ERISA-Eight Circuit Holds That ERISA Preempts Iowa Law Which Regulates How Pharmacy Benefits Managers Establish Drug Pricing, And Which Further Requires Them To Make Certain Disclosures On Drug Pricing Methodology

The case of Pharmaceutical Care Management Association v. Gerhart, No.15-3292 (8th Cir. Jan. 11, 2017) involves the question of whether ERISA expressly preempts section 510B.8 of the Iowa Code.  The district court determined that it did not and dismissed Pharmaceutical Care Management Association’s (“PCMA’s”) complaint seeking a declaration of preemption.  Upon review, the Eighth Circuit Court of Appeals (the “Court”) reversed the district court’s decision and remanded the case with direction that judgment be entered for PCMA.

Why did the Court rule that ERISA preempts the part of the Iowa Code in question?

Section 510B.8 of the Iowa Code regulates how pharmacy benefits managers (“PBMs”) establish generic drug pricing, and requires that certain disclosures on their drug pricing methodology be made to their network pharmacies as well as to Iowa’s insurance commissioner.  Shortly after the statute went into effect, PCMA brought this action against Iowa’s insurance commissioner and its attorney general (collectively, “the State”), seeking a declaration that the statute places restrictions and requirements on PBMs that impermissibly reference or are connected with ERISA plans, thus making the statute expressly preempted by ERISA.

The Court noted that, under ERISA section 514, ERISA preempts any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.  A State law “relates to” an ERISA plan and is preempted if it has a connection with or a reference to such a plan.  A State law need not act directly on an ERISA plan in order to be preempted.  Where a State law indirectly forces a plan administrator to make a particular decision or take a particular action, the law may be held to “relate to” employee benefit plans.  A State law has an impermissible “reference to” ERISA plans where it acts immediately and exclusively upon ERISA plans or where the existence of ERISA plans is essential to the law’s operation.

Upon examining Section 510B.8 of the Iowa Code, the Court determined that the statute specifically exempts certain–but not all-ERISA plans from its otherwise general application.  If the effect of a State law is to exclude some employee benefits plans from its coverage, that law has a prohibited “reference” to ERISA and is therefore preempted.  In addition, Section 510B.8 has a prohibited “connection” with ERISA plans, since it interferes with the administration and management of ERISA plans-such as reporting, disclosure and recordkeeping-and is likewise preempted on that basis.