Pharmaceutical Care Management Ass'n v. District of Columbia

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 15, 2009 Decided July 9, 2010

No. 09-7042

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION,

APPELLEE

v.

DISTRICT OF COLUMBIA AND ADRIAN FENTY, IN HIS OFFICIAL

CAPACITY AS MAYOR OF THE DISTRICT OF COLUMBIA,

APPELLANTS

Appeal from the United States District Court

for the District of Columbia

(No. 1:04-cv-01082-RMU)

James C. McKay, Jr., Senior Assistant Attorney General,

argued the cause for appellants. With him on the briefs were

Peter J. Nickles, Attorney General, Todd S. Kim, Solicitor

General, and Donna M. Murasky, Deputy Solicitor General.

Melissa Bowman, Attorney, U.S. Department of Labor,

argued the cause for amicus curiae Secretary of Labor in

support of appellants. With her on the briefs were Carol A.

De Deo, Deputy Solicitor, Deborah Greenfield, Deputy

Solicitor, and Nathaniel I. Spiller, Counsel.

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Jan May, Stacy J. Canan, and Michael Schuster were on

the brief for amici curiae AARP et al. in support of

appellants.

Paul J. Ondrasik, Jr. argued the cause for appellee

Pharmaceutical Care Management Association. With him on

the briefs were Martin D. Schneiderman, Linda S. Stein, and

Eric G. Serron. Alice E. Loughran entered an appearance.

Robin S. Conrad and William G. Schiffbauer were on the

brief for amici curiae America's Health Insurance Plans, Inc.

and Chamber of Commerce of the United States of America

in support of appellee.

Before: GINSBURG, BROWN, and KAVANAUGH, Circuit

Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge: The District of Columbia

appeals the judgment of the district court holding Title II of

the Access Rx Act of 2004, D.C. Code § 48-832.01 et seq., is

pre-empted by the Employee Retirement Income Security

Act, 29 U.S.C. § 1001 et seq. (ERISA). Pharm. Care Mgmt.

Ass'n v. District of Columbia, 605 F. Supp. 2d 77, 84–88

(2009). We agree with the district court that §§ 48-832.01(a),

(b)(1), and (d) of Title II are pre-empted by ERISA insofar as

they apply to a pharmaceutical benefits manager (PBM) under

contract with an employee benefit plan (EBP) because they

―relate to‖ an EBP. Sections 48-832.01(b)(2) and (c) are not

pre-empted by ERISA, however, because each may be waived

by an EBP in its contract with a PBM. Accordingly, we

affirm in part and reverse in part the judgment of the district

court, and remand this matter for the district court to consider

the Pharmaceutical Care Management Association‘s (PCMA)

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constitutional challenges to the provisions not pre-empted by

ERISA.

I. Background

Access to prescription drugs is an increasingly

important — and expensive — benefit for a health care plan

to offer its beneficiaries. Instead of themselves developing a

list of covered prescription drugs, purchasing those drugs

from pharmaceutical manufacturers, establishing a network of

pharmacies to fill prescriptions, and otherwise administering

the prescription drug benefit, many health care plans,

including many EBPs, contract with a PBM to perform these

functions. A PBM offers not just administrative convenience,

however; by aggregating the purchasing power of numerous

health care plans, a PBM can get greater volume discounts

from drug manufacturers and provide access to a larger

network of pharmacies than an EBP could do on its own.

That the vast majority of insured Americans receive their

pharmaceutical benefits through a PBM is, therefore, not

surprising.

Title II imposes a number of requirements upon PBMs

and, in one respect, upon any health care plan that contracts

with a PBM and thus becomes a ―covered entity,‖ § 48-

831.02(4)(A). These requirements are summarized in the

following table.

Provision Summary Requirement

§ 48-832. Fiduciary duty A PBM ―owes a fiduciary duty

01(a) to a covered entity. In

performance of that duty [it]

shall adhere to the practices in

this section.‖

4

§ 48-832. Fiduciary A PBM ―shall . . . Perform its

01(b)(1)(A) standard duties . . . in accordance with

the standards of conduct

applicable to a fiduciary.‖

§ 48-832. NA Repealed, 53 D.C. Reg. 6899,

01(b)(1)(B) 6966 (2006).

§ 48-832. Disclosure of A PBM shall ―notify the

01(b)(1)(C) conflicts covered entity in writing of . . .

any conflict of interest with the

duties imposed by‖ Title II.

§ 48- Usage pass A PBM ―that receives from any

832.01(b)(2) back drug manufacturer or labeler

any payment or benefit of any

kind in connection with the

utilization of prescription

drugs‖ by the beneficiaries of a

covered entity ―shall pass that

payment or benefit on in full to

the covered entity. This

provision does not prohibit the

covered entity from agreeing by

contract to . . . return[] a portion

of the benefit or payment to the

[PBM].‖

§ 48-832. Disclosure of ―Upon request by a covered

01(c)(1)(A) purchases entity‖ a PBM shall disclose

―the quantity of drugs

purchased by the covered entity

and the net cost to the covered

entity for the drugs.‖

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§ 48-832. Disclosure of ―Upon request by a covered

01(c)(1)(B) terms entity‖ a PBM shall disclose the

―terms and arrangements for

remuneration‖ between the

PBM and a drug manufacturer

or labeler.

§ 48- Confidentiality ―Information designated [by a

832.01(c)(2) PBM] may not be disclosed by

the covered entity . . . ‖

§ 48- NA Repealed, 53 D.C. Reg. 6899,

832.01(d)(1) 6966 (2006).

§ 48- Disclosure of A PBM that dispenses a

832.01(d)(2) substitution substitute drug that ―costs more

than the prescribed drug shall

disclose to the covered entity

the cost of both drugs and any

benefit or payment . . . to the

PBM as a result of the

substitution.‖

§ 48- Substitution A PBM ―shall transfer in full to

832.01(d)(3) pass back the covered entity any benefit

or payment received . . . as the

result of [such] prescription

drug substitution.‖

§ 48-832.02 Compliance ―Compliance with the

requirements of [Title II] is

required in all contracts

between a [PBM] and a covered

entity entered into in the

District of Columbia . . .

executed after May 18, 2004.‖

§ 48-832.03 Enforcement ―A violation of [§ 48-832] is a

violation of [the District of

Columbia Consumer Protection

Procedures Act], for which a

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fine of not more than $10,000

may be adjudged.‖

The PCMA, a national trade association representing

PBMs, filed suit arguing Title II is pre-empted by ERISA. It

also argued Title II is pre-empted by the Commerce Clause,

and violates the First Amendment and the Takings Clause of

the Fifth Amendment, of the Constitution of the United

States. We held in PCMA v. District of Columbia, 522 F.3d

443 (2008), the Association is not collaterally estopped from

bringing this suit by the decision of the First Circuit in PCMA

v. Rowe, 429 F.3d 294 (2005), which rejected its argument

that a similar Maine statute was pre-empted by ERISA. On

remand the district court held Title II is pre-empted in its

entirety by ERISA, and granted summary judgment for the

PCMA, which the District now appeals.

II. Analysis

ERISA expressly pre-empts ―any and all State laws

insofar as they ... relate to any employee benefit plan.‖ 29

U.S.C. § 1144(a). Although ―clearly expansive,‖ N.Y. State

Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins.,

514 U.S. 645, 655 (1995), this provision is nonetheless

subject under the Supreme Court‘s ERISA precedents to ―the

starting presumption that Congress does not intend to supplant

state law,‖ particularly in ―fields of traditional state

regulation,‖ such as health care. Id. at 654–655.

A state law ―relates to‖ an EBP ―if it [1] has a connection

with or [2] reference to such a plan.‖ Egelhoff v. Egelhoff,

532 U.S. 141, 147 (2001) (quoting Shaw v. Delta Air Lines,

Inc., 463 U.S. 85, 97 (1983)). This appeal primarily concerns

the ―connection with‖ path to pre-emption because the district

court held Title II ―has an impermissible connection with

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ERISA and is therefore pre-empted.‖ 605 F. Supp. 2d at 88.

The District challenges that holding on the grounds that Title

II does not regulate ―relationships among ERISA entities‖ but

merely ―giv[es] rights and benefits to plans,‖ and is ―not

qualitatively different from [] state laws [regulating lawyers,

accountants, and securities dealers].‖

A. ―Connection with‖ an EBP

In addressing whether a state law has a ―connection with‖

an EBP, the Supreme Court noted that term ―is scarcely more

restrictive than [the statutory term] ‗relate to,‘‖ and

―cautioned against an ‗uncritical literalism‘ that would make

pre-emption turn on ‗infinite connections.‘‖ Egelhoff, 532

U.S. at 147 (quoting Travelers, 514 U.S. at 656). Instead we

must ―look both to ‗the objectives of the ERISA statute as a

guide to the scope of the state law that Congress understood

would survive,‘ as well as to the nature of the effect of the

state law on ERISA plans.‖ Id. (quoting Cal. Div. of Labor

Standards Enforcement v. Dillingham Constr., 519 U.S. 316,

325 (1997) (quoting Travelers, 514 U.S. at 656)). Therefore,

we consider first whether the provisions of Title II affect an

area of ERISA concern, and then evaluate the nature of any

such effect.

1. Objectives of ERISA

The PCMA argues Title II ―intrudes into areas of express

ERISA concern‖ because it regulates a PBM‘s administration

of benefits on behalf of an EBP. The administration of

employee benefits clearly is an ―area of core ERISA

concern,‖ Egelhoff, 532 U.S. at 147: ―One of the principal

goals of ERISA is to enable employers ‗to establish a uniform

administrative scheme, which provides a set of standard

procedures to guide processing of claims and disbursement of

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benefits.‘‖ Id. at 148 (quoting Fort Halifax Packing Co. v.

Coyne, 482 U.S. 1, 9 (1987)). Plan administration includes

―determining the eligibility of claimants, calculating benefit

levels, making disbursements, monitoring the availability of

funds for benefit payments, and keeping appropriate records

in order to comply with applicable reporting requirements.‖

Fort Halifax, 482 U.S. at 9.

We also agree with the PCMA, and with the district

court, 605 F. Supp. 2d at 86–87, that the provisions of Title II

regulate a PBM‘s administration of benefits on behalf of an

EBP. The disclosure and pass back provisions of Title II, §§

48-832.01(b)(1)(C), (b)(2), (c)(1)(A), (c)(1)(B), (d)(2), and

(d)(3), each regulate the administration of employee benefits

by requiring a PBM to follow a specific practice in

administering pharmaceutical benefits on behalf of an EBP.

Likewise, by specifying the standard of conduct to which a

PBM must adhere, i.e., that of a fiduciary, §§ 48-832.01(a)

and (b)(1)(A) also regulate the administration of employee

benefits. Indeed, the obvious purpose of Title II, as

effectuated through these provisions, is to prescribe the way

PBMs decide which pharmaceuticals to provide to plan

beneficiaries and to prevent PBMs from inflating the price the

plan pays for those pharmaceuticals.

The District does not deny the administration of

employee benefits is an area of core ERISA concern or that

PBMs administer benefits on behalf of EBPs; indeed at oral

argument it conceded as much. Oral arg. at 4:00, 16:55.

Rather, the District argues the various provisions of Title II

nonetheless fall within the scope of state law the Congress did

not intend to pre-empt with ERISA because they do not

regulate ―relationships among ERISA entities,‖ such as a plan

and an ERISA fiduciary or a plan and its beneficiaries. The

District points to no support for this limitation upon pre-

9

emption either in ERISA itself or in any Supreme Court case

interpreting it. Instead, the District relies upon decisions of

other circuits holding ERISA did not pre-empt breach of

contract or professional malpractice claims against third-

parties who provided services to an EBP.

As the PCMA points out, in none of the cases cited by the

District did the state law regulate a third party who

administered employee benefits on behalf of a plan. Those

cases therefore suggest only that the relationship among

ERISA entities is an area of ERISA concern, not that the

objective of uniformity in plan administration is for some

reason inapplicable simply because a plan has contracted with

a third party to provide administrative services. Indeed, dicta

in two cases central to the District‘s argument suggest a state

law regulating a third party‘s performance of administrative

functions on behalf of a plan could be pre-empted. See

Gerosa v. Savasta & Co., 329 F.3d 317, 324 (2d Cir. 2003)

(noting that although courts are ―reluctant to find that

Congress intended to preempt state laws that do not affect the

relationships among [ERISA entities]‖ they have ―typically‖

held ERISA pre-empts ―state laws that would tend to control

or supersede central ERISA functions—such as state laws

affecting the determination of eligibility for benefits, amounts

of benefits, or means of securing unpaid benefits‖); Airparts

Co. v. Custom Benefit Servs. of Austin, 28 F.3d 1062, 1066

(10th Cir. 1994) (holding claims for negligence, indemnity,

and common-law fraud not pre-empted where defendant ―was

simply an outside consultant which did not directly perform

any administrative act vis-à-vis the plan‖). Furthermore,

when actually confronted with a malpractice claim

challenging a third party‘s performance of administrative

services on behalf of a plan, the Third Circuit held the claim

was pre-empted by ERISA. See Kollman v. Hewitt Assocs.,

487 F.3d 139, 148 (2007) (holding ERISA pre-empts

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malpractice claim against non-fiduciary service provider

responsible for plan administration; goal of uniformity

reflected in ERISA is ―equally applicable to agents of

employers ... who undertake and perform administrative

duties for and on behalf of ERISA plans‖).

In sum, §§ 48-832.01(a), (b)(1)(A), (b)(1)(C), (b)(2),

(c)(1)(A), (c)(1)(B), (d)(2), and (d)(3) touch upon ―a central

matter of plan administration,‖ Egelhoff, 532 U.S. at 148, and

are pre-empted if they also have an impermissible effect upon

an EBP. Whether § 48-832.01(c)(2), the provision requiring

that a covered entity keep certain information confidential,

regulates an area of ERISA concern, is not so clear. We need

not resolve the question, however, because, as we conclude

below, that provision does not have an impermissible effect

upon an EBP.

2. Effect upon EBPs

The precise point at which a state law so constrains an

ERISA plan‘s choices as to undermine the goal of uniformity

in plan administration is uncertain. Shaw, 463 U.S. at 100

n.21 (―Some state actions may affect employee benefit plans

in too tenuous, remote, or peripheral a manner to warrant a

finding that the law ‗relates to‘ the plan. ... [W]e express no

views about where it would be appropriate to draw the line.‖).

For example, in Travelers the Supreme Court considered a

state law that imposed a larger hospital surcharge upon

patients insured by a commercial insurer than upon patients

insured by a Blue Cross/Blue Shield plan. 514 U.S. at 649–

50. The Court held the law was not pre-empted because it did

not ―force an ERISA plan to adopt a certain scheme of

substantive coverage or effectively restrict its choice of

insurers,‖ id. at 668, but exerted merely an ―indirect economic

influence ... that can affect a plan‘s shopping decisions.‖ Id.

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at 659–60. ―[C]ost uniformity,‖ the Court held, ―was almost

certainly not an object of pre-emption.‖ Id. at 662. On the

other hand, in Metropolitan Life Insurance Co. v.

Massachusetts, 471 U.S. 724 (1985), the Court held a state

law mandating mental health benefits be covered in certain

health insurance contracts related to an EBP notwithstanding

the possibility the EBP could self-insure or purchase a policy

not affected by the law. The Court noted the law ―bears

indirectly but substantially on all insured benefit plans, for it

requires them to purchase the mental-health benefits specified

in the statute when they purchase a certain kind of common

insurance policy.‖ Id. at 739.

The District argues Title II does not have an

impermissible constraining effect upon EBPs because the

statute offers ―clear benefit[s]‖ that an EBP may ―simply

decline.‖ In this regard the District relies upon Rowe, in

which the First Circuit held a substantively identical Maine

statute was not pre-empted because, ―[a]lthough the ERISA

plans can re-evaluate their working relationships with the

PBMs if they wish in light of the [state law], nothing in [that

law] compels them to do so. ... The plan administrators here

have a free hand to structure the plans as they wish in Maine.‖

429 F.3d at 303.

The District‘s point is well-taken with regard to the usage

pass back provision, § 48-832.01(b)(2), because it expressly

provides that it ―does not prohibit the covered entity from

agreeing by contract to compensate the [PBM] by returning a

portion of the benefit or payment,‖ and with regard to § 48-

832.01(c), which requires disclosure (and imposes a

corresponding duty of confidentiality) only ―[u]pon request

by a covered entity.‖ Those provisions are in essence

voluntary provisions for the covered entity.

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To be sure, the procedure for opting out of a state law

may so affect plan administration as not to save the statute

from pre-emption. See Egelhoff, 532 U.S. at 150 (―Plan

administrators must either follow [the state‘s] beneficiary

designation scheme or alter the terms of their plan so as to

indicate that they will not follow it. The statute is not any less

of a regulation of the terms of ERISA plans simply because

there are two ways of complying with it.‖). The procedure for

opting out of §§ 48-832.01(b)(2) and (c) does not have that

untoward effect, however. First, it imposes no meaningful

burden at all. Cf. id. at 151 (burden was ―hardly trivial‖

because it required plan to maintain familiarity with state law

and make ongoing amendments to plan documents). A plan

need only include in its contract with a PBM a waiver of those

provisions — for which it may be able to obtain something in

return, but that is neither here nor there for the purpose of the

present analysis. We note also that, because Title II applies

only to contracts entered after the effective date of the statute,

no EBP has been required either to amend an existing contract

or to alter its plan documents. Cf. id. at 150–51 (opt out

required amendment of already-issued plan documents).

Second, negotiating a waiver of those provisions does not

itself involve the administration of benefits. Therefore, we

conclude §§ 48-832.01(b)(2) and (c) do not ―relate to‖ an

EBP.

At oral argument the District took the position for the

first time that an EBP can also waive the other provisions of

Title II. In the supplemental brief we requested, the District

backtracked, conceding § 48-832.01(b)(1)(C) (disclosure of

conflicts of interest) and (d)(2) (disclosure of PBM‘s gains

from substituting drugs) cannot be waived, arguing § 48-

832.01(d)(3) (substitution pass back) can be waived, and

remaining silent as to whether §§ 48-832.01(a) (fiduciary

13

duty) and (b)(1)(A) (fiduciary standard of conduct) can be

waived.

The District‘s belated interpretation of Title II is

inconsistent with both the text and the declared purpose of

that statute. As for text, none of the provisions the District

now argues may be waived says or implies anything about the

possibility of waiver. When contrasted with the provisions

that expressly allow for waiver, that silence presumably

bespeaks the intent of the D.C. Council to make the other

provisions non-waivable. See Russello v. United States, 464

U.S. 16, 23 (1983) (―Where Congress includes particular

language in one section of a statute but omits it in another

section of the same Act, it is generally presumed that

Congress acts intentionally and purposely in the disparate

inclusion or exclusion‖ (internal quotation marks omitted)).

The District offers nothing with which to rebut that

presumption.

As to purpose, this interpretation is bolstered by § 48-

832.03, which provides a violation of Title II is a violation of

the District of Columbia Consumer Protection Procedures

Act, D.C. Code §§ 28-3901 to -3913, enforceable by the

Attorney General, § 28-3909, or by any ―person, whether

acting for the interests of itself, its members, or the general

public,‖ § 28-3905(k)(1). If §§ 48-832.01(a), (b)(1), and (d)

could be waived by an EBP, then they would not protect the

interests of third parties, such as plan beneficiaries, and it

would be anomalous to provide for enforcement by anyone

other than the covered entity with which the PBM contracts

— let alone by any person whatsoever. We think it obvious

the D.C. Council, concerned that contracts between an EBP

and a PBM should adequately protect the interests of plan

beneficiaries, enacted Title II in order to protect those

beneficiaries with rules that, except as expressly provided,

14

could not be waived by contract. This purpose is confirmed

in the ―Findings and declaration of intent‖ that begin both the

Access Rx Act and the District‘s statement of facts in its

opening brief:

Affordability is critical in providing access to

prescription drugs for District of Columbia residents.

Access Rx enables the District to take steps to make

prescription drugs more affordable for qualified

District residents ....

§ 48-831.01(1)–(2). If Title II could be waived in its entirety

by an EBP, then the District would not be able to ―take steps‖

on behalf of plan beneficiaries in precisely those

circumstances at which the statute is aimed, i.e., where the

contract between the EBP and the PBM is, in its view,

insufficiently protective of the beneficiaries.

Although the District argues ambiguity in a state law

should be resolved against pre-emption, here the D.C. Council

has sounded no ―uncertain trumpet,‖ Vote Choice, Inc. v.

DiStefano, 4 F.3d 26, 41–42 (1st Cir. 1993). Sections 48-

832.01(a), (b)(1), and (d) are clearly meant to govern the

relationship between a PBM and an EBP regardless whether

their contract provides otherwise.

The District argues §§ 48-832.01(a), (b)(1), and (d)

nonetheless leave plan administrators with ―a free hand to

structure the plans as they wish,‖ Rowe, 429 F.3d at 303,

because ―Title II does not force plans to do anything. Plans

remain free to employ PBMs in any manner they see fit.‖

That is just not so, even as a formality. Title II constrains an

EBP by forcing it to decide between administering its

pharmaceutical benefits internally upon its own terms or

15

contracting with a PBM to administer those benefits upon the

terms laid down in §§ 48-832.01(a), (b)(1), and (d).

The Supreme Court has not prescribed a standard for

determining whether a state law sufficiently constrains an

EBP‘s decision-making in an area of ERISA concern that the

law is pre-empted, but it has indicated a law that ―bind[s] plan

administrators to any particular choice‖ is pre-empted.

Travelers, 514 U.S. at 659. We need go no further: Sections

48-832.01(a), (b)(1), and (d) bind plan administrators because

the ―choice‖ they leave an EBP between self administration

and third-party administration of pharmaceutical benefits is in

reality no choice at all. For most if not all EBPs, internal

administration of beneficiaries‘ pharmaceutical benefits is a

practical impossibility because it would mean forgoing the

economies of scale, purchasing leverage, and network of

pharmacies only a PBM can offer. By imposing requirements

upon third-party service providers that administer

pharmaceutical benefits for an EBP, §§ 48-832.01(a), (b)(1),

and (d) ―function as a regulation of an ERISA plan itself.‖

Travelers, 514 U.S. at 659. Because these provisions also

regulate an area of ERISA concern, they are pre-empted.

The District would have us abjure this conclusion on the

ground that ―the[] standards of conduct, requirements of

transparency, and restrictions on self-dealing [imposed upon a

PBM by Title II] are not qualitatively different from‖ laws

regulating others who provide services to an EBP, such as

accountants, lawyers, and securities dealers; its point is that if

Title II is pre-empted by ERISA because it has a ―connection

with‖ an EBP, then those implicitly benign regulations of

professionals must also be pre-empted. Not to worry: A law

regulating a third party‘s performance of services on behalf of

an EBP cannot have a ―connection with‖ an EBP unless those

services involve an area of ERISA concern and the law has a

16

regulatory effect upon the EBP. See De Buono v. NYSA-ILA

Med. and Clinical Servs. Fund, 520 U.S. 806, 808 (1997)

(holding state law ―imposing a gross receipts tax on the

income of medical centers‖ not pre-empted as applied to

centers ―operated by ERISA funds‖); Dillingham, 519 U.S. at

330 (indicating ERISA does not pre-empt state law ―in those

areas where ERISA has nothing to say‖); Travelers, 514 U.S.

at 661–62 (state law with mere ―indirect economic effect‖ not

pre-empted). Thus it is that ERISA does not pre-empt ―run-

of-the-mill state-law claims such as unpaid rent, failure to pay

creditors, or even torts committed by an ERISA plan.‖

Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S.

825, 833 (1988).

A dictum in Egelhoff suggests there may be an exception

to pre-emption under ERISA for long-standing and widely

observed state laws. 532 U.S. at 152 (statutes providing ―a

murdering heir is not entitled to receive property as a result of

the killing‖ might not be pre-empted because ―the principle

underlying the statutes — which have been adopted by nearly

every State — is well established in the law and has a long

historical pedigree predating ERISA‖); see also Custer v.

Sweeney, 89 F.3d 1156, 1167 (4th Cir. 1996) (ERISA does

not pre-empt malpractice claim against attorney representing

EBP because ―ERISA does not evince a clear legislative

purpose to pre-empt such traditional state-based laws of

general applicability‖). Such an exception would seem to

protect from pre-emption long-accepted laws regulating

accountants, lawyers, and dealers in securities, but it would

not save Title II because laws regulating PBMs are not the

embodiment of long-standing and widely observed principles.

17

B. PCMA‘s Other Arguments

The PCMA raises two alternative statutory grounds for

affirming the judgment of the district court as to the

provisions of Title II that an EBP can waive, viz., §§ 48-

832.01(b)(2) (usage pass back) and (c) (disclosures upon

request). Specifically, it argues every part of Title II is pre-

empted by ERISA both because Title II has a ―reference to‖ a

plan and therefore ―relates to‖ an EBP and because it creates

an enforcement mechanism alternative to that provided in

ERISA itself. Although the district court did not reach these

arguments because it held Title II was pre-empted in its

entirety by reason of a ―connection with‖ an EBP, 605 F.

Supp. 2d at 88, we reach them — as applied to the two

provisions we have not already held are pre-empted by

ERISA — because the arguments are fully briefed by the

parties and their resolution is clear and does not depend upon

further factual development. See EEOC v. Aramark Corp.,

Inc., 208 F.3d 266, 268 (D.C. Cir. 2000) (―because we review

the district court‘s judgment, not its reasoning, we may affirm

on any ground properly raised‖).

As the Supreme Court has explicated the phrase, a law

makes ―reference to‖ a plan ―[w]here [it] acts immediately

and exclusively upon ERISA plans ... or where the existence

of ERISA plans is essential to the law‘s operation.‖

Dillingham, 519 U.S. at 325. Because Title II applies to any

PBM that contracts with a ―covered entity,‖ defined as ―[a]ny

hospital or medical service organization, insurer, health

coverage plan, or [HMO] ... that contracts with another entity

to provide prescription drug benefits for its customers or

clients,‖ § 48-831.02(4)(A), sections 48-832.01(b)(2) and (c)

do not act exclusively upon EBPs; ―the existence of ERISA

plans ... is [not] essential to [their] operation,‖ Dillingham,

18

519 U.S. at 325. Therefore, neither provision has a ―reference

to‖ a plan.

Nor does either provision create an enforcement

mechanism for the rights provided by ERISA. Rather, each

creates an enforceable but ―independent legal duty‖ — to pass

back or upon request to disclose certain information —

separate from any duty created by ERISA. Aetna Health Inc.

v. Davila, 542 U.S. 200, 210 (2004). Therefore §§ 48-

832.01(b)(2) and (c) are not pre-empted by ERISA.

III. Conclusion

Sections 48-832.01(a), (b)(1), and (d) of Title II require

an EBP that outsources the administration of its

pharmaceutical benefits in the District of Columbia do so in a

particular way. Those provisions have a ―connection with‖

and therefore ―relate to‖ an EBP and are pre-empted by

ERISA.* Because an EBP readily may avoid the default

terms of §§ 48-832.01(b)(2) and (c) by contract, and because

those provisions do not make ―reference to‖ ERISA plans or

create an enforcement mechanism for the rights provided by

ERISA, they are not pre-empted by ERISA.

The PCMA raised several constitutional arguments for

pre-emption not reached by the district court. Because the

parties have not briefed them at any length, we leave those

issues, as they relate to the provisions we have held are not

pre-empted by ERISA and the application of Title II to

*

This holding differs from that of the First Circuit in Rowe, which

held no part of a nearly identical Maine statute was pre-empted by

ERISA. See 429 F.3d at 303. In our view the uniform

administrative scheme encouraged by ERISA includes plan

administrative functions performed by a third party on behalf of an

EBP.

19

covered entities that are not EBPs, for the district court to

consider in the first instance. Accordingly, the judgment of

the district court is affirmed in part and reversed in part, and

this matter is remanded to the district court for further

proceedings consistent herewith.

So ordered.