As you may recall from our prior analysis, HB 2021 would require a health benefit plan issuer or pharmacy benefit manager (PBM) contracted to administer a self-funded, employer-sponsored employee benefit plan governed by the Employer Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1001 et seq.) to comply with certain state statutes and regulations found in Chapter 1369, Insurance Code. Our analysis attempted to break the bill down into pieces and look at which individual provisions in Chapter 1369, as applied to ERISA plans, might survive a pre-emption challenge and which might not.
This afternoon at House Insurance Committee’s hearing on HB 2021, a proposed committee substitute was offered that substantially narrows the scope of the bill. Instead of bringing ERISA plans wholly under Chapter 1369, as the introduced version of the bill does, the substitute limits state regulation of ERISA plans to two subchapters. We discussed these, as well as the others, in our initial analysis, but since the bill now focuses on them, let’s take another look.
Our analysis will appear confusing because, as we noted previously, Chapter 1369 has two Subchapter Ls with the same section numbering. As luck would have it, CSHB 2021 targets these two, so we bear with us as we try to distinguish them without creating more confusion than already exists.
The first Subchapter L was added in 2021 by HB 1763. It governs the contractual relationship between plan issuers or PBMs and pharmacies or pharmacists and:
- prohibits an issuer or PBM from reducing the amount of a claim payment to a pharmacist or pharmacy after adjudication of the claim through the use of an aggregated effective rate, quality assurance program, or other direct or indirect remuneration fee except in accordance with an audit (§ 1369.553);
- bars a PBM from paying an affiliated pharmacist or pharmacy a reimbursement amount that is more than the amount the PBM pays a nonaffiliated pharmacist or pharmacy for the same service (§ 1369.555);
- prohibits an issuer or PBM from, as a condition of a contract, barring a pharmacy or pharmacist from sending an enrollee’s drugs by mail under certain circumstances (§ 1369.557);
- prohibits an issuer or PBM from requiring a pharmacy or pharmacist to meet accreditation or recertification standards more stringent than or inconsistent with federal and state requirements or blocking the dispensing of drugs that may be dispensed under the pharmacy’s or pharmacist’s license (§ 1369.558); and
- and prohibits retaliation against a pharmacy or pharmacist (§ 1369.559).
The second Subchapter L was likewise added in 2019 by HB 1919. This subchapter:
- blocks a plan issuer or PBM from transferring to or receiving from the issuer’s or PBM’s affiliated provider a record containing patient- or prescriber-identifiable information for a commercial purpose (§ 1369.553);
- steering or directing a patient to use an affiliated provider through online messaging regarding the provider or other advertising, marketing, or promotion of the provider (§ 1369.554); and
- prohibits an issuer or PBM from requiring a patient to use an affiliated provider to receive the maximum benefit or reduced cost-sharing and from soliciting a patient or prescriber to transfer a patient’s prescription to an affiliated provider (§ 1369.555).
The first question we ask is whether these provisions resemble those at issue in Rutledge v. Pharmaceutical Care Management Association, 141 S.Ct. 474 (2020), in which SCOTUS upheld an Arkansas statute over an ERISA pre-emption challenge brought by the Pharmaceutical Care Management Association (PCMA) on the basis that the statute merely established a floor for the cost of benefits that a plan may choose to provide, which may indirectly increase the cost of pharmacy benefits but does nothing to interfere with plan design or administration. The Court thus drew a clear line between legislation that deals with contracts between PBMs and in-network pharmacies and legislation that crosses the line into direct regulation of plan benefits or how the employer chooses to structure those benefits. As we noted in our prior analysis, Chapter 1369 contains provisions that in some ways parallel the Arkansas statute, but they are located primarily in Subchapter H, which deals with the use of formularies, maximum allowable cost lists, and pharmacy appeals of MAC prices. Consequently, it appears to us that the targeted subchapters in CSHB 2021 are notthe same as those allowed through the pre-emption portal in Rutledge.
The question then becomes whether the provisions described above cross the pre-emption line because they interfere with the design or administration of an ERISA plan. The first Subchapter L clearly limits the ability of a health plan issuer or PBM to contract with pharmacies and pharmacists. It intervenes specifically, for example, in claims payment after an adjudication process, differential treatment of affiliated and nonaffiliated providers, and accreditation and recertification standards. These do not seem to be matters confined solely to a “floor for the cost of benefits that a plan may choose to provide,” as SCOTUS ruled in Rutledge. Instead, they establish what is permissible in a contract between a health plan and a provider or between a health plan and a third-party administrator. In our view, these provisions have a significant impact on both plan design and administration to the point of directly affecting prescription drug benefits, the specific terms under which they can be offered to enrollees, and the specific methods and procedures through which a health plan or administrator determine an whether claims have been paid appropriately. We think a very strong argument can be made that this part of CSHB 2021 is likely pre-empted.
The same goes with applying the second Subchapter L to ERISA plans, this time with regard to regulating the communications between the plans and their enrollees about their providers. In particular, among other things, it blocks a health plan from offering a plan design that: (1) confers a higher benefit if an enrollee uses the plan’s affiliated provider; (2) provides for reduced cost-sharing if an enrollee uses the plan’s affiliated provider; and (3) informs an enrollee of the enrollee’s option to transfer a prescription to an affiliated provider. These kinds of contractual arrangements would appear to go to the heart of plan design, since they determine the level of benefits, not just the cost of benefits, and the contractual relationship between the health plan issuer and the enrollee. To us, this is a bridge too far into pre-emption territory.
In an important sense, HB 2021 has little to do with pharmacies and pharmacists, and everything to do with the impingement of state regulation on ERISA plans more generally. If the changes proposed by the bill can be applied to ERISA prescription drug benefits, they can be applied to all benefits and all providers. And at that point, the primary benefit of ERISA—to promote private health insurance coverage by making it easier for employers to provide uniform coverage for employees wherever located—will be destroyed.
