Tenth Circuit Holds That ERISA Preempts Oklahoma's PBM Law

Only three months after oral argument, the U.S. Court of Appeals for the Tenth Circuit issued a decision agreeing with the Pharmaceutical Care Management Association (PCMA) that Oklahoma's Patient's Right to Pharmacy Choice Act (the Act) is preempted by ERISA because it interferes with central matters of plan administration by restricting ERISA plans from structuring their pharmacy networks in a particular manner. The court also held that ERISA preempted the Act's provision that would bar pharmacy benefit managers (PBMs) from denying, limiting, or terminating a pharmacy's contract because one of its pharmacists is on probation with the state pharmacy board.

In its August 15, 2023 opinion in PCMA v. Mulready, No. 22-6074, the Tenth Circuit concluded that the Act's three network restrictions "succumb to ERISA preemption" because "the network restrictions [functionally] mandate benefit structures." As we predicted, the court held that each of the three provisions "either directs or forbids an element of plan structure or benefit design": (1) the Act's "Access Standards" "dictate which pharmacies must be included in a PBM's network"; (2) the Act's "Any Willing Provider" (AWP) provision "requires that those pharmacies be invited to join the PBM's preferred network"; and (3) the Act's "Discount Prohibition" requires that "cost-sharing and copayments be the same for all network pharmacies — whether retail or mail-order; standard or preferred."

Quoting the Supreme Court's decision in Rutledge v. PCMA, 141 S. Ct. 474, 480 (2020), and consistent with the amicus brief that Miller & Chevalier filed on behalf of the Association of Federal Health Organizations, the Tenth Circuit concluded that, "[h]owever sliced, the network restrictions 'require providers to structure benefit plans in particular ways.'" The court provided examples of how the network restrictions "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 employees must include many more brick-and-mortar pharmacies. Because adding pharmacies costs plans money, this is a choice that plans might not otherwise make. 
• Before the Act, PBMs could help plans reduce expenses by crafting a limited preferred network. Now, to comply with the AWP Provision, PBMs must allow all pharmacies to join their preferred networks. Plus, PBMs that have preferred specialty networks must allow even the smallest pharmacy to dispense costly specialty drugs. This rule hurts the cooperative relationship between plans, which want to save money, and preferred pharmacies, which want the increased business that preferred status affords.
• Before the Act, PBMs could use cost-sharing discounts to encourage plan beneficiaries to use cheaper pharmacies. Now, to comply with the Discount Prohibition, PBMs are forbidden from doing just that. 

In sum, the court rejected all the state's arguments as to the network restrictions and held:

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.

The court also rejected the state's position, which the United States had supported as amicus, that ERISA does not preempt the Act's "Probation Prohibition." The court declined the United States' invitation to "invent" a "novel" rule that ERISA does not preempt state laws that have only a de minimis effect on pharmacy-benefit design. And, even if a de minimis test were "sound," the court found that the Probation Prohibition "forces PBMs to capitulate to all pharmacies, even those employing pharmacists on probation," meaning that "[p]lans that want to promote patient safety by maintaining quality-assurance standards cannot refuse to contract with disciplined pharmacists."

Analysis of MHPAEA Proposed Rule and Report of Congress, Part III

This week, we focus on the recently proposed additions to the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) regulatory requirements governing the content of the written non-quantitative treatment limitation (NQTL) comparative analyses. The Consolidated Appropriations Act, 2021 (CAA) directed the Departments of Labor, Health and Human Services, and the Treasury (the Departments) to issue regulations implementing the new legal requirements added to ERISA section 712 and the August 3, 2023, notice of proposed rulemaking aims to do so by adding a new regulatory section, 29 C.F.R. § 2590.712-1, among other things. This new section, which would adopt the proposed definitions of key terms discussed in Part I, would largely track the CAA comparative analyses statutory requirements and sub-regulatory guidance issued by the Departments in April 2021. It contains more direction than prior guidance and some important new additions, however. The proposal also addresses the Departments' comparative analyses review process.

Comparative Analysis Content Requirements

The proposed regulation sets forth the minimal requirements that a plan or issuer must satisfy in an NQTL comparative analysis for each NQTL in a plan or coverage.

1. Description of the NQTL. The comparative analysis must identify the specific terms in relevant documents in which the NQTL appears and identify all mental health or substance use disorder (MH/SUD) benefits and medical/surgical (M/S) benefits to which the NQTL applies and the classifications in which those benefits are included. It must also specify the predominant NQTL applicable to substantially all M/S benefits in each classification. The latter requirement is new. 
2. Identification and definition of the factors used to design or apply the NQTL. Consistent with current guidance, under the proposed rule, the comparative analysis must identify and define all factors considered or relied upon in designing or applying an NQTL, as well as the evidentiary standards considered or relied upon to design or apply each factor and the sources from which each evidentiary standard was derived, in determining which MH/SUD and M/S benefits are subject to the NQTL. 
3. Description of how factors are used in the design and application of the NQTL. The comparative analysis must include a detailed description and explanation of how each factor is used in the design and application of the NQTL to MH/SUD and M/S benefits in a classification, including an explanation of the evidentiary standards or other information or sources considered or relied upon in designing or applying the factors or relied upon in designing and applying the NQTL. If the application of a factor depends on decisions made in the administration of benefits, the "nature" and timing of the decisions and the qualifications of each decision maker must also be included. If more than one factor is identified, an explanation of the weight given to a factor and the interrelationships between and among factors must also be explained. This requirement has been the source of many insufficiency determinations by the Departments under the current guidance.
4. Demonstration of comparability and stringency as written. Under the proposal, the comparative analysis must evaluate and demonstrate that, under the terms of the plan or coverage as written, any processes, strategies, evidentiary standards, or other factors used in designing and applying the NQTL to MH/SUD benefits are comparable to, and are applied no more stringently than, those used in designing and applying the NQTL to M/S benefits. The analysis must reference the factors, quantitative data, calculations, other analyses, and the evaluation of relevant data required under the proposed "Relevant Data Evaluation Requirement" that were used to determine whether the NQTL would apply. Records of the plan or issuer documenting the consideration and application of all factors and evidentiary standards must also be included. In each classification in which the NQTL applies to MH/SUD benefits, the analysis must compare how the NQTL is applied to MH/SUD and M/S benefits, using any forms, checklists, procedure manuals, or other documentation, and must explain any variations in the application of a factor used to apply an NQTL. 
5. Demonstration of comparability and stringency in operation. The comparative analysis must evaluate whether, in any classification, under the terms of the plan or coverage in operation, the processes, strategies, evidentiary standards, or other factors used in designing and applying the NQTL to MH/SUD benefits are comparable to, and are applied no more stringently than, the processes, strategies, evidentiary standards, or other factors used in designing and applying the NQTL to M/S benefits. The analysis must include a "comprehensive explanation of how the plan or issuer ensures" adherence to the comparability and stringency standard. Under the proposal, this includes, among other things, identification of the relevant data collected and evaluated in accordance with the "Relevant Data Evaluation Requirement" and a "detailed explanation of material differences in outcomes" and "discussion of any measures that have been or are being implemented by the plan or issuer to mitigate any material differences."
6. Findings and conclusions. Lastly, under the proposed rule, the comparative analysis must address the findings and conclusions as to the comparability of the processes, strategies, evidentiary standards, and other factors used in designing and applying an NQTL and the relative stringency of their application, both as written and in operation. The analysis must include any findings or conclusions that the plan or coverage is not in compliance with three substantive requirements set forth in proposed section 29 C.F.R.§ 2590.712 (c)(4) and any actions the plan or issuer has taken or intends to take to come into compliance. It must also include the credentials of all persons who participated in the comparative analysis, including experts. The proposal also adds a requirement that the fiduciaries who reviewed the comparative analysis certify that they found it to be compliant. 

Requirements Related to Comparative Analyses Submitted to the Departments

The proposal re-states the existing requirements that a plan or issuer submit a comparative analysis to the requesting Department within 10 business days and would require that any supplemental information identified by the Department as lacking from that submission be submitted within 10 business days of a notice of insufficiency. Both deadlines can be extended at the discretion of the requesting Department. The proposal also re-states the existing requirement that a plan or issuer respond to an initial determination of noncompliance within 45 calendar days by submitting a corrective action plan and compliant comparative analysis. There is no provision for extensions to the 45-day statutory deadline.

The proposal specifies that the notice that must be given to participants within seven days of a final determination on noncompliance must be a standalone notice written to be understood by the average plan participant. The notice must include prescribed language stating that the plan or coverage does not comply with MHPAEA, as well as a summary of the Department's findings, changes made or that will be made to come into compliance, an explanation of any opportunity for a participant to have a claim for benefits reprocessed, and contact information for the plan or issuer and the Departments for questions and complaints, among other things. The notice must be issued in paper or electronically if certain requirements are met and must be sent to the Department involved and to fiduciaries and service providers involved in the claims process.

Requests for Comparative Analyses 

Under the proposed rule, in addition to the Departments and states, a participant or beneficiary (or a provider or other person acting as the latter's authorized representative) who has received an adverse benefit determination related to MH/SUD benefits may request the plan's or issuer's comparative analysis. In addition, if the rule is adopted, any participant or beneficiary may request a comparative analysis at any time under ERISA section 104, which requires plan administrators to furnish upon request copies of instruments under which a plan is established or operated. 

Comments to the proposed rule are due October 2, 2023. 

Feds Issue FAQs on No Surprises Act IDR Fees

The Departments issued a new set of FAQs on August 11, 2023, in response to the August 3, 2023, court order in Texas Medical Ass'n v. United States Dept. of Health and Human Services (No. 6:23-cv-59-JDK) (E.D. Tex. Aug, 11, 2023) (TMA IV) vacating the controversial $350 per party independent dispute resolution (IDR) administrative fee established at the end of December 2022 for calendar year 2023. In that decision, the court held that the Departments' fee increase, as well as their September 2021 IDR batching rule, neither of which underwent notice and comment rulemaking, were arbitrary and capricious under the Administrative Procedures Act (APA). Following the court order, the Departments "temporarily suspended the Federal IDR process" including the filing of new IDR disputes. The FAQs clarify that the administrative fee for disputes initiated after August 3 will revert to $50, the amount in place prior to the end of year amendments. The FAQs address how to handle fees paid or payable prior to the decision, and state that federal IDR portal will reopen "soon."

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