Courts Upholds Law Mandating Matching Copays and Supply Limits for Mail and Retail Pharmacy HMO Benefits

The Eighth Circuit Court of Appeals has upheld a Missouri law requiring HMOs to apply the same copayment schedules and supply limits for mail service and retail pharmacies. Express Scripts, Inc. v. Wenzel, 262 F.3d 829 (8th Cir. 2001). Prescription benefit management company Express Scripts failed in its claim that the law was preempted by the Employee Reitrement Income Security Act.

Prior to 1997, some Missouri HMOs provided incentives to enrollees to fill maintenance prescriptions at mail service pharmacies rather than at local retail pharmacies. Further, some HMOs limited the quantity enrollees could obtain from retail pharmacies to a thirty day supply while permitting them to obtain up to a ninety day supply from a mail service pharmacy. HMOs could also charge enrollees a higher copayment to fill a maintenance prescription at a retail pharmacy than at a mail order pharmacy. In 1997, the Missouri legislature enacted a new law requiring HMOs to charge the same copayment for prescription drugs from any network pharmacy and preventing HMOs from limiting the quantity of drugs an enrollee can obtain at one time unless the limit applies to all pharmacy providers.

Affirming a lower court ruling, the Court of Appeals ruled that Missouri's law was saved from ERISA preemption as a law regulating insurance. The Court first concluded that HMOs are, for ERISA purposes, treated as insurers under Missouri law. The appeals court then used a two step inquiry to determine whether the state law was saved from ERISA preemption. First, it used a "common sense" approach to examine whether the challenged provisions regulate insurance. Using this approach, the court concluded that the provisions are "specifically directed toward that industry," and therefore, regulate insurance. Second, it found that insurance principles were implicated because the (1) the provisions affect the transfer or spread of the risk of higher insurance costs, (2) the provisions alter an integral part of the policy relationship between the insurer and the insured because they require that enrollees be allowed to obtain maintenance prescriptions at retail pharmacies without being penalized, and (3) the provisions only regulate HMOs. Since HMOs are insurers and the provisions regulate insurance, the Court concluded that the provisions fall within the ERISA savings clause and are not preempted.