Amicus Curiae Brief — Leslie Rutledge, Attorney General of Arkansas, Petitioner v. Pharmaceutical Care Management Association

No. 18-540

IN THE

Supreme Court of the United States

___________

LESLIE RUTLEDGE, in her official capacity as

Attorney General of Arkansas,

Petitioner,

v.

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION,

Respondent.

___________

On Writ of Certiorari to the

United States Court of Appeals

for the Eighth Circuit

___________

BRIEF FOR EMPLOYERS HEALTH

PURCHASING CORPORATION AS AMICUS

CURIAE IN SUPPORT OF RESPONDENT

___________

CARTER G. PHILLIPS*

CHRISTOPHER V. GOFF

JENNIFER J. CLARK

GARRETT J. BROWN

SIDLEY AUSTIN LLP

BRYCE E. HOROMANSKI

1501 K Street, N.W.

EMPLOYERS HEALTH

PURCHASING CORPORATION Washington, D.C. 20005

(202) 736-8000

4771 Fulton Drive, N.W.

Canton, Ohio 44718

cphillips@sidley.com

(330) 305-6565

Counsel for Amicus Curiae

April 1, 2020

* Counsel of Record

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .................................

ii

INTERESTS OF AMICUS CURIAE....................

1

INTRODUCTION

AND

SUMMARY

OF

ARGUMENT ......................................................

3

ARGUMENT .........................................................

7

I. ACT 900 IS EXPRESSLY PREEMPTED BY

ERISA ............................................................

7

A. Act 900 Governs Central Matters Of

Plan Administration................................

8

B. Act 900 Interferes With Nationally

Uniform Plan Administration .................

12

C. Act 900 Is Contrary To ERISA’s Purpose

Of Protecting Plan Participants And

Ensuring Receipt Of Benefits .................

14

CONCLUSION .....................................................

19

(i)

ii

CASES

TABLE OF AUTHORITIES

Page

Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S.

141 (2001) ................................................... 7, 8

FMC Corp. v. Holliday, 498 U.S. 52 (1990) ...

13

Fort Halifax Packing Co. v. Coyne, 482 U.S.

1 (1987) ..................................................... 12, 17

Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct.

936 (2016) ............................................... passim

N.Y. State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., 514 U.S.

645 (1995) ................................................... 7, 10

Varity Corp. v. Howe, 516 U.S. 489 (1996) ...

15

STATUTES

29 U.S.C. § 1104(a)(1) ...................................

14

§ 1144 ............................................ 6, 7

Ark. Code Ann. § 17-92-507(a) ...................... 5, 11

§ 17-92-507(c) ...................... 5, 6

§ 17-92-507(e) ...................... 6, 17

LEGISLATIVE MATERIAL

Staff of S. Comm. on Fin., 116th Cong., A

Tangled Web (June 2018), https://bit.ly/

38YpdlK ......................................................

4

OTHER AUTHORITIES

Acad. of Managed Care Pharmacy, Maximum Allowable Cost (MAC) Pricing (May

20, 2019), https://bit.ly/3a0lt4z ..................

5

Cigna, Advantages and Myths of Self-Funding

(Dec. 2017), https://bit.ly/33oH5p5 ..............

12

Adam Kautzner, Express Scripts, MAC

Pricing Keeps Generics Affordable (Aug. 6,

2019), https://bit.ly/2Wn7EJy .................... 4, 8

INTERESTS OF AMICUS CURIAE1

Employers

Health

Purchasing

Corporation

(“EHPC”) is a group purchasing organization that

provides resources and advice to assist employer and

union plans to provide access to high-quality health

care benefits at a sustainable cost. EHPC represents

more than 175 plan sponsors, headquartered in 34

states. EPHC’s client organizations represent a broad

spectrum of plan sponsors including manufacturers,

unions, service organizations, retailers, political

subdivisions, and universities. These organizations

vary in size, ranging from 80 employees to more than

50,000 employees. The plans offered by EPHC’s client

organizations cover more than 1 million people in all

50 states. Among EHPC’s client organizations, the

average plan sponsor has participants that fill

prescriptions in 33 different states, not including the

plan sponsor’s state of domicile. On average, more

than 39% of all retail prescriptions are filled outside of

an EHPC plan sponsor’s state of domicile.

Plan sponsors choose to self-fund their health plans

for a variety of reasons, including the ability to

customize a plan to meet the specific needs of the

sponsor’s workforce, increased flexibility and control of

the plan, and cost savings from reduced

administrative and risk fees. Another fundamental

reason that employers and unions choose to self-fund

is the protection from disparate and potentially

conflicting state regulation provided by the Employee

1 Pursuant to Rule 37.6, amicus affirms that no counsel for a

party authored this brief in whole or in part and that no person

other than amicus, made a monetary contribution intended to

fund its preparation or submission. Counsel for both parties have

provided written consent to the filing of this brief, as required

under Rule 37.3.

2

Retirement Income Security Act’s (“ERISA”)

preemption of any state law relating to employer and

union-sponsored health plans. By enacting ERISA,

Congress intended to provide a nationally uniform

scheme of regulation for multi-state employers to

encourage them to offer benefit programs for their

employees. The advantages of self-funding inure not

only to employers and union groups, but also to

employees and their dependents who participate in the

health plan.

The lower the costs of administering a plan, the

greater the benefits value a plan sponsor can provide

to its participants. Compliance with state-specific

regulations drives up the costs of plan administration.

Thus, the more individual states can freely impose

their own regulations on a benefit plan, the greater the

cost of plan administration and the lower the benefits

value to plan participants. Such increased costs

contradict Congress’s manifest purpose in enacting

ERISA.2 The Eighth Circuit correctly held that ERISA

preempts Act 900. Overturning that decision would

significantly weaken ERISA’s broad preemption

clause and open the door for each state to impose its

own intrusive requirements associated with

prescription drug benefits.

As an advocate for large self-funded employers who

operate businesses in many different states, EHPC

has a strong interest in seeing that its clients are

protected from burdensome and conflicting state-

2 See Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936, 944 (2016)

(“Requiring ERISA administrators to master the relevant laws of

50 States and to contend with litigation would undermine the

congressional goal of ‘minimiz[ing] the administrative and

financial burden[s]’ on plan administrators—burdens ultimately

borne by the beneficiaries.”).

3

enacted and enforced regulations. As a result of

ERISA’s preemption clause, EHPC clients subject to

ERISA are able to offer more than 1 million plan

participants benefits that are customized to their

industry and workforce. Accordingly, EHPC supports

affirming the decision below and urges the Court to

enforce ERISA’s broad preemption provision to ensure

that core plan functions are subject exclusively to

federal regulation.

INTRODUCTION AND

SUMMARY OF ARGUMENT

Many self-funded employers and union groups

choose to contract with a third-party administrator

(“TPA”) to process claims and control certain aspects

of the self-funded health benefit plan. A TPA performs

these functions on behalf of the plan sponsor. Act 900,

the Arkansas law at issue in this case, attempts to

regulate Pharmacy Benefit Managers (“PBMs”), which

are TPAs that perform the administration of

prescription drug benefits as part of a plan sponsor’s

health plan.

PBMs provide critical services that greatly reduce

prescription drug spending by self-funded plans. One

of the most significant ways that PBMs are able to

secure competitive pricing is through the Maximum

Allowable Cost (“MAC”) payment model. MAC pricing

provides an incentive for pharmacies to purchase and

dispense the least costly generic drugs available on the

market. The MAC price represents the upper limit or

maximum amount that a PBM or plan will reimburse

a pharmacy for generic drugs and multi-source brand

name drugs (brand drugs with a therapeutic

equivalent).

MAC pricing is one of several terms and conditions

included in contracts between PBMs and retail

4

pharmacies. Larger retail chains generally contract

directly with PBMs. Independent pharmacies often

gain purchasing power by using a pharmacy services

administrative organization to negotiate with PBMs

on the independent pharmacies’ behalf. See Staff of S.

Comm. on Fin., 116th Cong., A Tangled Web 25 (June

2018), https://bit.ly/38YpdlK (“[I]n 2011 and 2012, at

least 22 PSAOs were in operation and represented or

provided services to up to 28,300 pharmacies, the

majority of which were independent.”). To streamline

administration, most self-funded plan sponsors use a

PBM to establish the network and payment levels for

network pharmacies. Id. This network contracting

impacts many aspects of the plan sponsors’ drug

benefit strategies such as tailoring access to meet

participant needs and maximizing network cost

containment strategies. Permitting any mechanism to

circumvent this process eliminates vital tools used by

plan sponsors to ensure appropriate access, economic

viability, and consistency of the plan for the

beneficiaries.

MAC pricing sets a single price for clinically

equivalent products. Capping the amount that a plan

will reimburse a pharmacy for a generic or multisource brand medication incentivizes pharmacies to

purchase medication from competitively priced

manufacturers and wholesalers. See Adam Kautzner,

Express Scripts, MAC Pricing Keeps Generics

Affordable (Aug. 6, 2019), https://bit.ly/2Wn7EJy.

MAC pricing is a contractual mechanism to ensure

that pharmacies are held accountable in their drug

procurement processes, which benefits both plan

sponsors and plan participants. A pharmacy is

discouraged from purchasing a higher-priced drug

because it may not be reimbursed the full amount by

the PBM; therefore, this mechanism creates

5

predictability and prevents excessive pharmacy profit

margins to ensure the cost sustainability of the plan.

In addition, MAC prices are driven and negotiated

based on a variety of factors including, but not limited

to: the duration of a drug’s generic status, the number

of manufacturers making brand name or generic

versions, availability and accessibility of the drug and

whether there have been obstacles in the

manufacturing process of the drug. See Acad. of

Managed Care Pharmacy, Maximum Allowable Cost

(MAC) Pricing (May 20, 2019), https://bit.ly/3a0lt4z.

Arkansas’s Act 900 imposes administrative burdens

on plan sponsors and onerous regulations on PBMs

and how they administer and support plan sponsors’

health plans. Notably, the Act:



requires that PBMs reimburse pharmacies at or

above the pharmacies’ drug acquisition costs,

Ark. Code Ann. § 17-92-507(a)(6);



provides strict criteria where plans are required

to update MAC pricing within 7 days of an

increase in a pharmacy’s acquisition cost, id. § 1792-507(c)(2);



necessitates disclosure of detailed plan

information to pharmacies in the plan’s network,

id. § 17-92-507(c)(4)(C)(ii);



dictates that plans must establish an appeals

process

for

pharmacies

to

challenge

reimbursement levels, including a minimum

amount of time for pharmacies to file appeals and

a maximum amount of time for plans to resolve

appeals, id. § 17-92-507(c)(4)(A)(i);



allows a pharmacy to reverse and rebill belowcost transactions if the pharmacy concludes that

6

the MAC rate is below the pharmacy’s acquisition

cost, id. § 17-92-507(c)(4)(C)(iii); and



permits pharmacies to decline to dispense a

participant’s medication if the pharmacy believes

that it may lose money on the sale of that

particular prescription drug, id. § 17-92-507(e).

These requirements undermine the utility of MAC

pricing, eliminate the incentive for pharmacies to

competitively purchase drugs, drive up plan costs and

reduce benefits’ value to participants, undermine

national uniformity of plan administration, and

threaten participants’ access to benefits. As such, Act

900 has an impermissible connection with employee

benefits plans and is thus preempted by ERISA.

Act 900’s restrictions on MAC pricing and imposition

of administrative burdens directly impact plan design

and the structure and management of prescription

drug benefits and therefore “gover[n] . . . a central

matter of plan administration.” Act 900 also

“interferes

with

nationally

uniform

plan

administration” by subjecting plan sponsors to

multiple,

potentially

conflicting

state-imposed

requirements. And Act 900 interferes with the

protection of plan participants and their receipt of

benefits—by driving up costs that will ultimately be

borne by participants, allowing pharmacies to refuse

to dispense required medications to participants, and

creating the risk of disparate benefits based on where

a plan participant seeks to fill their prescriptions—

and thus runs counter to ERISA’s objectives.

Act 900 is precisely the type of state regulation that

Congress, in enacting ERISA, expressly intended to

preempt. The Court of Appeals correctly held that Act

900 is preempted under Section 514 of ERISA, 29

U.S.C. § 1144. Reversing that decision would have a

7

lasting negative impact on ERISA plan sponsors, their

participants and beneficiaries. EHPC urges the Court

to affirm the Eighth Circuit’s decision.

ARGUMENT

I. ACT 900 IS EXPRESSLY PREEMPTED BY

ERISA.

Arkansas’s Act 900 is expressly preempted by

ERISA. ERISA preempts “any and all State laws

insofar as they may now or hereafter relate to any

employee benefit plan[.]” 29 U.S.C. § 1144(a). A state

law “relates to” an ERISA plan and is preempted if it

has “a connection with or reference to such a plan.”

N.Y. State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995)

(quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 9697 (1983)). To determine whether a state law

impermissibly “relates to” an ERISA plan due to some

“connection with” that plan, the Court “look[s] both to

‘the objectives of the ERISA statute . . .’ as well as to

the nature of the effect of the state law on ERISA

plans.” Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S.

141, 147 (2001) (quoting Cal. Div. of Labor Standards

Enf’t v. Dillingham Constr., N.A., Inc., 519 U.S. 316,

325 (1997)).3 A state law has an impermissible

“connection with” ERISA plans where it “governs . . . a

central matter of plan administration” or “interferes

with nationally uniform plan administration.” Gobeille

v. Liberty Mut. Ins. Co., 136 S. Ct. 936, 943 (2016)

3 Because it is clear that Act 900 operates “in connection” with

ERISA plans, EHPC in this brief will only address that prong of

this Court’s test for whether a state law “relate[s] to” an employee

benefit plan under 29 U.S.C. § 1144(a). EHPC does, however,

agree with Respondent’s argument that Act 900 also

impermissibly “refers to” ERISA plans. See Respondent’s Br. 4849.

8

(omission in original) (quoting Egelhoff, 532 U.S. at

148). Act 900 does both.

Act 900 is preempted by ERISA because the state

law attempts to mandate employee benefit structures

and plan design—both central matters of plan

administration. And Act 900 interferes with nationally

uniform plan administration, contrary to Congress’s

intent that employee benefit plans be administered in

a nationally uniform way in order to minimize

administrative costs and burdens. As the court below

correctly held, Act 900 is preempted.

A. Act 900 Governs Central Matters Of Plan

Administration.

Act 900 has an impermissible connection with

ERISA plans because it regulates plan design and the

structure and management of prescription drug

benefits provided by ERISA plans. Such functions are

“a central matter of plan administration” and

therefore, state regulation of these functions is

expressly preempted by ERISA. Egelhoff, 532 U.S. at

148.

Act 900 regulates the use of MAC pricing. MAC

pricing enhances market efficiency by eliminating the

need to carry out an individual price assessment for

each transaction processed at a pharmacy. MAC

pricing was originally adopted by the Centers for

Medicare and Medicaid Services after government

audits revealed Medicaid reimbursements far

exceeded a pharmacy’s acquisition costs. Kautzner,

supra.

MAC pricing is instrumental in structuring a

pharmacy benefit plan because such pricing can

efficiently reflect the average acquisition cost for a

particular drug across dozens of purchasers. If states

are permitted to manipulate MAC pricing, it will

9

decrease pharmacies’ incentive to seek better-priced

drugs and can even incentivize retail pharmacies to

dispense more expensive brand drugs in the

alternative. Eliminating cost-control incentives

directly affects the composition of a health plan’s drug

formulary strategy.

In addition, Act 900 will undermine contracts that

drive the composition of pharmacy retail networks

under the plan and the scheme of payment to

contracted pharmacies. This construct not only is the

foundation for plan design decisions, such as the size

of the retail network and participant cost-sharing, but

also is foundational to the contract between the plan

and the PBM.

Many plan sponsors utilize coinsurance at retail

network pharmacies. This is a common benefit

strategy to ensure that price increases and decreases

are shared between plan sponsors and participants.

MAC pricing drives consumer behavior and enables

plan participants to choose more cost-effective

therapies or lower cost pharmacies, which collectively

preserve plan assets. These consumer actions benefit

the greatest number of beneficiaries, a core tenet of

ERISA. Act 900 will undermine plan designs by

allowing network pharmacies either to refuse to fill a

prescription or to reverse and re-bill at a higher rate.

The effect of these actions will be to unfairly limit

access, erode plan assets and harm beneficiaries, each

of which runs counter to Congress’s intent in enacting

ERISA’s intent.

Act 900 is therefore fundamentally different from

the state law upheld in Travelers. There, a New York

law required healthcare providers to collect

surcharges from patients covered by a commercial

insurer but not from patients covered by Blue Cross

Blue Shield plans and certain exempt HMO plans.

10

Travelers, 514 U.S. at 649. Concluding that the law

had “only an indirect economic effect on the relative

costs of various health [plans],” the Court held that

ERISA did not preempt the surcharges. Id. at 662.

Unlike the New York surcharges found to be mere

rate regulation in Travelers, Act 900 has a direct

economic effect on the costs of an ERISA health plan

and impacts multiple aspects of plan design. Rather

than a state setting the amount an insured patient

must pay, Act 900 directly prescribes how an ERISA

plan must calculate claim costs, process claim

disputes, and provide administrative relief. Further,

the challenged law in Travelers indirectly affected

health care providers by requiring them to charge

patients the relevant surcharge. Id. at 650. By

contrast, Act 900 directly impacts and regulates plans

by effectively setting a minimum reimbursement floor

and mandating specific procedural requirements

including updating MAC lists, establishing specific

appeal procedures, and allowing pharmacies to rebill.

The provisions in Act 900 impose burdensome

requirements on plan sponsors, impacting both the

plans that have directly contracted with pharmacies

and plans that have delegated these responsibilities to

PBMs to act on their behalf.

Petitioner argues that Act 900 regulates only the

PBM-pharmacy relationship and not self-funded

benefit plans themselves and thus, the regulation only

impacts a PBM’s discretionary decisions. This

argument ignores the functional reality that PBMs

stand in the shoes of plan sponsors to perform

functions such as network contract management,

pharmacy reimbursement, and claims adjudication on

behalf of plan sponsors. If a plan does not delegate

these functions to the PBM, it would have to perform

the functions itself. And, as described further below,

11

infra 15-16, cost increases that a state law may impose

on a PBM will inevitably be passed on to the plan

sponsor.

The restrictions and mandates of Act 900 thus apply

not only to PBMs but also to the plans that contract

with PBMs to administer their pharmacy benefits.

Moreover, Act 900 applies whether the plan chooses to

contract with a PBM or chooses to directly administer

its drug benefits. The Arkansas law regulates “an

entity that administers or manages a pharmacy

benefits plan or program.” Ark. Code Ann. § 17-92507(a)(7). PBMs act as intermediaries in a similar

fashion to the TPA that was subpoenaed for claims

data in Gobeille. In Gobeille, the Court relied on

ERISA’s robust disclosure and record-keeping

requirements to find that the state law imposing

comparable

requirements

on

a

third-party

administrator intruded on essential functions of plan

administration. 136 S. Ct. at 945. Regardless of which

entity bore the burden of compliance, the regulation

intruded on “a central matter of plan administration.”

Id. The significance of this Court’s prior ruling is clear;

it does not matter whether a plan manages drug

benefits itself or engages a PBM to perform this service

on the plan’s behalf. In either circumstance, the Act’s

requirements subject self-funded benefit plans to a

state law, which is precisely the kind of “connection”

that is expressly preempted by ERISA.

Imposing

reimbursement

requirements that

undermine MAC methodology and impact multiple

features of plan design affects “key facet[s] of plan

administration” and is expressly preempted by ERISA.

See id. at 946.

12

B. Act 900 Interferes With Nationally

Uniform Plan Administration.

ERISA seeks to ensure that the benefits promised by

an employer are more secure by mandating certain

oversight systems and other standard procedures.

Because ERISA self-funded plans are subject

exclusively to federal regulation, these plans are able

to streamline their operations by offering a uniform

benefits scheme in all states in which they operate.

Cigna, Advantages and Myths of Self-Funding (Dec.

2017), https://bit.ly/33oH5p5. This, in turn, allows

plan administrators to tailor a plan design to best meet

the needs of the employee population that benefits

from that plan. Id. Without ERISA, multi-state

employer-sponsored plans would find it nearly

impossible to operate under a variety of conflicting

state-based regulations.

Restrictions on MAC pricing interfere with the

calculation and disbursement of benefits. See Fort

Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987).

Traditionally, MAC pricing allows plan sponsors to

secure lower-cost therapeutic alternatives so that they

are able to drive innovation in benefit designs for their

plan participants. Act 900’s stringent regulations on

disclosure and implementation of MAC methodology

eliminates a cost-containment mechanism and reduces

competition. As a result of increased regulation, plan

sponsors will be forced to modify their plan designs to

offset the lost value of MAC pricing. Realistically, this

offset will be achieved by reducing benefits or

increasing participants’ co-payments and premium

contributions, not only in Arkansas, but across all

participants throughout the U.S. Thus, the proposed

regulations unfairly shift the cost to plan sponsors and

their participants not only in Arkansas but also in

13

every other state in the country where a plan sponsor’s

plan participants and beneficiaries utilize the benefit.

A failure to uphold preemption here would subject

ERISA self-insured health plans to 50 or more

potential state pricing and reporting requirements.

“To require plan providers to design their programs in

an environment of differing state regulations would

complicate the administration of nationwide plans,

producing inefficiencies that employers might offset

with decreased benefits.” FMC Corp. v. Holliday, 498

U.S. 52, 60 (1990). This Court has repeatedly struck

down laws that provide ERISA plans with myriad

conflicting state regulations. Forced compliance with

these

laws

burdens

fiduciaries

and

plan

administrators in performing their ERISA mandated

functions. See Gobeille, 136 S. Ct. at 945 (“Pre-emption

is necessary to prevent the States from imposing novel,

inconsistent, and burdensome reporting requirements

on plans.”).

Some of Act 900’s disclosure provisions would force

plans to seek additional information from various

providers, vendors, and third parties with whom they

work, and would cause significant changes to claim

recording and increased cost for the output of such

data. See id. (“[R]eporting, disclosure, and

recordkeeping are central to, and an essential part of,

the uniform system of plan administration

contemplated by ERISA.”). If Act 900 is upheld, ERISA

health plans with participants living or filling

prescriptions in Arkansas would be forced to adopt

Arkansas specific changes to their health plans.

Further, if the Court holds that Act 900 is not

preempted by ERISA, it will open the door to forcing

plans to comply with state-specific laws for each state

where participants purchase prescription drugs at

retail pharmacies. See Respondent’s Br. 27-31

14

(describing multitude of conflicting state laws

governing pharmacy benefits). This slippery slope

poses a serious threat to the viability of self-insured

health benefit plans, which protect millions of

employees throughout the nation.

C. Act 900 Is Contrary To ERISA’s Purpose

Of Protecting Plan Participants And

Ensuring Receipt Of Benefits.

In evaluating whether a state law has an

impermissible connection with ERISA plans and is

therefore preempted, the Court considers “the

objectives of the ERISA statute as a guide to the scope

of the state law that Congress understood would

survive,” and “the nature of the effect of the state law

on ERISA plans.” Gobeille, 136 S. Ct. 943. Act 900 runs

counter to ERISA’s fundamental objective of

protecting plan participants and ensuring that they

receive contractually defined benefits, further

confirming that it is preempted by ERISA.

Multiple features of ERISA embody the objective of

protecting plan participants. For example, section

404(a) of ERISA provides an “exclusive purpose” rule.

This rule mandates that the plan fiduciary—i.e., the

plan sponsor—“discharge his [or her] duties with

respect to a plan solely in the interest of the

participants and beneficiaries,” and for the “exclusive

purpose of . . . providing benefits to participants and

their beneficiaries; and . . . defraying reasonable

expenses of administering the plan.” 29 U.S.C.

§ 1104(a)(1) (emphases added).

The “exclusive purpose” standard reveals that plan

fiduciaries must act solely in furtherance of plan

participants’ interests when administering an

employer-sponsored health plan. The fiduciary

obligations of ERISA are so robust that plan sponsors

15

are held to a higher standard of conduct than trustees

under traditional state trust law. See Varity Corp. v.

Howe, 516 U.S. 489, 497 (1996) (“After all, ERISA’s

standards and procedural protections partly reflect a

congressional determination that the common law of

trusts did not offer completely satisfactory

protection.”).

Further, in construing the standard by which

fiduciaries must administer their health plan, the

Court

takes

into

consideration

“competing

congressional purposes, such as Congress’ desire to

offer employees enhanced protection for their benefits”

and “its desire not to create a system that is so complex

that administrative costs, or litigation expenses,

unduly discourage employers from offering welfare

benefit plans in the first place.” Id. Act 900’s

burdensome requirements create the exact regulatory

environment ERISA was enacted to prevent and run

counter to ERISA’s participant-protective objectives.

First, Act 900 drives up the costs and burdens of plan

administration by disrupting the pricing models set

forth between the PBM and plan sponsor and by

imposing

additional

significant

procedural

requirements on plans’ administration of benefits.

While hybrid variations exist, there are essentially

two types of pricing models utilized by a plan sponsor

and its PBM: pass-through and traditional.

Under a true pass-through model, the plan is

charged the actual retail discounts and fees negotiated

between the PBM and retail pharmacy. As the PBM

cannot derive revenue from spread (the difference

between what the PBM bills the plan and pays the

retail pharmacy), the PBM usually charges a per claim

administrative fee to the plan to cover the cost of its

services. The plan does not receive any contractual

guarantees, and is therefore at risk for whatever costs

16

are passed through. Thus, under Act 900, any staterequired reimbursement in excess of the network

contract between the PBM and pharmacy necessarily

has a direct and negative impact on the plan—both in

the increased costs it will incur and necessarily pass

on to participants, and also in a dramatic loss in the

predictability of its expenses.

Under a traditional model, negotiated retail

discounts are set forth in the contract between the

plan and the PBM. This benefits the plan by

guaranteeing discounts to the plan and thereby

providing stability and certainty around drug costs.

While the PBM is at risk for not achieving its

guarantees and does not charge an administrative fee,

the PBM benefits in circumstances when its payment

to the pharmacy is less than the price it has

guaranteed in its contract with the plan. Any negative

impact on the underlying economics between the

pharmacy and the PBM creates negative pressure on

the arrangement between the plan and the PBM,

which must be addressed in retail network contract

rates and other economic aspects of the arrangement

between the PBM and plan.

Act 900 further drives up costs of administering the

plan by imposing onerous procedural requirements,

including frequent, mandatory updating of MAC lists

and creation of appeal and rebill procedures. These

requirements will further increase the cost of

administering plans and impose additional burdens on

plans with participants utilizing the plan in a

multitude of states.

These costs will ultimately be borne by plan

participants in one form or another. In order to ensure

plan viability, these extra hurdles will force the plan

to reevaluate plan design such as benefit coverage and

participant cost-sharing, including participants’ out of

17

pocket contribution, which will be especially felt by

participants in high deductible health plans, who will

bear the increased cost until their maximum-out-ofpocket amount is satisfied. Indeed, plan sponsors often

elect MAC pricing because it provides the best

coverage and value for participants. In stark contrast,

Act 900 effectively requires plan sponsors to adopt

pricing methodologies designed to benefit pharmacies,

not plan participants.

Second, Act 900’s “decline to dispense” provision will

render plans unable to fulfill an ERISA plan’s access

requirements because the law permits a pharmacy to

turn away a participant altogether if the pharmacy

determines that it is in the pharmacy’s best interest

because it will lose (or not make enough) money on a

given transaction. Ark. Code Ann. § 17-92-507(e).

Limiting via state law a participant’s access to his or

her promised pharmacy benefits, which a provider is

otherwise contractually obligated to provide, is

disruptive and contrary to ERISA’s purpose of

advancing the best interests of plan participants.

Third, under Act 900, employees working for the

same company who are a part of the same health plan

would have access to unequal benefits due to

conflicting directives of state law. This dynamic means

that an Arkansas employee could potentially be denied

a prescription that an employee enrolled in the same

health plan who lives in another state would readily

acquire. This harsh provision could force a plan

participant to choose between traveling out of state to

fill his or her prescription or being without his or her

medication altogether. When a state law has the effect

of making “certain benefits available in some states

but not in others,” that is the clearest evidence that it

should be preempted. Fort Halifax, 482 U.S. at 9.

18

Viewed against “the objectives of the ERISA

statute,” Act 900’s negative impact on participants and

their access to benefits demonstrates that the Act is

outside “the scope of the state law that Congress

understood would survive.” Gobeille, 136 S. Ct. at 943.

* * *

ERISA is intended to protect employee benefit plans

from state laws that mandate benefit requirements,

impose administrative burdens, bind employers to

particular plan designs and preclude them from

implementing uniform plan administration. ERISA

strengthens an employee benefits system that serves

the well-being of all American employees, regardless

of the state in which they live.

ERISA preempts state regulation like Act 900 that

impedes the legitimate goals of uniform plan

administration. Congress intended for ERISA to

prioritize plan participants and their beneficiaries by

subjecting such plans exclusively to federal authority

and shielding them from multiple potentially

conflicting state regulations. Because Act 900 does

serious violence to these paramount objectives of

ERISA, the Act has more than a connection to the

federal scheme and the Court of Appeals correctly held

that the Act is preempted.

19

CONCLUSION

For the foregoing reasons, the Court should affirm

the judgment of the Court of Appeals.

Respectfully submitted,

CARTER G. PHILLIPS*

CHRISTOPHER V. GOFF

JENNIFER J. CLARK

GARRETT J. BROWN

SIDLEY AUSTIN LLP

BRYCE E. HOROMANSKI

1501 K Street, N.W.

EMPLOYERS HEALTH

PURCHASING CORPORATION Washington, D.C. 20005

(202) 736-8000

4771 Fulton Drive, N.W.

Canton, Ohio 44718

cphillips@sidley.com

(330) 305-6565

Counsel for Amicus Curiae

April 1, 2020

* Counsel of Record