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Pharmaceutical Care Management Association v. Gerhart

United States Court of Appeals, Eighth Circuit

January 11, 2017

Pharmaceutical Care Management Association Plaintiff- Appellant
Nick Gerhart, In his official capacity as Insurance Commissioner of the State of Iowa; Thomas J. Miller, In his official capacity as Attorney General of the State of Iowa Defendants-Appellees National Community Pharmacists Association; Iowa Pharmacy Association Amid on Behalf of Appellees

          Submitted: June 14, 2016

         Appeal from United States District Court for the Southern District of Iowa - Des Moines

          Before MURPHY and SHEPHERD, Circuit Judges, and PERRY [1] , District Judge.

          PERRY, District Judge.

         This case involves the question of whether the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001, et seq., expressly preempts section 510B.8 of the Iowa Code. The district court determined that it did not and dismissed Pharmaceutical Care Management Association's (PCMA's) complaint seeking a declaration of preemption. We reverse and remand with direction that judgment be entered for PCMA.

         Iowa Code § 510B.8 regulates how pharmacy benefits managers (PBMs) establish generic drug pricing, and requires that certain disclosures on their drug pricing methodology be made to their network pharmacies as well as to Iowa's insurance commissioner. Shortly after the statute went into effect, PCMA brought this action against Iowa's insurance commissioner and its attorney general (collectively, "the State"), seeking a declaration that the statute places restrictions and requirements on PBMs that impermissibly reference or are connected with ERISA plans, thus making the statute expressly preempted by ERISA. PCMA further sought a declaration that the statute violates the dormant Commerce Clause of the United States Constitution.

         The district court granted the State's motions to dismiss these claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, and PCMA appeals.[2] We review de novo the district court's grant of a Rule 12(b)(6) motion to dismiss, accepting the facts alleged in the complaint as true. Gorog v. Best Buy Co., 760 F.3d 787, 792 (8th Cir. 2014); Hafley v. Lohman, 90 F.3d 264, 266 (8th Cir. 1996). We also review de novo the question of whether ERISA preempts a State law, given that it is a matter of federal law involving statutory interpretation. See Shea v. Esensten, 208 F.3d 712, 717 (8th Cir. 2000).


         PCMA is a national trade association representing PBMs. PBMs are third-party plan administrators who manage and administer prescription drug benefits on behalf of health plans subject to ERISA, as well as for non-ERISA plans.

         The retail pharmacies in a PBM's network fill prescriptions of health plan participants with drugs the pharmacies purchase from wholesalers or manufacturers. When a plan participant fills a prescription at a pharmacy, the pharmacy checks with the PBM to determine coverage and obtain copayment information. After the pharmacy fills the prescription, the PBM reimburses the pharmacy at a contractually-agreed rate, minus the copay collected by the pharmacy from the plan participant. The PBM then separately bills the health plan at the rate negotiated between the PBM and the health plan.

         Contracts between PBMs and their network pharmacies contain agreements about the maximum amount that the PBM will reimburse a pharmacy for generic drugs. To determine this maximum amount, PBMs use what is called a "maximum allowable cost" (MAC) methodology. Each PBM uses its own methodology and develops its own price list for generic drugs. PCMA claims that the reimbursement limits established by the PBMs through their MAC price lists motivate pharmacies to seek and purchase generic drugs at the lowest available prices, which ultimately results in a cost-effective benefit to health plans.

         In early 2014, the Iowa General Assembly passed an "Act Relating to the Regulation of Pharmacy Benefits Managers." The Act was signed into law on March 14, 2014, and became effective July 1, 2014. The Act added a new section to Chapter 510B of the Iowa Code, namely section 510B.8, which provides as follows:

1. The commissioner may require a pharmacy benefits manager to submit information to the commissioner related to the pharmacy benefits manager's pricing methodology for maximum reimbursement amount.
2. For purposes of the disclosure of pricing methodology, maximum reimbursement amounts shall be implemented as follows:
a. Established for multiple-source prescription drugs prescribed after the expiration of any generic exclusivity period.
b. Established for any prescription drug with at least two or more A-rated therapeutically equivalent, multiple-source prescription drugs ...

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