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First Circuit Upholds Maine Law Requiring Disclosures by Pharmacy Benefit Managers

November 29, 2005

The United States Court of Appeals for the First Circuit affirmed a lower court decision rejecting a challenge by the Pharmaceutical Care Management Association (“PCMA”), a trade association representing pharmacy benefit managers (“PBMs”), to Maine's Unfair Prescription Drug Practices Act (“UPDPA”). Pharmaceutical Care Management Association v. Rowe, No. 05-1606 (1st Cir. Nov. 8, 2005). The Maine law requires PBMs entering into contracts with health plans to act as fiduciaries for their clients, and to disclose information to plans about drug pricing negotiations and potential conflicts of interest.

PCMA brought a lawsuit against the Attorney General of Maine seeking an injunction against enforcement of the UPDPA. PCMA claimed that UPDPA is preempted by the Employee Retirement Income Security Act (“ERISA”). PCMA also challenged the Act on several constitutional grounds, alleging that it violates the commerce clause, the takings clause of the Fifth Amendment, and the First Amendment as it relates to compelled commercial speech. Both parties motioned for summary judgment, and the district court denied PCMA's motion and granted the Attorney General's motion.

The appellate court determined that PBMs are not fiduciaries under ERISA because the requirements imposed on PBMs under the UPDPA do not involve the exercise of “discretionary authority or control in the management and administration of the plan.” According to the court, PBM duties under the UPDPA are “purely ministerial.” The court then concluded that the UPDPA is not preempted by ERISA, because it is a law of general application, applying to all health benefit plans in Maine, including Medicaid plans as well as ERISA plans. It addition, the court stated that the Maine law does not interfere with a goal of national uniformity, because it does not limit the ability of plan administrators to structure or design ERISA plans.

Next, the First Circuit rejected PCMA's contention that the UPDPA violated several constitutional protections. With respect to PCMA's takings clause claim, the court said that Maine's law "is no more a taking than the requirement that public corporations disclose private corporate information about financial prospects to the public through regular SEC filings." The court found PCMA's First Amendment claim to be without merit, stating that the UPDPA meets the rational basis test for government regulations. The court also found that PCMA's commerce clause claim fails under a balancing test, and that PCMA “failed to provide the court with any great weight to place on the excessive burden side of the scale.”

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