Apr 24, 2019
Pharmacy benefit managers ("PBMs") are significant players in the healthcare field. They act as intermediaries between sellers of prescription drugs, the drug manufacturers and pharmacies, and the bulk purchasers of those drugs, health insurers, HMOs, self-funded employer sponsored medical plans and government health benefit programs. The size of PBMs gives them leverage when buying drugs from sellers which, in turn, can lead to significant cost savings for purchasers. However, their negotiations and contract terms with sellers are, generally speaking, private matters and are not subject to disclosure or regulation. This has led some to worry that PBMs may enter into purchasing contracts with sellers that line the pockets of the sellers and the PBMs at the expense of the purchasers.
In response to concerns about the lack of regulation of PBMs, Maine passed the Unfair Prescription Drug Practices Act in 2003. The statute requires PBMs to, among other things, act as fiduciaries to their clients, disclose conflicts of interest, disgorge profits from self-dealing and disclose to purchasers some aspects of their financial dealings with sellers of the drugs. A coalition of PBMs brought suit to have the statute struck down as violating ERISA’s preemption clause.
Last week, in Pharmaceutical Care Management Association v. Rowe, the First Circuit rejected this challenge and held that ERISA does not preempt the Maine statute. The court ruled that PBMs are not fiduciaries under ERISA and, thus, not subject to ERISA preemption. It is an interesting ruling because although PBMs are expressly designated as fiduciaries under the Maine statute, they are fiduciaries for state law purposes only. Their activities do not fall within ERISA’s separate definition of "fiduciary."
Bottom line: at least in the First Circuit, states may regulate PBMs if they take care to craft their statutes to follow the Maine model.
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