Lawsuit Over Minnesota PBM Reform Law Sheds Light on the ERISA Element

The Cigna Group and Cigna Health & Life Insurance Company last month joined a lawsuit against the Minnesota Dept. of Commerce, claiming the state’s PBM reform law violates a legal concept known as ERISA pre-emption. And it isn’t the only state-level PBM law that the ERISA Industry Committee (ERIC) is targeting for possible legal challenges, the powerful employer group tells AIS Health. Cigna, ERIC and the National Labor Alliance of Health Care Coalitions filed the complaint in federal court on Dec. 27, alleging the law dictates the design of health plans, including self-insured plans that fall under the jurisdiction of the federal Employee Retirement Income Security Act of 1974 (ERISA). At the heart of the complaint is the Minnesota Pharmacy Benefit Manager Licensure and Regulation Act of 2019 Section 62W.07. This section lays out prohibitions for PBMs, including: Penalizing or incentivizing enrollees to use a retail, mail order or specialty pharmacy owned by the PBM; Imposing quantity limits or refill limits based solely on whether the PBM owns the pharmacy. The law also states that patients must be allowed to fill prescriptions at an independent pharmacy if they choose. PBMs can offer cost savings to enrollees as long as the incentives apply to every pharmacy. In addition to violating ERISA preemption, the plaintiffs claim the law violates the Commerce Clause because it applies to plans administered outside of Minnesota. A Minnesota Dept. of Commerce spokesperson tells AIS Health, a division of MMIT, that “we have no comment on this litigation at this time and will respond to the complaint via court filing.” Plan sponsors, not PBMs, determine the benefit structure of each health plan, the plaintiffs noted in their suit. The Minnesota law “prohibits sponsors of prescription drug benefit plans that retain PBMs from adopting common network structures” that help rein in costs to enrollees, they wrote. “This kind of open-network law makes a number of commonly used quality control and cost containment measures impossible, thus effectively prohibiting employers and labor union health trusts from using them.” Self-funded plans are “plainly pre-empted” by ERISA, the plaintiffs argued, but the state “insisted” it could ignore this preemption. State PBM laws are largely driven by independent pharmacies, says Dillon Clair, director of state advocacy and litigation with ERIC, a national nonprofit that represents large, self-insured U.S. employers in policy matters. “There’s obviously a conflict between those smaller mom-and-pop pharmacies and the PBM networks and the pharmacies that PBMs often engage with in their networks — that’s sort of the genesis of it all,” Clair says. ERIC and a lot of its members “recognize some of the frustrations with PBMs,” Clair says, and ERIC is working at the federal level to advocate for many of the same transparency and price-reducing policies proposed in state laws. “But the real rub of that is when states try to do [the laws] independently and drag in self-insured ERISA plans, which are established under and governed by federal ERISA law,” Clair explains. “That’s the real conflict on our end. Our plans have already started to face harm and be threatened by this law in Minnesota because the more PBMs are restricted in their design, the more plan options are restricted.” Not everyone agrees. “PBMs and their associations regularly hide behind ERISA to avoid even basic regulation of their unsavory business practices. This deflection comes at the expense of patients, pharmacies, and employers,” Joel Kurzman, director of state government affairs at the National Community Pharmacists Association (NCPA) tells AIS Health in a statement. “The main concern expressed in the complaint is that PBMs should be able to steer patients exclusively to their owned or affiliated pharmacies,” Kurzman added. “We disagree, as do an increasing number of policymakers. Examples abound in which PBMs are shown to pay their owned or affiliated pharmacies more than those not owned or affiliated with PBMs. ERIC would serve its members more effectively by working with NCPA to reform egregious PBM business practices that bloat costs for employers at the expense of their employees and the pharmacies that care for them.” Rutledge Ruling Creates ‘Limbo’ The lawsuit against the Minnesota PBM law is rooted in a history of similar legal challenges to state PBM reform efforts. The case of Rutledge v. Pharmaceutical Care Management Association was the first major Supreme Court case involving PBM laws. It stemmed from an Arkansas law (Act 900) requiring minimum payments for pharmacies from all health plans, including self-insured ERISA plans. The goal of the law was to support reimbursement to independent pharmacies in the state. Lower courts agreed with PCMA that ERISA preempted the law, but the Supreme Court in 2020 unanimously disagreed. Act 900 “applies to PBMs whether or not they manage an ERISA plan and doesn’t treat ERISA plans differently from other plans,” the justices wrote. Further, the law “do[es] not require plan administrators to structure their benefit plans in any particular manner, nor do they lead to anything more than potential operational inefficiencies,” they said. Because the ruling only applies to Arkansas and does not grant states permission to structure similar laws, “the world we live in now is sort of in a Rutledge limbo,” Clair says. “If you asked some people like ERIC and a lot of our member companies, we would say it was a different fact pattern and a different type of case, but ERISA law was applied in previous cases,” Clair says. “If you asked others, they would argue that it opened the floodgates for states to do a lot more regulation of the pharmacy industry and PBMs.” The first real test of the latter interpretation comes from Oklahoma’s PBM law, passed in 2019, that places prohibitions on PBMs restricting pharmacy networks. It also bans spread pricing and reimbursing non-PBM-owned pharmacies less than PBM-owned pharmacies. ‘All Eyes Are on Mulready’ The case of Mulready v. Pharmaceutical Care Management Association challenged the Oklahoma law and four specific provisions: The access provision, which provided minimum standards to ensure in-network and preferred pharmacies are near patients; The discount provision, which bars PBMs from incentivizing patients to use PBM-owned pharmacies; The “any willing provider” provision, which directs PBMs to accept any pharmacy that meets its terms and conditions; and The probation provision, which prohibits PBMs from terminating a licensed pharmacy due to its probation status. PCMA sued to invalidate the law based on ERISA preemption. The district court applied the Rutledge decision, stating the provisions didn’t violate ERISA. PCMA appealed to the 10th Circuit, which in 2023 ruled that the law did violate ERISA preemption. Oklahoma has appealed to the Supreme Court, which has not yet decided whether it will hear the case. “All eyes are on Mulready,” because it might be the next major Supreme Court PBM case, Clair says. “If the Supreme Court doesn’t take it back up, then other courts would look to and maybe consider the 10th Circuit Mulready decision, but they wouldn’t be bound by a Supreme Court decision,” he notes. ERIC Considers ‘Oklahoma and Beyond’ Clair and colleagues refer to this new wave of PBM legislation as “Oklahoma and Beyond.” “These laws are much more expansive [than the Minnesota law] and they raise more preemption concerns all in one go,” he explains. “A lot of other states, namely Tennessee, New York, Florida and Kentucky, all over the last couple of years passed similarly expansive PBM laws that in our view restrict the network design and plan design options available to PBMs.” Clair notes that ERIC is watching the following state laws: Florida’s Prescription Drug Reform Act of 2023 “is probably the most expansive of any of these state laws that we’ve seen after Oklahoma,” Clair says. The act compels PBMs to pass through manufacturer rebates to plan sponsors, prohibits spread pricing, prohibits mandatory mail-order programs, and requires plans to submit an annual attestation of compliance. ERIC filed an amicus brief in McKee Foods Corporation v. BFP, Inc., a lawsuit challenging Tennessee’s PBM law — specifically, its “any willing pharmacy” provision. According to ERIC, the provision “restrict(s) plan sponsors’ ability to design pharmacy networks for their plans; and limit(s) the ability of plan sponsors to implement effective cost-savings measures for their plans.” New York enacted PBM reform in 2021 and published the adopted regulationsin 2024. The state’s reform law includes many provisions similar to other state laws. It also prohibits PBMs from barring any in-network pharmacies from providing mail order or delivery services, requires publication of formularies and pharmacy directories, prohibits steering patients to PBM-owned pharmacies, and requires applying the same audit standards to all pharmacies, regardless of ownership. Clair notes that a lot of PBM network practice restrictions were removed from the regulations, but the law does apply to ERISA plans. “There is probably going to be some interesting legal challenges there depending on how enforcement rolls out over the next year,” Clair says.