Iowa Drug-Pricing Law Struck Down by Appeals Court

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

An Iowa law forcing companies like Express Scripts and CVS Health to disclose how they price generic drugs is preempted by federal benefits law, the U.S. Court of Appeals for the Eighth Circuit ruled ( Pharmaceutical Care Mgmt. Assoc. v. Gerhart , 2017 BL 7351, 8th Cir., No. 15-3292, 1/11/17 ).

The 2014 law forces pharmacy benefit managers to disclose pricing methodology to Iowa’s insurance commissioner and to allow pharmacies to comment on and appeal pricing decisions. The Eighth Circuit on Jan. 11 found this law to be unenforceable as preempted by the Employee Retirement Income Security Act because it interferes with the uniform administration of ERISA plans nationwide.

The Pharmaceutical Care Management Association, the PBM industry association that challenged the law in court, called the decision a “shot across the bow” for other states that might be considering adopting similar laws.

The decision “sends an important signal that states can’t impose a patchwork of costly mandates on employers and unions that offer pharmacy benefits,” Mark Merritt, president and chief executive officer of PCMA, said in a Jan. 11 statement.

The National Community Pharmacists Association—which in 2016 filed a brief urging the Eighth Circuit to uphold the Iowa law—said in a statement that it was “deeply disappointed” with the ruling. NCPA CEO B. Douglas Hoey vowed to continue supporting policies like Iowa’s, which he praised as an attempt to “bring transparency to a PBM industry that has exploited secrecy to reap record profits at the expense of hardworking Americans.”

A spokesman for the Iowa attorney general’s office declined to comment on the lawsuit.

In striking the law, the Eighth Circuit said that forcing PBMs to report data to state officials about their role in administering ERISA plan benefits runs counter to Congress’ goal of national uniformity in the administration of employee benefit plans. The Eighth Circuit relied on a recent U.S. Supreme Court decision using ERISA to partly invalidate a Vermont program that collected health claims data.

Other state laws imposing requirements on PBMs have been challenged under ERISA, with mixed results. The U.S. Court of Appeals for the First Circuit upheld a Maine law from an ERISA preemption challenge in 2005, while the U.S. Court of Appeals for the D.C. Circuit struck down key provisions of a Washington, D.C., law in 2010.

District Judge Catherine D. Perry of the U.S. District Court for the Eastern District of Missouri wrote the opinion, which was joined by Circuit Judge Bobby E. Shepherd and Senior Circuit Judge Diana E. Murphy. The decision reverses a 2015 ruling by a federal judge in Iowa.

McDermott Will & Emery and Whitfield & Eddy represented the PCMA. The Iowa attorney general’s office defended the law in court.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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