The plaintiff-the Pharmaceutical Care Management Association-is a national trade organization representing pharmacy benefit managers. Pharmacy benefit managers act as “middlemen” hired by health benefit providers (such as employers, health maintenance organizations, and public and private health plans) “to provide prescription drug benefit administration and management services.” One important role of a pharmacy benefit manager is to pool health benefit providers and negotiate discounts on pharmaceuticals from manufacturers or pharmacies. See Fed. Trade Comm’n, Pharmacy Benefit Managers: Ownership of Mail-Order Pharmacies 41-60 (2005).

A health benefit provider may find it difficult to judge the value of a pharmacy benefit manager’s services without information about the relationships between the manager and manufacturers or pharmacies. See Fed. Trade Comm’n & Dep’t of Justice, Improving Health Care: A Dose of Competition ch. 7, at 16 (2004). For example, a pharmacy benefit manager could work against the health benefit provider’s interest by substituting a more expensive drug than the one prescribed in order to receive a rebate from the manufacturer that is not passed on to-or shared with-the health benefit provider. O’Donnell & Fendler, 40 J. Health L. at 212; see also Pharmacy Benefit Managers at 59 (noting that large pharmacy benefit managers retained between 30 and 65 percent of rebate payments in 2003).

Pharmaceutical Care Management Ass’n v. District of Columbia, 2008 WL 1757553 (C.A.D.C.) (April 18, 2008)

The Federal Circuit vacated a district court decision in which the court had ruled that the PBM trade group, the PCMA, could not relitigate the ERISA preemption issue it lost in the First Circuit Court of Appeals. The District of Columbia’s AccessRx Act of 2004 was designed to force PBM’s to disclose important financial information about its dealings with the drug companies it purportedly bargains with for the benefit of health plans.

The validity of similar legislation in Maine was upheld through litigation in the First Circuit in Pharmaceutical Care Management Association v. Rowe, 429 F.3d 294 (1st Cir.2005), cert. denied, 126 S.Ct. 2360 (2006). After this decision in the Federal Circuit, the issue will now be considered on the merits in by the D.C. district court.

Important to the Circuit court’s opinion were the following:

  • if the PCMA were not permitted to go forward, a member of the trade group could bring a challenge, and thus foreclosing litigation through collateral estoppel did not serve the interests of judicial economy
  • the District amended its statute to conform to the Maine statute after the inception of the challenge
  • changes in the DOL service provider disclosure rules could affect the preemption argument in a manner not considered in the First Circuit opinion.

Note: The opinion refers to health plans as “benefit providers” which can be initially disorienting since “providers” is a term not typically applied to health plan payers.

There are several levels of irony in this decision. Not the least of which is that the DOL disclosure rules might serve to advance the PBM’s preemption arguments. Add to that the amusing position of the PBM’s that have successfully argued they have no fiduciary responsibility under ERISA to plans or participants but vehemently argue they should be protected from state disclosure laws by virtue of ERISA preemption.

Implications – The Court expressed no opinion on the merits, but it’s comments could suggest a grounds for a PBM relitigation of the First Circuit opinion on the DOL rule changes.

See also – For additional background on this case and a discussion of the judicial doctrine of collateral estoppel (the basis for the vacated district court’s opinion), see:: PBM’s Defeated In Bellwether District Court Decision Over Transparency Statute