First Circuit Rejects PBM Challenge to Disclosure Statute

The U.S. Court of Appeals for the First Circuit rejected the Pharmaceutical Care Management Association's ("PCMA") challenge to provisions of Maine's Unfair Prescription Drug Practices Act ("UPDPA") that required pharmacy benefit managers (PBMs) to disclose certain business practices, such as rebates and discounts from drug manufacturers. The PCMA, a national trade association of PBMs, challenged the UPDPA on a number of grounds. While this is not an antitrust case, it is a significant case for CIGNA and other companies that provide pharmacy benefit management services.

First, the PCMA claimed that the UPDPA is preempted by either the Employee Retirement Income Security Act of 1974 ("ERISA") or the Federal Employee Health Benefits Act ("FEHBA"), both of which pertain to employee benefit plans. Finding that PBMs are not fiduciaries under ERISA, the court held that the UPDPA was not preempted by ERISA (and by extension by FEHBA) since ERISA only preempts state laws relating to acts performed by ERISA fiduciaries.

Second, the PCMA claimed that information concerning discounts and other contract terms between PBMs and third parties is confidential and propriety information that qualified as a "trade secret," the disclosure of which constituted a taking that required just compensation under the Fifth Amendment. The First Circuit rejected this argument, holding that the information required to be disclosed were not trade secrets. Evidence showed that PBMs routinely disclose the information to clients pursuant to the terms of their contracts and took no special steps to protect the information. Under Maine law, therefore, the information could not be considered a trade secret.

Third, the PCMA argued that the UPDPA violated due process because it failed to provide a pre-deprivation hearing. Having found that there is no taking and no deprivation, the court held that no pre-deprivation hearing is required.

Fourth, the PCMA claimed that the UPDPA violated the First Amendment because it compels PBMs to engage in speech, in the form of mandated disclosure, as a condition of doing business in Maine. The First Circuit also rejected this argument, holding that the UPDPA's disclosure requirements are reasonably related to Maine's interest in preventing consumer fraud and increasing public access to prescription drugs. In contrast, the court found that PBMs have only a minimal interest in withholding the information required by the UPDPA.

Finally, the court held that the UPDPA did not violate the Commerce Clause, as it did not reach outside Maine's boundaries to regulate out-of-state commerce. Rather, the UPDPA applied only to PBM business conducted within Maine's borders.

A copy of the opinion is available at this link.

For additional information about this Antitrust Development, please contact Toby G. Singer, leader of the Health Care Antitrust Practice.

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