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U.S. Court In Maine Enjoins Enforcement Of Maine Law Regulating PBMs


HLD, v. 32, n. 5 (May 2004)

U.S. Court In Maine Enjoins Enforcement Of Maine Law Regulating PBMs

Plaintiff Pharmaceutical Care Management Association, a trade association of pharmaceutical benefits management (PBMs) companies, filed a complaint against defendant G. Steven Rowe, in his official capacity as Maine Attorney General, in federal court seeking declaratory and injunctive relief from the state Unfair Prescriptive Drug Practices Act (UPDPA). PBMs administer prescription drug plans for Employee Retirement Income Security Act (ERISA) and non-ERISA health plans.

The UPDPA directly impacts PBMs by defining the relationship of the PBM and client as a fiduciary relationship, and imposes disclosure requirements on PBMs in connection with any financial benefits that a PBM obtains from a pharmaceutical manufacturer or other related company. The UPDPA sets limits on substitutions of higher-priced drugs for lower-priced drugs, and mandates that any volume discounts be passed on to a covered entity. Plaintiff moved for a preliminary injunction to enjoin the state from implementing the UPDPA on the grounds of ERISA pre-emption, a violation of the Takings Clause, and a violation of the Commerce Clause.

The U.S. District Court for the District of Maine granted the motion for a preliminary injunction. As an initial matter, the court determined that plaintiff had associational standing to bring suit on behalf of its members for the injuries they might suffer from the UPDPA. The court then turned to plaintiff's claim that the UPDPA violated the Commerce Clause because of its extraterritorial reach. Rejecting plaintiff's claim, the court determined that the UPDPA only relates to plaintiff's members' contracts that are in Maine and because there is no out-of-state effect there is no Commerce Clause violations.

Plaintiff also argued that the UPDPA's requirement that PMBs disclose certain trade secret information was a "taking" of property under the Takings Clause. The court found it had to determine if the information required to be disclosed under the UPDPA constituted trade secrets. Defendant argued that a contract's terms are not trade secrets. Plaintiff argued that contract information about negotiations had "independent economic value" and any public disclosure of such information would harm a PBM's ability to negotiate in the future. Finding that PBMs consider negotiation and other contract information highly confidential for business and economic purposes, the court held that the information constituted trade secrets.

The court then applied a three-part factual inquiry to determine the economic impact of the government action, whether the government action interferes with "reasonable investment-backed expectations," and the character of the government action. The court determined that the UPDPA provides for disclosure to a covered entity of all "financial and utilization information relating to services to that covered entity" without any confidentiality provision. Finding that the information required to be disclosed to a covered entity was trade secret information, and the lack of a confidentiality requirement allows a covered entity to share that information with drug companies or others, the court concluded that the UPDPA had an economic effect on PBMs. The court also found that the second element was met because as holders of trade secrets, PBMs have a reasonable expectation that their trade secrets will not be disclosed. On the third element, the court balanced the interests of the state in regulating PBMs and the PBMs' interest in keeping their trade secrets confidential, and determined that for purposes of a preliminary injunction motion the PBMs had a greater interest in protecting their trade secrets while the issue is litigated because there was sufficient evidence that the disclosure of the information would constitute a taking.

Plaintiff also argued that ERISA pre-empted the UPDPA because the UPDPA has a "connection with" and makes "reference to" employee benefit plans covered by ERISA, and ERISA is the exclusive enforcement scheme for such plans. Defendant argued it is free to regulate PBMs because they are not ERISA entities. The court concluded that UPDPA's regulation of PBMs and restrictions on the way they operate conflicts with ERISA's goal of "uniform administration of employee benefit plans." The court also found that the UPDPA's enforcement mechanisms intrude on ERISA's authority to regulate benefit plans. Finding that UPDPA has a connection to and makes reference to ERISA plans, the court held plaintiff had shown a likelihood of success on the issue of ERISA pre-emption. Accordingly, the court granted the preliminary injunction.

Pharmaceutical Care Management Ass'n v. Rowe, No. 03-153-B-W (D. Me. Mar. 9, 2004).       

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