The Great Divide: ERISA Integrity versus State Desire to Hold Pharmacy Benefit Managers Accountable for Pharmaceutical Drug Pricing

By Stecker, Alexandra M. | Journal of Corporation Law, Fall 2018 | Go to article overview

The Great Divide: ERISA Integrity versus State Desire to Hold Pharmacy Benefit Managers Accountable for Pharmaceutical Drug Pricing


Stecker, Alexandra M., Journal of Corporation Law


I.  INTRODUCTION II.  BACKGROUND      A. ERISA and Its Interaction with Healthcare      B. The Relevant Cases & Their Stances on ERISA         Preemption of State Reporting Requirements      C. Today's Circuit Holding: Gerhart III. Analysis      A. The Positive Side of ERISA Preemption      B. The Cons of ERISA Preemption IV.  Recommendation      A. Recommendations Without Altering ERISA         1. Changing State Legislative Actions         2. Circuit Split Resolution in Favor of State Statutes.      B. A Long-term Proposal: Federal Regulation of PBM Actions         or Amending ERISA V. Conclusion 

I. INTRODUCTION

Healthcare is one of the most widely contested and fundamentally important issues of the twenty-first century. The rise of technology, advances in pharmaceuticals, and greater understanding of the human mind and body within the medical field have created a boom in the healthcare industry, sparking a variety of legislation and statutes. With these advancements came the steady and ever-rising costs of healthcare and pharmaceutical drugs. (2) Most people like consistency and want to know what they are paying for. For example, when paying for a new car, an individual will want to know how the vendor set that price and if that price is comparable and fair. If people want to know this information about cars, groceries, or other everyday items, they will also want the same information for necessary prescription drugs. (3) Unfortunately, the pricing of medications is an incredibly vague area of healthcare, and the laws, or lack thereof, surrounding pricing methodologies are not much help either. (4)

To combat the opaque drug pricing methodologies, states have tried to enact statutes requiring pharmacy benefit managers (PBMs) to report how they came up with their drug prices. (5) Unfortunately, specific federal legislation has rendered these state statutes invalid in several jurisdictions. (6) Yet, courts in other jurisdictions have upheld these state reporting requirements. (7) Therefore, the question within the healthcare and pricing methodology debate is whether state statutes that require the disclosure of pricing data and a transparent methodology for setting drug prices from PBMs are federally preempted by the Employee Retirement Income Security Act of 1974 (ERISA). (8)

This Note's analysis focuses on the circuit split arising from the Eighth Circuit's ruling in Pharmaceutical Care Management Ass'n v. Gerhart. This 2017 case focuses on state pricing data requirements placed on PBMs and whether ERISA invalidates those requirements. (9) The Eighth Circuit ultimately ruled that ERISA does preempt these reporting requirements following the D.C. Circuit's Pharmaceutical Care Management Ass 'n v. District of Columbia decision. (10) However, other circuits, such as the First Circuit, have upheld the state law reporting requirements. (11) As this Note will discuss, striking down the Iowa pharmaceutical reporting law creates a troubling lack of transparency as to how PBMs determine drug prices and suppresses accountability. (12) On one side, commentators argue that state laws requiring reporting disclosures to state agencies (in addition to ERISA's national reporting requirements) put a great burden on PBMs. (13) On the other side, commentators argue that a state law forcing PBMs to report pricing data increases accountability and does not substantially affect the true spirit of ERISA. (14) This Note discusses the precedent leading up to this circuit split, the respective rationales of each side in the split, the circuit split's implications in health insurance law, and finally why ERISA should not preempt state laws that require PBMs to report their drug pricing methodologies. This Note will conclude by recommending various solutions to avoid ERISA preemption, while still holding PBMs accountable for their drug pricing methods.

II. BACKGROUND

Before delving into the complicated relationship demonstrated in Gerhart and of other circuits' decisions, some background information on ERISA and the evolution of state reporting requirements is necessary. …

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