Background
Kevin Flowers filed a class action suit against Caremark, alleging that the pharmacy benefits manager unjustly enriched itself by failing to provide an adequate pharmacy network as required under Arkansas law. Flowers claimed Caremark violated two state statutes: the Mail Order Provision and the Network Adequacy Provision. The district court granted Caremark’s motion to dismiss, and Flowers appealed.
The court’s reasoning
The court reviewed the case de novo. It first dismissed the Mail Order Provision claim because the plaintiff failed to allege that Caremark required prescriptions to be filled only through home delivery, as the defendant allowed mail or retail options. Regarding the Network Adequacy Provision, the court focused on the implementing regulations known as the Geographic Coverage Requirements, which mandate specific percentages of plan members live within certain distances of a retail community pharmacy. The court held these requirements are preempted by ERISA because they impermissibly connect with ERISA plans by forcing pharmacy benefits managers to tailor their networks to the particularities of multiple jurisdictions, thereby interfering with nationally uniform plan administration.
The Geographic Coverage Requirements bulldoze through these objectives, requiring PBMs to tailor and retailor their networks—and perhaps even build new brick-and-mortar pharmacies—to comply with a set of exacting particularities.
Opinion at page 8
What it means going forward
The ruling clarifies that state laws imposing specific geographic network adequacy standards on pharmacy benefits managers are likely preempted by ERISA, limiting the ability of states to regulate the physical composition of pharmacy networks for employee benefit plans.