 2523, 91 L.Ed.2d 228 (1986); NAACP v. Alabama ex rel. Patterson, 357 U.S. 449, 459, 78 S.Ct. 1163, 2 L.Ed.2d 1488 (1958). There are three elements of associational standing: (1) association members must have standing to sue in their own right; (2) the interests sought to be protected must be germane to the purposes of the association; and (3) neither the relief requested nor the claim asserted requires the individual members' participation. Hunt v. Washington State Apple Adver. Comm'n, 432 U.S....