Rutledge v. Pharmaceutical Care Management Association and its impact on Title 15, Subtitle 16 of the Maryland Insurance Article.
As discussed in further detail below, pharmacy benefit manager (“PBM”) contracts and services are regulated under Title 15, Subtitle 16 of the Insurance Article. Prior to the 2021 legislative session, those laws did not apply when the purchaser of the PBM services was a selfinsured health and welfare benefit plan exempt from state regulation under the preemption provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. (referred to hereinafter as an “ERISA plan”). That legislative carve-out reflected a concern that the application of state laws to PBMs when providing services to ERISA plans would be preempted by ERISA.
In 2020, the Supreme Court of the United States held that an Arkansas law that requires PBMs to reimburse pharmacies for at least the actual cost of purchased drugs was not preempted by ERISA, even when applied to a contract between the PBM and an ERISA plan. Rutledge v. Pharmaceutical Care Management Assoc, 141 S. Ct. 474, 479 (2020) (upholding state law requiring PBMs to update maximum allowable cost (“MAC”) lists and allowing pharmacies to appeal MAC reimbursements). In response, legislation was introduced in the 2021 legislative session to eliminate the carve-out for ERISA plans from Maryland PBM laws and to apply PBM regulation to PBMs when providing services to ERISA plans. During hearings on proposed legislation, there was rigorous debate and disagreement on the intended scope of Rutledge and the extent to which PBM regulation beyond the specific MAC provisions addressed in that case could be applied to a PBM acting for an ERISA plan without triggering ERISA preemption.
The final legislation, enacted as Chapter 358, Acts of 2021 (HB 601), expanded provisions of Maryland’s PBM regulation requirements to PBMs when acting on behalf of ERISA plans with respect to activities expressly addressed in Rutledge. The law also required the Maryland Insurance Administration (“MIA”) to report to the Senate Finance Committee and the House Health and Government Operations Committee, in accordance with § 2–1257 of the State Government Article, on the scope of the U.S. Supreme Court opinion in Rutledge and how to apply that decision to other provisions of Title 15, Subtitle 16 of the Insurance Article on or before December 31, 2021.
This report is provided in response to that directive.
Rutledge recognizes that PBMs are not health benefit plans as defined under ERISA and, thus, that the regulation of PBMs is not preempted by ERISA. Rutledge confirmed that this is so, even when the purchaser of PBM services is an ERISA plan, as long as the state’s regulation of the PBM does not effectively regulate the ERISA plan itself. While that line has been the subject of much litigation, as a general rule this means that state laws that direct the decisions of the ERISA plan itself, such as requiring certain benefits, benefit structures, or benefit determinations, are preempted; while state laws regulating PBMs that may also impact ERISA plan costs and design structures or that might result in some lack of uniformity in plan design are not preempted.
Applying that standard to Maryland law, it is the view of the MIA that should the legislature determine to apply additional provisions of Title 15, Subtitle 16 to PMBs when providing services to an ERISA plan, ERISA would not preempt the MIA’s enforcement of those laws in that context. This view is informed in part by the recent opinion of the U.S. Court of Appeals for the Eighth Circuit in Pharmaceutical Care Management Assoc. v. Wehbi, No. 18-2926 (8th Cir. Nov. 17, 2021) (“Wehbi”), the first case applying the Rutledge decision. On remand from the U.S. Supreme Court following Rutledge, the Eighth Circuit in Wehbi found that North Dakota laws broadly regulating PBMs were not preempted by ERISA.1 While not binding on Maryland (which is in the Fourth Circuit), the reasoning of the Eighth Circuit is persuasive and presents a logical application of Rutledge and prior Supreme Court jurisprudence relating to ERISA preemption to legislative provisions similar to those in force in Maryland respecting PBMs.
Regulations of PBMs in Maryland
PBMs function as intermediaries between health plans2 and pharmaceutical providers. While they play no role in the physical distribution of prescription drugs, by handling negotiations and payments within the supply chain, PBMs have a significant impact on the total drug cost for payors, patient access to medications, and determining how much pharmacies are paid. PBM activities typically include the creation of formularies, the negotiation of drug discounts, the creation of pharmacy networks, the processing of claims, and the review of drug utilization. In addition to cost management and drug price negotiations, PBMs may offer a variety of administrative services to a health plan, all related to prescription drug benefits.