PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION v. GLEN MULREADY, in his official capacity as Insurance Commissioner of Oklahoma; OKLAHOMA INSURANCE DEPARTMENT
No. 22-6074
United States Court of Appeals for the Tenth Circuit
August 15, 2023
PUBLISH. Christopher M. Wolpert, Clerk of Court.
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
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,
Exercising jurisdiction under
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,
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.
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.
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, 141 S. Ct. 474, 478 (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,
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. First, preferred pharmacies have agreed to accept lower reimbursements from plans in exchange for higher customer volumes. Preferred pharmacies achieve this higher volume by lowering the required copayments owed by customers filling their prescriptions. Next, mail-order pharmacies deliver prescriptions by mail, which is cheaper for plans and
Part of a PBM’s ongoing role is to process prescription-drug claims. When a plan beneficiary has a prescription filled, the pharmacy first checks with the PBM to determine the beneficiary’s coverage and copayment information. Once the beneficiary pays his or her share, the PBM reimburses the pharmacy for the prescription, minus that copayment amount. Last, the health plan reimburses the PBM. But this isn’t a dollar-for-dollar reimbursement; per its contract with the plan, the PBM derives a profit from charging the plan more than the PBM pays the pharmacy. The State amici tell us that although the exact figure is unknown, the PBM market generated $28 billion in gross profits in 2019. Most of this pie belongs to the three largest PBMs: CVS Caremark (a CVS Health subsidiary), Express Scripts (a Cigna subsidiary), and OptumRx (a UnitedHealth Group subsidiary). Together, this
PBMs wield their market power in another way too: by owning and operating pharmacies. PBMs often bestow preferred-provider status on their own pharmacies, many of which are mail-order pharmacies. PBMs designate many of their mail-order pharmacies as specialty pharmacies. Harnessing these three network features, PBMs can steer beneficiaries toward their own pharmacies. Meanwhile, some PBMs have prevented non-PBM pharmacies from filling specialty-drug prescriptions, reimbursed those pharmacies at less than the drugs’ wholesale prices, assessed retroactive fees, and restricted other aspects of pharmacy practice. Many have linked these PBM practices with the shuttering of rural and independent pharmacies. Yet PBMs face little federal regulation, so nearly all States have tried to regulate PBMs.
B. The Act
In response to growing concerns about PBMs and the sway they hold over independent pharmacies, the Oklahoma Legislature unanimously passed a first version of the Act (called the Prescription Access and Affordability Act, S.B. 841) in April 2019. Okla. S. Journal, 57th Leg., 1st Reg. Sess. 597–98 (2019), https://perma.cc/5W22-PMN7; Okla. H. Journal, 57th Leg., 1st Reg. Sess. 1160 (2019), https://perma.cc/6ND5-VMSM. But Governor Kevin Stitt vetoed Enrolled S.B. 841, objecting that the bill “attempt[ed] to regulate certain health plans sponsored by Oklahoma employers in such a manner that is
Codified in Title 36 of the Oklahoma Statutes—the Oklahoma Insurance Code—the Act sets out to “establish minimum and uniform access to a provider and standards and prohibitions on restrictions of a patient’s right to choose a pharmacy provider.”
A. Pharmacy benefits managers (PBMs) shall comply with the following retail pharmacy network access standards:
1. At least ninety percent (90%) of covered individuals residing in an urban service area live within two (2) miles of a retail pharmacy participating in the PBM’s retail pharmacy network;
2. At least ninety percent (90%) of covered individuals residing in an urban service area live within five (5) miles of a retail pharmacy designated as a preferred participating pharmacy in the PBM’s retail pharmacy network;
3. At least ninety percent (90%) of covered individuals residing in a suburban service area live within five (5) miles of a retail pharmacy participating in the PBM’s retail pharmacy network;
4. At least ninety percent (90%) of covered individuals residing in a suburban service area live within seven (7) miles of a retail pharmacy designated as a preferred participating pharmacy in the PBM’s retail pharmacy network;
5. At least seventy percent (70%) of covered individuals residing in a rural service area live within fifteen (15) miles of a retail pharmacy participating in the PBM’s retail pharmacy network; and
6. At least seventy percent (70%) of covered individuals residing in a rural service area live within eighteen (18) miles of a retail pharmacy designated as a preferred participating pharmacy in the PBM’s retail pharmacy network.
B. Mail-order pharmacies shall not be used to meet access standards for retail pharmacy networks.
#2: The Discount Prohibition:
E. An individual’s choice of in-network provider may include a retail pharmacy or a mail-order pharmacy. A health insurer or PBM shall not restrict such choice. Such health insurer or PBM shall not require or incentivize using any discounts in cost-sharing or a reduction in copay or the number of copays to individuals to receive prescription drugs from an individual’s choice of in-network pharmacy.
B. A PBM, or an agent of a PBM, shall not:
4. Deny a provider the opportunity to participate in any pharmacy network at preferred participation status if the provider is willing to accept the terms and conditions that the PBM has established for other providers as a condition of preferred network participation status[.]
#4: The Probation Prohibition:
B. A PBM, or an agent of a PBM, shall not:
5. Deny, limit or terminate a provider’s contract based on employment status of any employee who has an active license to dispense, despite probation status, with the State Board of Pharmacy[.]
II. Procedural Background
In October 2019, one week before the Act would have taken effect, PCMA sued Oklahoma Insurance Commissioner Glen Mulready (in his official capacity) and the Oklahoma Insurance Department. (From here, we refer to Mulready and the Department together as “Oklahoma.“) In its complaint, PCMA sought a declaration that ERISA and Medicare Part D have preempted the Act and its accompanying regulations and sought injunctive relief against Oklahoma’s enforcing the Act and regulations.2
Nine months after Rutledge, the parties filed dueling motions for summary judgment. Relying only on undisputed facts, PCMA argued that the Act was preempted by ERISA and Medicare Part D, and Oklahoma argued that it wasn’t preempted. The district court held that ERISA did not preempt the Act but that Medicare Part D preempted six of the thirteen challenged provisions.3 PCMA v. Mulready, 598 F. Supp. 3d 1200, 1213 (W.D. Okla. 2022). The court explained why ERISA did not preempt the four provisions now on appeal:
The Any Willing Provider Provision applies only to preferred network participation status of pharmacies that are already in the plan’s pharmacy network and does not require a plan to accept any willing pharmacy into its pharmacy network. The Retail-Only Pharmacy Access Standards and Cost Sharing Discount Provision do not prohibit using mail-order pharmacies; the use of these pharmacies just does not count toward meeting the access standards, and the plan cannot restrict an individual’s choice of an in-network pharmacy. . . . The Probation-Based Pharmacy Limitation Prohibition addresses a pharmacy’s contract, which is with the PBM
and not the plan. . . . While these provisions may alter the incentives and limit some of the options that an ERISA plan can use, none of the provisions forces ERISA plans to make any specific choices. . . . Accordingly, the Court concludes the Act is not preempted by ERISA and Defendants are, therefore, entitled to summary judgment as to this claim.
Id. at 1207–09. And the court explained why Medicare Part D did not preempt the Act’s AWP Provision (a ruling also on appeal):
[W]hile Part D has an any willing provider standard in relation to a plan’s standard network, the Any Willing Provider Provision in the Act relates to the preferred network rather than the standard network. As such, the Any Willing Provider Provision does not act “with respect to” the Part D any willing provider standard and is not preempted by Medicare Part D.
Id. at 1209.4 The court entered a mixed judgment for both sides, and PCMA timely appealed.
STANDARD OF REVIEW
Because this appeal follows the district court’s granting summary judgment, our review is de novo. Wilkins v. City of Tulsa, 33 F.4th 1265, 1271–72 (10th Cir. 2022) (citation omitted). So we apply the same standard as the district court: Summary judgment is required “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
DISCUSSION
The Supremacy Clause, which exalts the U.S. Constitution and federal law as “the supreme Law of the Land,”
ERISA and Medicare Part D both contain express preemption clauses. See
PCMA contends that ERISA preempts the Access Standards, Discount Prohibition, AWP Provision, and Probation Prohibition. Separately, PCMA also argues that Medicare Part D preempts the AWP Provision. We take up these issues below.
I. ERISA Preemption
Enacted in 1974 to safeguard employee benefits, ERISA creates standard procedures and oversight systems for employer-sponsored retirement plans and health plans. See Gobeille v. Liberty Mut. Ins. Co., 577 U.S. 312, 320–21 (2016) (citation omitted). Through ERISA, Congress “ensure[d] that plans and plan sponsors would be subject to a uniform body of benefits law, thereby minimizing the administrative and financial burden of complying with conflicting directives and ensuring that plans do not have to tailor substantive benefits to the particularities of multiple jurisdictions.” Rutledge, 141 S. Ct. at 480 (cleaned up) (citation omitted). ERISA’s promise of uniformity is vitally important for employers, who “have large leeway to design . . . plans as they see fit.” Black & Decker Disability Plan v. Nord, 538 U.S. 822, 833 (2003). As stated, ERISA contains an express preemption clause, which supersedes “any and all State laws insofar as they may now or hereafter relate to any employee
In Rutledge, the Supreme Court identified two categories of state laws that have this impermissible connection with ERISA plans: “laws that require providers to structure benefit plans in particular ways, such as by requiring payment of specific benefits or by binding plan administrators to specific rules for determining beneficiary status,”6 and laws whose “acute, albeit indirect,
A. Can Oklahoma’s PBM regulations qualify for ERISA preemption?
As a threshold matter, Oklahoma argues that the Act escapes preemption because it regulates PBMs, not health plans. For example, Oklahoma stresses that PBMs are not plans, nor fiduciaries to plans, and that plans need not contract with PBMs. We reject this argument for three reasons.
First, reference-to preemption considers whether a state law expressly targets ERISA plans, but PCMA doesn’t argue for this type of preemption. See Cal. Div. of Lab. Standards Enf’t v. Dillingham Constr., N.A., 519 U.S. 316, 325 (1997) (“Where a State’s law acts immediately and exclusively upon ERISA plans, . . . or where the existence of ERISA plans is essential to the law’s operation, . . . that ‘reference’ will result in pre-emption.“). Compare that to connection-with preemption—the heart of this case—which looks to “the nature of the effect of the state law on ERISA plans.” Id. (citation omitted). Simply
Second, the Supreme Court has never recognized Oklahoma’s distinction between ERISA plans and third parties. To the contrary, the Court has ruled that state laws can relate to ERISA plans even if they regulate only third parties. Two cases best exemplify this.
In Metropolitan Life Insurance Co. v. Massachusetts, the Court considered whether ERISA preempted a Massachusetts law that required health insurers to provide mental-health benefits to state residents. 471 U.S. 724, 734 (1985). In one paragraph, the Court noted that although the state law “is not denominated a benefit-plan law, it bears indirectly but substantially on all insured benefit plans, for it requires them to purchase the mental-health benefits specified in the statute when they purchase a certain kind of common insurance policy.” Id. at 739. It did not matter for preemption purposes that the
In Rush Prudential HMO, Inc. v. Moran, the Court considered whether ERISA preempted an Illinois law that required health maintenance organizations (HMOs)—third parties that contract with ERISA plans to provide medical services—to provide an independent medical-review process for certain benefit denials. 536 U.S. 355, 359 (2002). Again, in one paragraph, the Court held that it was “beyond serious dispute” that the law related to ERISA plans, reasoning that ERISA plans that chose to “purchase medical coverage” through HMOs would be forced to comply with the review process. Id. at 365. As in Metropolitan Life, this law bore “indirectly but substantially on all insured benefit plans.” Id. (quoting Metro. Life, 471 U.S. at 739). The Court thus reasserted its ability to pierce the veil between plans and the third parties with whom those plans contract.8
Courts understand this reality. As the D.C. Circuit has observed, it would be “practical[ly] impossib[le]” for an ERISA plan to manage its own pharmacy benefits and avoid using a PBM “because it would mean forgoing the economies of scale, purchasing leverage, and network of pharmacies only a PBM can offer.” PCMA v. District of Columbia, 613 F.3d 179, 188 (D.C. Cir. 2010). Because a plan‘s choice between self-administering its benefits and using a PBM “is in reality no choice at all,” regulating PBMs “function[s] as a regulation of an ERISA plan itself.” Id. (second quoting Travelers, 514 U.S. at 659). Citing that reasoning, the Eighth Circuit has also elided the distinction
At bottom, ERISA preemption still depends on whether the Act‘s PBM regulations “preclude[] the ability of plan administrators to administer their plans in a uniform fashion.” See PCMA v. Rowe, 429 F.3d 294, 302 (1st Cir. 2005) (majority op. of Torruella, J.). So we return to square one: Preemption rises or falls on whether the Act‘s PBM regulations have an impermissible connection with ERISA plans.
B. Does the Act govern a central matter of plan administration or interfere with nationally uniform plan administration?
Taking a cue from PCMA‘s complaint and the United States’ amicus brief, we divide the Act‘s four provisions into two categories based on how they operate. The Access Standards, Discount Prohibition, and AWP Provision are “network restrictions,” and the Probation Prohibition is an “integrity and quality restriction.” We discuss them in order.
1. Network Restrictions
We begin by recounting the three network restrictions and how the district court interpreted them under ERISA.
The Access Standards outline various geographic parameters that PBMs must satisfy in fashioning their Oklahoma pharmacy networks. For urban areas, at least 90% of beneficiaries must live within 2 miles of a network pharmacy
The Discount Prohibition bars PBMs from promoting in-network pharmacies to beneficiaries by offering cost-sharing discounts, such as reduced copayments.
The AWP Provision requires PBMs to admit every pharmacy that is willing to accept the PBM‘s preferred-network terms into that preferred network.
Ultimately, the court ruled that none of the three provisions had a connection with ERISA plans. Id. at 1207. By its reckoning, “these provisions may alter the incentives and limit some of the options that an ERISA plan can use,” but they do not “force[] ERISA plans to make any specific choices.” Id. at 1208. All three network restrictions thus survived ERISA preemption.
On appeal, PCMA seeks to invalidate the network restrictions on grounds that they “curtail[] and eliminat[e] certain widely-employed plan structures[] and impos[e] alternative benefit designs.” The upshot, according to PCMA, is that the network restrictions “mandate[] employee benefit structures,” Travelers, 514 U.S. at 658, “prohibit[] employers from structuring their employee benefit plans in a [certain] manner,” Shaw, 463 U.S. at 97, and “require providers to structure benefit plans in particular ways,” Rutledge, 141 S. Ct. at 480. Thus, PCMA maintains that the network restrictions
We agree with PCMA and with the reasoning in cases from the Fifth and Sixth Circuits. Reviewing similar state AWP laws, both courts held that the laws were impermissibly connected with ERISA plans. CIGNA Healthplan of La., Inc. v. Louisiana ex rel. Ieyoub, 82 F.3d 642 (5th Cir. 1996) (Louisiana AWP law preempted and not saved by ERISA saving clause); Ky. Ass‘n of Health Plans v. Nichols, 227 F.3d 352 (6th Cir. 2000) (Kentucky AWP law preempted but saved), aff‘d sub nom. Miller, 538 U.S. 329. Both cases show why ERISA preempts the three network restrictions.
In CIGNA, Louisiana‘s AWP law stated that for preferred-provider organizations (PPOs), “[n]o licensed provider . . . who agrees to the terms and conditions of the preferred provider contract shall be denied the right to become a preferred provider.” 82 F.3d at 645 (alterations in original). The Fifth Circuit, citing Travelers’ admonition that “preemption is appropriate on this ground when statutes ‘mandat[e] employee benefit structures or their administration,‘” held that ERISA preempted the AWP law. Id. at 648 (alteration in original). It reasoned that “ERISA plans that choose to offer coverage by PPOs are limited by the statute to using PPOs of a certain structure—i.e., a structure that includes every willing, licensed provider.” Id. Or said another way, the law prohibited ERISA plans from choosing a PPO that did not include all willing providers. Id.
Relatedly, in Nichols, Kentucky‘s AWP law stated that “[h]ealth care benefit plans shall not discriminate against any provider who . . . is willing to meet the terms and conditions for participation established by the health benefit plan.” 227 F.3d at 355. After surveying Travelers and CIGNA, the Sixth Circuit endorsed the district court‘s holding that ERISA preempted the AWP law. Id. at 363. It explained that “while the law did not operate directly on ERISA plans, it effectively required benefit plans to purchase benefits of a certain structure, thereby bearing indirectly but substantially on all insured plans. . . . [T]he AWP statutes did more than just indirectly affect the cost of ERISA plans; the AWP statutes mandated benefit structures.” Id. at 362. Thus, the Kentucky law “affect[ed] the benefits available by increasing the potential providers” and “directly affect[ed] the administration of the plans.” Id. at 363. As in CIGNA, the court determined that ERISA preempted the AWP law. Again, Oklahoma
Applying CIGNA and Nichols here, the Act‘s three network restrictions succumb to ERISA preemption. As in CIGNA, we overlook the distinction between PBMs and ERISA plans because “plans that choose to [hire a PBM] are limited by the statute to using [PBM networks] of a certain structure.” 82 F.3d at 648. Functionally, the network restrictions mandate benefit structures; they at least “eliminate[] the choice of one method of structuring benefits.” Id. The Access Standards dictate which pharmacies must be included in a PBM‘s network, and on top of that, the AWP Provision requires that those pharmacies be invited to join the PBM‘s preferred network.10 The Discount Prohibition requires that cost-sharing and copayments be the same for all network pharmacies—whether retail or mail-order; standard or preferred. Each provision either directs or forbids an element of plan structure or benefit design.11
Consider how the network provisions change the landscape for PBM networks in Oklahoma. Before the Act, PBMs could use mail-order pharmacies to serve rural Oklahomans and reduce plan costs. Now, to comply with the Access Standards, PBMs working for Oklahoma plans with rural-dwelling 11
Taking the AWP Provision as an example, its logical endpoint compels a preemptive result. If any pharmacy can join the preferred network to attract business, then the preferred network loses its luster and will collapse into a de facto single tier. Thus, the AWP Provision hamstrings a key element of network design. Oklahoma proposes that PBMs could remedy this by making the preferred-network terms so onerous as to bar most otherwise-willing pharmacies from entering. Problem is, if PBMs impose arduous new terms to inflict pain on the preferred network, eventually even the current preferred
Together, these three provisions effectively abolish the two-tiered network structure, eliminate any reason for plans to employ mail-order or specialty pharmacies, and oblige PBMs to embrace every pharmacy into the fold. After these three provisions have run their course, PBMs are left with a cramped capacity to craft customized pharmacy networks for plans. As we see it, all PBMs could offer Oklahoma ERISA plans is a single-tiered network with uniform copayments, unrestricted specialty-drug access, and complete patient freedom to choose a brick-and-mortar pharmacy. These network restrictions are quintessential state laws that mandate benefit structures. ERISA forbids this.
Rutledge does not change our conclusion. There, the Supreme Court took up PCMA‘s challenge to an Arkansas law that governed PBM-pharmacy reimbursement rates. 141 S. Ct. at 478-79. To support rural and independent pharmacies, Arkansas‘s law required PBMs to “tether reimbursement rates to pharmacies’ acquisition costs,” compelled PBMs to create procedures for pharmacies to appeal their reimbursement rates, and empowered pharmacies to decline to dispense drugs when their acquisition costs exceeded the PBMs’ reimbursement rates. Id. at 479. The unanimous Court held that this law was a
According to the Court, “the logic of Travelers“—another rate-regulation case—“decide[d] this case.” Id. at 481. In Travelers, over an ERISA-preemption challenge, the Court upheld a New York law that imposed hospital surcharges on treatments covered by certain insurers. 514 U.S. at 659. True, the insurers would likely pass on those costs to plans, and those higher costs would influence the plans’ insurance-shopping decisions. Id. But in the end, plans could still provide benefits as they saw fit; those hospital benefits would just cost more in New York. Id. at 660. In short, ERISA had nothing to say about state regulations that merely disrupt nationwide cost uniformity. Id. at 662. Arkansas‘s law was no different. PBMs would certainly pay more for drugs in Arkansas, and they would likely pass on those costs to plans, but that disuniformity was permissible under ERISA. Rutledge, 141 S. Ct. at 481. Nor did the Arkansas law meet the acute-economic-effects exception, because it was
Our holding today adheres to Rutledge. Unlike Arkansas‘s reimbursement-rate regulations, Oklahoma‘s network restrictions do more than increase costs. They home in on PBM pharmacy networks—the structures through which plan beneficiaries access their drug benefits. And they impede PBMs from offering plans some of the most fundamental network designs, such as preferred pharmacies, mail-order pharmacies, and specialty pharmacies. In sum, PCMA is not resisting the Act‘s imposing higher costs, but Oklahoma‘s attempting to “govern[] a central matter of plan administration” and “interfere[] with nationally uniform plan administration.” Id. at 480. Rutledge was a win for States and a loss for PBMs, but it does not shield the Act from preemption.12
Oklahoma offers six rejoinders.
First, it points out that the network restrictions burden PBMs, not plans. But as discussed earlier, most plans use PBMs, and so regulating PBMs “function[s] as a regulation of an ERISA plan itself.” PCMA v. District of Columbia, 613 F.3d at 188 (citation omitted). We have thus overlooked this
Second, Oklahoma claims that the network restrictions are narrower than they may seem. We disagree for the reasons above; the Act‘s effects on PBMs—and thus plans—are unmistakably broad.13
Third, Oklahoma reminds us that the network restrictions also apply to PBM networks for non-ERISA plans. Even so, we are concerned here with the effects on ERISA plans. This is all that ERISA demands. And this cabins our holding: The network restrictions are preempted as applied to ERISA plans.
Fourth, Oklahoma reports that ERISA doesn‘t contain similar network restrictions. But ERISA‘s preemption clause doesn‘t require a conflict between federal and state directives or even “overlapping” standards. Id. (“The pre-emption provision was intended to displace all state laws that fall within its sphere, even including state laws that are consistent with ERISA‘s substantive requirements.” (citation omitted)). In fact, ERISA preemption is more comprehensive than targeting “only state laws dealing with the subject matters covered by ERISA—reporting, disclosure, fiduciary responsibility, and the like.” Shaw, 463 U.S. at 98.
Fifth, Oklahoma argues that the network restrictions do not require plans “to provide any particular benefit to any particular beneficiary in any particular
Sixth, Oklahoma contends that its standards are less restrictive than others that the Supreme Court has held are not preempted. But the state laws at issue in Travelers, Dillingham, and De Buono are distinguishable from the network restrictions. The New York law in Travelers imposed hospital surcharges on treatments covered by certain insurers, the California law in Dillingham regulated wages paid to employees in ERISA-covered apprenticeship programs, and the New York law in De Buono was a tax on ERISA-fund-operated healthcare facilities’ gross receipts. Travelers, 514 U.S. at 649; Dillingham, 519 U.S. at 319; De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 809 (1997). All three cases dealt purely with cost or
We reject Oklahoma‘s counterarguments and hold that ERISA preempts the network restrictions.
2. Probation Prohibition
Moving on to the lone integrity and quality restriction, the Probation Prohibition bars PBMs from denying, limiting, or terminating a pharmacy‘s contract because one of its pharmacists is on probation with the Oklahoma State Board of Pharmacy.
PCMA argues that this provision effectively “dictates the terms and conditions for network participation,” which it says are “integral” to a plan‘s network-design goals. Being forced to allow pharmacists on probation into the network, PCMA contends, forecloses plans from crafting networks that exclude rogue pharmacists who threaten beneficiaries’ safety. Oklahoma counters that this provision just prevents PBMs from punishing pharmacists who, though on
The United States agrees with Oklahoma that ERISA does not preempt this provision. To reach this conclusion, the United States proposes a novel rule: ERISA does not preempt state laws that have only a de minimis effect on pharmacy-benefit design. It cites three sources to support this de minimis rule. First, the Supreme Court‘s repeated invocations that ERISA preempts state laws that govern “a central matter of plan administration.” E.g., Egelhoff, 532 U.S. at 148. Inverting this maxim, the United States claims that ERISA does not preempt laws that regulate “noncentral,” or de minimis, matters of plan administration. Second, the Eighth Circuit‘s recent Wehbi decision, which applied a similar rule, and which also held that ERISA could tolerate laws that produce “modest disuniformity in plan administration.” 18 F.4th at 968. And third, the Supreme Court‘s Shaw decision, which surmised in a footnote that “some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law ‘relates to’ the plan.” 463 U.S. at 100 n.21 (citation omitted). Applying its test, the United States says that the Probation Prohibition “eliminates one possible basis for excluding a pharmacy” but “does not mandate the inclusion of any pharmacy.” For that reason, the United States concludes that this provision‘s effect on plan design is de minimis at most, so it should not be preempted.
merely limit the accreditation requirements that a PBM may impose on pharmacies as a condition for participation in its network. Again, this constitutes, at most, regulation of a noncentral “matter of plan administration” with de minimis economic effects. It is possible that sections 16.1(11) and 16.2(4) will “cause[ ] some disuniformity in plan administration” by requiring PBMs to maintain different accreditation requirements in different states. But they do not “requir[e] payment of specific benefits” or “bind[ ] plan administrators to specific rules for determining beneficiary status.” Therefore, whatever modest disuniformity in plan administration sections 16.1(11) and 16.2(4) might cause does not warrant preemption.
Wehbi, 18 F.4th at 968 (citations omitted). Beyond these conclusions, the court did not explain why dictating network composition would not count as governing a central matter of plan administration. As PCMA identifies, Wehbi failed to “assess that law‘s effects on the structure of the provider network and connected effect on plan design.” Though Wehbi‘s conclusion aligns with
Nor does Wehbi support the United States’ proposed de minimis test. Wehbi described the two North Dakota provisions as having ”de minimis economic effects,” not a de minimis effect on plan design. Id. (citations omitted). A de minimis test fits in the economic context. Travelers instructs that state laws may be preempted if they have such an “acute” economic effect that they “force an ERISA plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers.” 514 U.S. at 668. If a state law causes only de minimis economic effects, it follows that ERISA plans wouldn‘t be forced to adopt a certain substantive-coverage scheme, nor would their insurer choices be effectively restricted. Id. Finding no footing for a de minimis test for plan administration, we decline the United States’ invitation to invent one here.15
Even if using a de minimis test were sound, we cannot square the United States’ analysis with its ready conclusion that the network restrictions were preempted. As we see it, the Probation Prohibition cannot so easily be dismissed as de minimis. The provision no doubt “forc[es] plans to adopt [a]
And together with the network restrictions, the Probation Prohibition sweeps even more broadly. For one thing, the Access Standards require that PBMs include many more pharmacies in their networks, which may require embracing some pharmacies that employ pharmacists on probation. Then, the AWP Provision would require the PBM to accept those pharmacies into the preferred network. Bound by the Probation Prohibition, PBMs could not oppose pharmacies employing pharmacists on probation. By “limit[ing] the
C. Does ERISA‘s saving clause apply?
To tie up some loose ends, we briefly address the saving and deemer clauses. Again, ERISA‘s saving clause exempts from preemption “any law of any State which regulates insurance.”
But Oklahoma did not preserve a saving-clause argument. Its answer to PCMA’s complaint did not present the clause as an affirmative defense. Its summary-judgment motion neglected to cite the clause. Elsewhere, Oklahoma cited the clause twice, but both citations were in opposition briefs, in footnotes, and in passing. Perhaps owing to Oklahoma’s minimal reliance on the saving clause, the district court never discussed the issue.
Even now, Oklahoma does not pursue the saving clause as an alternative reason to affirm. When PCMA argued in its opening appellate brief that Oklahoma had waived the issue, Oklahoma countered by importing its cursory footnote argument into yet another footnote. Only after the United States expounded the saving clause in its amicus brief did Oklahoma try to develop a saving-clause argument.18
We decline to address the saving clause for several reasons. See In re Syngenta AG MIR 162 Corn Litig., 61 F.4th 1126, 1182 (10th Cir. 2023) (“[W]hether issues should be deemed waived is a matter of discretion.” (citations omitted)). First, Oklahoma inadequately briefed this issue before the district court, citing it only in passing. See Rushton v. ANR Co. (In re C.W. Min. Co.), 740 F.3d 548, 564 (10th Cir. 2014). Second, Oklahoma has done the same
We conclude that Oklahoma has waived any saving-clause argument.
* * *
For the reasons discussed, ERISA preempts all four provisions as applied to ERISA plans.
Finally, we consider whether Medicare Part D preempts the AWP Provision as applied to Part D plans.
In 2003, Congress amended the Medicare statutes to create Medicare Part D, a public–private partnership between the Centers for Medicare & Medicaid Services (CMS) and private insurers (called plan sponsors). Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA),
A. How broad is Part D’s preemption clause?
The parties disagree about the scope of Part D’s preemption clause. PCMA argues that this clause’s effect is “akin to field preemption.” If PCMA is
Resolving this dispute requires us to decide when a state law acts “with respect to” Part D plans. The answer lies in the preemption clause’s plain wording. Whiting, 563 U.S. at 594. Congress used unmistakably broad language here. “Any” is expansive. Black’s Law Dictionary 94 (6th ed. 1990) (“some; one out of many; an indefinite number . . . often synonymous with either, every, or all” (internal quotation marks removed)); Ali v. Fed. Bureau of Prisons, 552 U.S. 214, 220 & n.4 (2008) (describing “any” as an “expansive modifier”). Equally broad is the phrase “with respect to.” Cf. Dan’s City Used Cars, Inc. v. Pelkey, 569 U.S. 251, 259–61 (2013) (interpreting “with respect to” in a federal motor-carrier preemption clause to mean “concern[ing]”). Reading the clause naturally, Part D’s standards preempt all state laws concerning Part D plans.
Contrary to Oklahoma’s interpretation, nothing in the preemption clause’s text requires a federal–state overlap. “Supersede” can mean “replace,” as Oklahoma contends, but it can also mean “[o]bliterate, set aside, annul, . . . make void, inefficacious or useless, repeal.” Black’s Law Dictionary 1437 (6th ed. 1990). Relatedly, ERISA’s preemption clause also uses the term
Though we need not venture outside the text to reach this conclusion, we note that the legislative and regulatory histories also support a spacious reading
Our understanding of the preemption clause isn’t iconoclastic. In a recent opinion, the First Circuit also reached this result for Part C preemption, which uses the same framework as Part D. Medicaid & Medicare Advantage Prods. Ass’n of P.R. v. Emanuelli Hernández, 58 F.4th 5 (1st Cir. 2023). There, the court observed that the preemption clause’s “plain language sweeps broadly” because Congress included the word “any” before “State law or regulation” and because Congress included just two exceptions—again, for state licensing laws and laws relating to plan solvency. Id. at 12. So the court agreed that the MMA “clearly expanded the scope of preemption beyond those laws that directly conflict with federal standards.” Id. Though the court also pointed to the consistent legislative and regulatory histories, its conclusion was fully grounded in the text: “Congress intended for all state laws or regulations that purport to regulate Medicare Advantage plans offered by [Medicare Advantage organizations] to be preempted.” Id. (cleaned up) (citation omitted); see
Oklahoma contends that a broad reading would contradict “every court” that has considered Part D preemption (except for Emanuelli Hernández, which was decided later). It marshals the Ninth Circuit’s decision in Do Sung Uhm, 620 F.3d 1134, and the Eighth Circuit’s decisions in PCMA v. Rutledge, 891 F.3d 1109 (8th Cir. 2018), rev’d on other grounds, 141 S. Ct. 474 (2020); and Wehbi, 18 F.4th 956. We consider these three cases below.
In the portion of the Eighth Circuit’s Rutledge opinion that the Supreme Court left intact, the court of appeals had discussed Medicare Part D preemption. It framed the inquiry as whether Congress or CMS “has established ‘standards’ in the area regulated by the state law” and whether “the state law acts ‘with respect to’ those standards.” Rutledge, 891 F.3d at 1113 (citation omitted). And it concluded that two Arkansas provisions were preempted as applied to Part D plans because the provisions intruded on two areas—pharmacy rate negotiations and pharmacy-access standards—regulated by Part D. See id. at 1113–14. But as we have already shown, Medicare Part D preempts state laws “with respect to [Part D plans],” not Part D standards,
The Eighth Circuit scrutinized each of the twelve North Dakota provisions at issue. Eight provisions survived preemption because they regulated subject matters not covered by Part D. The court drew these distinctions quite narrowly. For example, a state provision that “addresse[d] certain conflicts of interest that PBMs might have” wasn’t a close enough match to Part D regulations that “also address[ed] potential conflicts of interest,” because the two sets of laws concerned “different kinds of conflicts.” Id. at 976. But the court preempted four provisions that purported to regulate Part D subject matters, such as “quality-assurance measures and performance incentives.” Id. at 972–76.
Though we share Wehbi’s view that Part D’s preemption clause mandates field preemption, we disagree with the court’s fastidious approach here. Simply put, requiring such a close match between federal and state standards “is slicing
We proceed to decide whether the AWP Provision, already preempted as applied to ERISA plans, is also preempted as applied to Part D plans.
B. Does the AWP Provision concern Part D plans?
To comply with the Act’s AWP Provision, PBMs must allow all Oklahoma pharmacies that are willing to accept the PBMs’ preferred-network terms into their preferred networks.
But the result would be the same even under Oklahoma’s narrower approach. After all, the AWP Provision encroaches on an existing Medicare standard. Part D has its own AWP provision that requires Part D plans to allow any willing pharmacy to participate in the plan’s standard network.
All told, the AWP Provision is preempted as applied to Medicare Part D plans.
By passing laws like Oklahoma’s, States have repeatedly expressed their overwhelmingly bipartisan displeasure with the power of PBMs over their citizens’ healthcare decisions. Our role is to answer whether the Act’s four challenged provisions veer into the regulatory lanes that Congress has reserved for itself. For the reasons discussed, we conclude that they do. Though the Act avoids mentioning ERISA plans or Medicare Part D plans by name, it encompasses these plans by striking at the heart of network and benefit design. But the States have an avenue by which to meaningfully seek redress. They may approach Congress, the architect of ERISA and Medicare, to take up the mantle.
Today we hold that ERISA preempts the Access Standards, Discount Prohibition, AWP Provision, and Probation Prohibition as applied to ERISA plans. And we also hold that Medicare Part D preempts the AWP Provision as applied to Part D plans. We reverse and remand with instructions to the district court to enter judgment consistent with this opinion.