:: PBM’s Defeated In Bellwether District Court Decision Over Transparency Statute
Like the UPDPA, Title II imposes a fiduciary duty on PBMs with respect to ERISA plans, D.C.Code § 48-832.01(a). And, like the UPDPA, the D.C. statute’s requirement that PBMs disclose conflicts of interest and payments from drug manufacturers does not involve any discretion on the part of the PBMs and is a purely ministerial duty. D.C.Code § 48-832.01(c)(1)(A). The plaintiff’s arguments, additionally, are the same arguments that were considered and rejected by the First Circuit. Pharmaceutical Care Management Ass’n v. District of Columbia, — F.Supp.2d —-, 2007 WL 666319 ) (D.D.C.)
In the battle for PBM transparency, the PBM’s just lost in a highly significant decision. On remand from the Court of Appeals for the District of Columbia Circuit, the issue before the district court was whether the First Circuit decision in Pharmaceutical Care Management Association v. Rowe, 429 F.3d 294 (1st Cir.2005), cert. denied, 126 S.Ct. 2360 (2006) ( “ Rowe â€), precluded the PBM trade association from litigating the validity of Title II of the AccessRx Act of 2004, D.C.Code §§ 48-831.01 et seq. (“Title IIâ€).
The district court held that the PBM’s could not litigate the validity of Title II and granted the defendants’ motion to vacate the injunction and its supplemental motion for summary judgment.
To understand the significance of the decision, consider that some 36 states and the District have recently introduced legislation regulating PBM’s. Thus, state lawmakers are taking seriously the allegations of fraud and abuse by PBM’s and are doing something about it.
The D.C. decision will undoubtedly be appealed Nonetheless, the reasoning of the court will be influential in other challenges and demonstrates a promising avenue for states in defending their legislation against challenge.
A critical factor in such future cases will be the extent to which the state law tracks the Maine statute that was the subject of the controversy in Rowe. The D.C. statute effectively copied the Maine statute.
Collateral Estoppel Defined
The case may appear a bit confusing as protrayed in the media due to the procedural and jurisdiction issues involved. The D.C. district court is, of course, subject to the authority of the Court of Appeals for the District of Columbia Circuit, not the First Circuit Court of Appeals where the Maine legislation was contested.(See Circuit Court Map) So how could the Rowe decision preclude litigation of issues in D.C. district court?
The reason is found in the doctrine of collateral estoppel. Under the doctrine of collateral estoppel, a party is precluded from litigating an issue if:
(1) the same issue was contested by the parties and submitted for judicial determination in a prior case;
(2) the issue was actually and necessarily determined by a court of competent jurisdiction in a prior case; and
(3) preclusion in the second case would not work a basic unfairness on the party bound by the decision in the first case. Yamaha, 961 F.2d at 254; see also Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 327 (1979); Beverly Health & Rehabilitation Servs., Inc. v. NLRB, 317 F.3d 316, 322 (D.C.Cir.2003).
This is the definition of the doctrine presented by the district court. In addition, the court noted that:
If the “same issue†contested by the parties is a pure question of law, however, “the parties in a subsequent action upon a different demand are not estopped from insisting that the law is otherwise.†Montana v. United States, 440 U.S. 147, 162 (1979) ( citing United States v. Moser, 266 U.S. 236, 242 (1924)). This exception, commonly referred to as the Moser exception, is narrowly limited to successive actions involving unrelated subject matter; parties may still be estopped when there is even partial congruence between the subject matter of the subsequent disputes. Id. at 162-63 (stating that the second case must be “so unrelated to the prior case that relitigation of the issue is warrantedâ€); see also Beverly Health, 317 F.3d at 323 n. 2 (applying collateral estoppel because the differences between the facts in two cases had no legal significance); Nat’l Post Office Mail Handlers v. Am. Postal Workers Union, 907 F.2d 190, 194 (D.C.Cir.1990). Because the claims raised by the plaintiff in this case were actually and necessarily decided by the First Circuit in Rowe, the plaintiff is precluded from litigating the validity of Title II.
Collateral Estoppel Applied
Applying the doctrine to the case at bar, the district court found that the similarity in issues, particularly regarding similar or identical statutory language, left little to debate. The court observed:
The issues before this court are the same as those faced by the First Circuit in Rowe. In Rowe, the plaintiff challenged the Maine statute by alleging, by count, that it (1) is preempted by ERISA; (2) is preempted by the Federal Employee Health Benefits Act (“FEHBAâ€); (3) constitutes a regulatory taking of industry trade secrets; (4) effects a regulatory taking of revenues and other contractual rights in violation of the Due Process Clause; (5) violates the Contracts Clause; (6) violates the Commerce Clause; (7) violates the First Amendment; and (8) violates 42 U.S.C. § 1983. Pharm. Care Mgmt. Ass’n v. Rowe, 2005 WL 757608 (D.Me. Feb. 2, 2005). In the present case, the plaintiff raises the following claims, by count: (1) ERISA preemption; (2) FEHBA preemption; (3) unlawful taking of trade secret property; (4) violation of the Commerce Clause; (5) unlawful taking of revenues and other contractual rights and impairment of contracts; (6) violation of the First Amendment; and (7) violation of 42 U.S.C. § 1983. Compl. ¶¶ 27-66. Aside from combining the due process and contracts clause claims before this court, all of the claims raised by the plaintiff in the two suits are identical. Moreover, as described supra, the plaintiff here challenges a statute virtually identical to the one it challenged unsuccessfully in Maine.
Statute Not Preempted By ERISA
One of the important issues raised in Rowe and again in the D.C. case was whether ERISA preempted the D.C. statute. The district court held the statute was not preempted, stating:
The First Circuit ruled that ERISA does not preempt the Maine statute because PBMs are not fiduciaries under ERISA. Rowe, 429 F.3d at 301. The court reasoned that because the requirements imposed on PBMs to disclose conflicts of interest and payments from drug manufacturers involve “no discretion on the part of the PBMs†and were “purely ministerial,†PBMs do not exercise the type of discretionary authority and control in the management and administration of an ERISA plan that is typical of an ERISA fiduciary. Id. at 300-01.
After determining that PBMs are not fiduciaries under ERISA, the First Circuit applied the Supreme Court’s two-part test in determining whether ERISA preempted the Maine statute. Id. at 301 (citing Ca. Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 324 (1997)). In particular, the First Circuit decided that the Maine statute did not have an impermissible “connection with†or “reference to†ERISA plans. Id. at 303, 304. The First Circuit also rejected the plaintiff’s alternative argument that the UPDPA’s enforcement provisions conflict with ERISA’s exclusive remedial scheme. Id. at 305. In short, the First Circuit rejected the plaintiff’s claims that ERISA preempts the statute.
Comparing the two statutes, the district court opined:
Like the UPDPA [the Maine statute], Title II imposes a fiduciary duty on PBMs with respect to ERISA plans, D.C.Code § 48-832.01(a). And, like the UPDPA, the D.C. statute’s requirement that PBMs disclose conflicts of interest and payments from drug manufacturers does not involve any discretion on the part of the PBMs and is a purely ministerial duty. D.C.Code § 48-832.01(c)(1)(A). The plaintiff’s arguments, additionally, are the same arguments that were considered and rejected by the First Circuit. Compare Pl.’s Suppl. Opp’n at 12 (arguing that ERISA preempts all state laws that apply to ERISA-covered employee benefit plans) with Rowe, 429 F.3d at 301 (same); compare Pl.’s Suppl. Opp’n at 13 (stating that the D.C. statute “involve[s] PBMs in the administration of ERISA plans) with Rowe, 429 F.3d at 303 (quoting PCMA’s argument that the Maine statute attempts to regulate ERISA plans’ relationship with PBMs); compare Pl.’s Suppl. Opp’n at 19 (contending that the state statute “conflicts with the exclusivity of ERISA’s civil enforcement scheme by creating an alternative cause of actionâ€) with Rowe, 429 F.3d at 305 (same). Because the First Circuit already determined, based on the same arguments by the same plaintiff, that a state statute imposing fiduciary duties on PBMs is not preempted by ERISA, this court is precluded from considering the plaintiff’s ERISA claims in this case.
Note: The PBM dilemma is the familiar trade-off. Blissful in escaping fiduciary duties, see Chicago Dist. Council of Carpenters Welfare Fund v. Caremark, Inc., — F.3d —-, 2007 WL 120794 (7th Cir) (January 19, 2007) (PBM not a fiduciary), they now find the sharp edges of State law unappealing.
Not Binding Authority - Other courts are by no means bound to agree with the decision of the D.C. district court. On the other hand, and particularly if affirmed on appeal, the case will undoubtedly be offered as persuasive authority in other State versus PBM disputes over transparency statutes.
States can be expected to examine their legislative initiatives in light of the Maine pattern so that they too can employ the collateral estoppel argument. The advantage lies in litigation costs savings by reducing the scope of argument as well as enhanced prospects for success on any arguments on the merits given the prior decisions in Rowe and possibly the Federal Circuit.
