Although hopes are high for reform at the federal level that will curtail predatory PBM practices, meaningful legislation remains elusive. In contrast, many states have enacted PBM laws that provide some relief to network pharmacies. A recent court decision, however, threatens to render all state PBM laws ineffective.

Employee Retirement Income Security Act (ERISA)

ERISA is a broad federal law that sets minimum standards for retirement and health insurance plans. ERISA's requirements are intended to apply uniformly to all plans, no matter where a plan sponsor or employee is located. Accordingly, state laws that regulate insurance more generally are "preempted."

Preemption is an extremely complex subject, but it basically means that federal law trumps state laws that are inconsistent with the spirit and purpose of the federal law. For example, if the federal government were to pass a law banning cannabis, the states would not be able to pass their own laws legalizing it. ERISA pre-empts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA.

The U.S. Supreme Court's Decision in Rutledge

When it comes to federal and state laws regarding health insurance, there are more nuances at play between federal and state law. In 2020, the U.S. Supreme Court decided a case that involved a challenge to an Arkansas state law that regulates the price at which PBMs reimburse pharmacies for the cost of drugs covered by prescription drug plans. Specifically, the law requires PBMs to reimburse Arkansas pharmacies at a price equal to or higher than that which the pharmacy paid to buy the drug from a wholesaler.

In the Rutledge case, the Pharmaceutical Care Management Association (PCMA) sued Arkansas on behalf of PBMs, claiming that ERISA prohibited Arkansas from passing the law at issue.

The 10th Circuit's Decision in Mulready

The government investigates whistleblower complaints under the FCA using civil investigative demands, or CIDs. CIDs are similar to subpoenas because they compel the recipient to produce evidence to the government. Just like a subpoena, noncompliance with a CID may result in monetary and other potentially severe penalties.

CIDs may require the production of documents or oral testimony, referred to as an examination, under oath. Importantly, although CIDs are used to gather evidence for civil lawsuits, nothing prevents government investigators from sharing that evidence with criminal prosecutors. Accordingly, CIDs should be taken very seriously and the process managed closely by counsel.

Liability Involving False Prior Authorizations

As noted, conduct that violates the FCA may also violate criminal laws. In the Walgreens case, a staff pharmacist named Amber Reilly was criminally prosecuted and sentenced to 16 months in jail for falsifying prior authorizations, medical lab reports, and drug test results for hepatitis C patients who had been prescribed high-cost drugs such as Harvoni and Sovaldi.

In the government's subsequent case against Walgreens under the FCA, the court ruled that Walgreens could be held liable based on false claims submitted by Reilly. First, the court's ruling was notable because it held that Walgreens could be held liable for criminal acts committed by an employee. The court's ruling departed from the generally recognized principle that employers are not liable for an employee's unforeseen criminal acts.

Second, the court held that Walgreens could be held liable under a "reverse false claims" theory. Specifically, despite Reilly's conviction for falsifying claims, Walgreens never returned to the government the overpayments it had received.

Successful Resolution of False Prior Authorization Cases

We have handled numerous investigations by federal and state government agencies involving the submission of false prior authorizations, including a high profile settlement with the U.S. Attorney's Office for the District of Massachusetts involving a Florida specialty pharmacy and Evzio, a high-priced drug used in rapid reversal of opioid overdoses, which you can read more about HERE. In conclusion, allegations involving false prior authorizations can lead to criminal and civil exposure under a variety of theories if not managed competently.