ORAL ARGUMENT NOT SCHEDULED _____________________________________________________________

No. 09-7042

IN THE UNITED STATES COURT OF APPEALS For the District of Columbia Circuit _____________________________

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, Appellee,

v. DISTRICT OF COLUMBIA AND MAYOR ADRIAN M. FENTY,

Appellants. _______________________

On Appeal from a Decision of the

United States District Court for the District of Columbia __________________________________________________________________

BRIEF AMICI CURIAE OF AARP,

LEGAL COUNSEL FOR THE ELDERLY, AND PRESCRIPTION ACCESS LITIGATION PROJECT, L.L.C.

IN SUPPORT OF APPELLANTS URGING REVERSAL __________________________________________________________________

Jan May Stacy Canan Rawle Andrews, Jr. Mary Ellen Signorille Legal Counsel for the Elderly AARP Foundation Litigation 601 E Street, NW Washington, DC 20049 Michael Schuster (202) 434-2160 AARP Wells Wilkinson 601 E Street, NW Prescription Access Litigation Washington, DC 20049 30 Winter Street, 10th Floor (202) 434-2060 Boston, MA 02108 (617) 275-2822 Filed: August 21, 2009

i

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES

Amici curiae AARP, Legal Counsel for the Elderly and Prescription Access

Litigation Project, L.L.C. hereby furnish the following information about this case

on appeal pursuant to D.C. Cir. Rule 28(a)(1):

A. Parties and Amici Curiae

The parties appearing below and in this Court are as follows:

Plaintiff/appellee: Pharmaceutical Care Management Association (PCMA), a

non-stock corporation, whose members are pharmacy benefits manager companies.

Defendants/appellants: District of Columbia and Mayor Adrian M. Fenty, in

his official capacity.

No amici curiae appeared below.

The following amici curiae are before this Court:

In support of appellee PCMA: America’s Health Insurance Plans, Inc., and

Chamber of Commerce of the United States of America.

In support of appellants the District of Columbia and Mayor Adrian Fenty,

in his official capacity: AARP, Legal Counsel for the Elderly and the Prescription

Access Litigation Project, L.L.C.

ii

B. Rulings under Review

The District of Columbia has appealed from the final order of United States

District Judge Ricardo M. Urbina, entered April 13, 2009, and all other orders of

the district court in this action against defendants merged therewith, including the

order of March 19, 2009, granting in part plaintiff’s motion for partial summary

judgment. The district court’s memorandum opinion is reported at 605 F. Supp. 2d

77 (D.D.C. 2009).

C. Related Cases

This case has been before the Court previously as Pharmaceutical Care

Management Ass’n (PCMA) v. District of Columbia, Nos. 05-7007 and 07-7062.

See 173 Fed. Appx. 3 (D.C. Cir. 2006); 522 F.3d 443 (D.C. Cir. 2008). In

addition, PCMA v. Rowe, 429 F.3d 294 (1st Cir. 2005), cert. denied, 126 S.Ct. 2360

(2006), raised the same legal issues concerning a Maine statute that is identical in

all material respects to the District of Columbia statute that PCMA challenges in

this litigation. Counsel for amici knows of no other related cases in this

jurisdiction or elsewhere.

iii

CORPORATE DISCLOSURE STATEMENTS OF AMICI CURIAE

Pursuant to Rule 26.1(b) of the Federal Rules of Appellate Procedure and

D.C. Circuit Rule 26.1, amici curiae AARP, Legal Counsel for the Elderly (LCE)

and the Prescription Access Litigation Project, L.L.C. (PAL) state the following:

AARP is a not-for-profit corporation with no parent company and issues no

stock. Therefore, no publicly-held company has a 10% of or greater ownership

interest in AARP. AARP provides information and resources, and advocates on

legislative, consumer, and legal issues. Through a wholly-owned subsidiary,

AARP Services, Inc., AARP makes available products and services from third

party providers to its members, including long-term care insurance. Other legal

entities related to amicus curiae AARP include AARP Foundation, Legal Counsel

for the Elderly, AARP Financial, AARP Global Network and Focalyst.

The Internal Revenue Service has determined that AARP is organized and

operated exclusively for the promotion of social welfare pursuant to section

501(c)(4) of the Internal Revenue Code and is exempt from income tax. AARP is

also organized and operated as a non-profit corporation pursuant to the provisions

of title 29, section 618, of the D.C. Code.

AARP has allowed United Healthcare for a fee to use its name and

membership list to market health care products. In this connection, AARP allows

iv

its brand to be used by United Healthcare to sell certain health care policies with

prescription drug coverage which uses Medco as the PBM. AARP is not involved

in the sale or marketing of any health care product or service.

LCE is a not-for-profit corporation with no parent company and issues no

stock. Therefore, no publicly-held company has a 10% of or greater ownership

interest in LCE. LCE is the primary provider of legal services and advocacy for

the elderly population in the District of Columbia.

PAL is a nonprofit, nonpartisan organization dedicated to increasing the

accessibility and affordability of prescription drugs. PAL is a project of

Community Catalyst, a nonprofit, nonpartisan national advocacy organization that

builds consumer and community participating in the shaping of the U.S. health

system to ensure quality, affordable health care for all. Community Catalyst has

no parent company and issues no stock.

__________________________________ Stacy Canan DC Bar No. 370522 AARP Foundation Litigation 601 E Street, NW Washington, DC 20049 (202) 434-2060 Counsel for Amici Curiae

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TABLE OF CONTENTS Page

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES ............i CORPORATE DISCLOSURE STATEMENTS OF AMICI CURIAE ................. iii TABLE OF AUTHORITIES ................................................................................ vii GLOSSARY ......................................................................................................... xiii SUMMARY OF ARGUMENT ............................................................................... 1 STATEMENTS OF INTEREST.............................................................................. 3 ARGUMENT ........................................................................................................... 6 I. ERISA DOES NOT PREEMPT ACCESS RX BECAUSE IT DOES NOT RELATE TO AN ERISA PLAN ......................................................... 6 A. The Presumption Against Preemption Applies to Access Rx Because It Regulates Health Care – an Area of Traditional

State Concern ...................................................................................... 6

B. Access Rx Has No Reference To ERISA Plans Because It Functions Regardless of the Entity that Purchases a PBM’s Services................................................................................................ 10

C. Access Rx Does Not Have a Significant Connection to an ERISA Plan ......................................................................................... 11

1. Access Rx does not mandate employee benefit structures,

bind employers or administrators to particular choices, preclude uniform administrative practices, or provide alternative enforcement mechanisms to obtain benefits ........... 11

vi

2. Access Rx does not have a significant connection with ERISA plans because there is no clear indication that Congress intended to preempt laws concerning the relationship of service providers to ERISA plans ................... 15

II. ACCESS RX IS A LEGITIMATE STATE LAW AIMED AT

LOWERING RUNAWAY DRUG COSTS ................................................ 21 A. High Prescription Drug Costs Threaten Older Consumers’

Health ................................................................................................ 22

B. The PBM Industry Is a Key Marketplace Entity Greatly Influencing Prescription Drug Prices ................................................ 23

C. New Research Questions the Degree to Which PBMs Reduce

Health Care Costs .............................................................................. 24

D. Some PBMs Offer Transparency to Clients ...................................... 27 CONCLUSION ...................................................................................................... 29 CERTIFICATE OF COMPLIANCE WITH RULE 32(A) ................................... 31 CERTIFICATE OF SERVICE .............................................................................. 32 STATUTORY AND REGULATORY ADDENDUM ........................................... I

vii

TABLE OF AUTHORITIES

FEDERAL CASES Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) ................................................. 14 Ariz. State Carpenters Pension Trust Fund v. Citibank,

125 F.3d 715 (9th Cir. 1997) ...........................................................19, 20, 21 Bd. of Tr. of the Hotel & Rest. Employees Int’l Union Local 25 v.

Madison Hotel, 97 F.3d 1479 (D.C. Cir. 1996) ....................................... 7, 11 Boggs v. Boggs, 520 U.S. 833 (1997) ................................................................ 9, 12 * Cal. Div. of Labor Standards Enforcement v. Dillingham

Constr., 519 U.S. 316 (1997) ........................................ 7, 8, 9, 10, 11, 12, 15 Coyne & Delany Co. v. Selman, 98 F.3d 1457 (4th Cir. 1996) ....................... 19, 21 * De Buono v. NYSA-ILA Med. & Clinical Servs. Fund,

520 U.S. 806 (1997)................................................................ 8, 9, 12, 15, 16 District of Columbia v. Greater Wash. Bd. of Trade,

506 U.S. 125 (1992)..................................................................................... 12 Egelhoff v. Egelhoff, 532 U.S. 141 (2001) ...............................................8, 9, 12, 15 Gerosa v. Savasta & Co., 329 F.3d 317 (2d Cir. 2003) ......................................... 18 Geweke Ford v. St. Joseph’s Omni Preferred Care Inc.,

130 F.3d 1355 (9th Cir. 1997) ............................................................... 19, 20 Hospice of Metro Denver, Inc. v. Group Health Ins. of Okla., Inc.,

944 F.2d 752 (10th Cir. 1991) ..................................................................... 19 Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990) ...................................... 13

viii

John Hancock Mut. Life Ins. Co. v. Harris Trust and Sav. Bank, 510 U.S. 86 (1993)....................................................................................... 15

Kollman v. Hewitt Assocs., 487 F.3d 139 (3d Cir. 2007) ...................................... 20 La. Health Serv. & Indem. Co. v. Rapides Healthcare Sys.,

461 F.3d 529 (5th Cir. 2006) ................................................................. 11, 12

Mackey v. Lanier Collection Agency & Serv. Inc., 486 U.S. 825 (1988)............................................................................... 20, 21

Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985) ................................. 12 * N.Y. State Conference of Blue Cross & Blue Shield Plans

v. Travelers Ins. Co., 514 U.S. 645 (1995) ................... 1, 6, 9, 10, 11, 12, 15 Pegram v. Herdrich, 530 U.S. 211 (2000) ............................................................. 15 Penny/Ohlmann/Nieman, Inc. v. Miami Valley Pension Corp.,

399 F.3d 692 (6th Cir. 2005) ....................................................................... 19 * Pharm. Care Mgmt. Ass’n v. Rowe, 429 F.3d 294

(1st Cir. 2005), cert. denied, 126 S.Ct. 2360 (2006) ... ii, 4, 7, 11, 12, 13, 14 Pharm. Care Mgmt. Ass’n v. District of Columbia,

173 Fed. Appx. 3 (D.C. Cir. 2006) ............................................................... ii Pharm. Care Mgmt. Ass’n v. District of Columbia,

522 F.3d 443 (D.C. Cir. 2008) .................................................................. ii, 4 Pharm. Care Mgmt. Ass’n v. District of Columbia,

605 F. Supp. 2d 77 (D.D.C. 2009) ................................................................ ii Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947) ....................................... 6, 7 UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358 (1999) ................................... 12

ix

Wash. Physicians Serv. Ass’n v. Gregoire, 147 F.3d 1039 (9th Cir. 1998) ..................................................................... 13

Wyeth v. Levine, 129 S. Ct. 1187 (2009) ................................................................. 7

FEDERAL AND STATE STATUTES AND REGULATIONS

Access Rx Act of 2004,

D.C. Code §§ 48-831.01 et seq. (Supp. 2009) ............................................... 1 D.C. Code

§ 26-551.05 .................................................................................................. 16 § 31-2231.17 ................................................................................................ 16 § 47-2853.04(a)(3) ....................................................................................... 16 § 47-2853.04(a)(6) ....................................................................................... 16 § 48-831.02(4)(A) ........................................................................................ 16 § 48-832.01(b)(1)(A) ................................................................................... 18

D.C. MUN. REGS. tit. 17, §§ 2510.1, 2510.3 (1990)............................................... 17 D.C. RULES OF PROF’L CONDUCT R. 1.5(e) at 19 (2007), available at

www.dcbar.org/new_rules/Rule.cfm ........................................................... 16 Dep’t of Labor, Reasonable Contract of Arrangement Under Section

408(b)(2) – Fee Disclosure, 72 Fed. Reg. 70988 (Dec. 13, 2007) .............. 17

Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ................................................................................ 3 29 U.S.C. § 1144(a) ....................................................................................... 6

MISCELLANEOUS

AARP, Brand Name Drug Prices Climb Again in 2006, RX

WATCHDOG REPORT (March 2007), available at http://assets. aarp.org/www.aarp.org_/cs/elec/watchdog_march_2007.pdf ....................... 4

x

AARP, Manufacturer Drug Prices Reach Record Highs, RX WATCHDOG REPORT (April 2009), available at http://assets.aarp.org/www.aarp.org _/cs/elec/watchdog_april_2009.pdf ............................................................. 22

ABA SECTION OF LABOR AND EMPLOYMENT LAW, EMPLOYEE BENEFITS

LAW (2d ed. 2000) ......................................................................................... 9 Argus Health Systems, www.argushealth.com (last visited Aug. 10, 2009) ......... 28 Julian E. Barnes, When is a Rebate a Kickback?, U.S. NEWS &

WORLD REPORT, Aug. 4, 2002, available at http://www.usnews.com/ usnews/biztech/articles/020812/archive_022264_3.htm ......................... 2, 25

Guy Boulton, State Gets Prescription for Savings, MILWAUKEE JOURNAL SENTINEL, June 7, 2005 ............................................................................... 28

Karen Buckelew, Benefits Firm to Reimburse Baltimore for

Overpayments to City Workers, THE DAILY RECORD (Balt., Md.), Dec. 21, 2006 ............................................................................................... 27

CVS Caremark Settlement, AM. HEALTH LINE, February 15, 2008 ....................... 27 EnvisionRxOptions, www.envisionrx.com (last visited Aug. 10, 2009) .............. 28 Fortune 500 Largest U.S. Corporations, Fortune, available at

http://www.cnn.com/magazines/fortune/fortune500/2007/full_list/ ........... 24 Milt Freudenheim, Employers Unite in Effort to Curb Prescription Costs,

N.Y. TIMES, Feb. 3, 2005 ............................................................................. 29 Robert Garis et. al., Examining the Value of Pharmacy Benefit

Management Companies, 61 AM J. HEALTH-SYST PHARM. 81 (2004) ..................................................................................................... 24, 26

Robert Garis & Bartholomew Clark, The Spread: Pilot Study of an

Undocumented Source of Pharmacy Benefit Manager Revenue, 44(1) J AM PHARM ASSOC 15 (2004) ........................................................... 26

xi

Fred Gebhart, Under Mounting Pressure, New Breed of PBM is Born, DRUG TOPICS (September 12, 2005) ............................................................ 28

Gloria Gonzalez, PBM Express Scripts Reaches Multistate Pact

to End Switching Probes; Joins Other PBMs in Agreeing to Alter Business Practices, BUS. INS., June 2, 2008 ................................... 27

GAO, Medicare Part D Prescription Drug Coverage: Federal Oversight of Reported Price Concessions Data, (GAO-08-1074R, Sept. 2008) ................................................................................................... 25

Gary Harki, W. Va. Prescription Drug Program Could be Good

Medicine, CLARKSBURG EXPONENT TELEGRAM, June 13, 2005 .................. 28 Regina Sharlow Johnson, PBMs: Ripe for Regulation,

57 FOOD DRUG L.J. 323 (2002) .................................................................... 23 James Langenfeld & Robert Maness, The Cost of PBM “Self-Dealing”

under a Medicare Prescription Drug Benefit (Sept. 2003), available at http://www.ncpanet.org/assets/Federal_Bills_Pending_ Legislation/asset_upload_file222_2891.pdf .......................................... 25, 26

MedImpact, www.medimpact.com (last visited Aug. 10, 2009) ........................... 28 Patricia Neuman et al., Medicare Prescription Drug Benefit Progress

Report: Findings From a 2006 National Survey of Seniors, 26(5) HEALTH WATCH (WEB EXCLUSIVES) w630, w634 (2007), available at http://content.healthaffairs.org/cgi/reprint/26/5/w630 ............................ 22

Ohio Awarded $410K in Rx Benefits Settlement, COLUMBUS BUS. FIRST,

May 27, 2008 ............................................................................................... 27 Pharmacy Benefit Management Institute, PBM Market Share: Top 25

Pharmacy Benefit Management Companies and Market Share By Annual Prescription Volume, as of 1st Quarter 2009, available at http://www.pbmi .com/PBMmarketshare2.asp (last visited August 10, 2009) ................................................................................... 24, 26

xii

PharmaStar, www.pharmastar.biz (last visited Aug. 10, 2009)............................. 28 John D. Piette et al., Cost Related Medication Underuse Among

Chronically Ill Adults: the Treatments People Forego, How Often, and Who is at Risk, 94 AM. J. PUB. HEALTH 1782 (2004) ................ 23

Ron A. Rhoades, State Common Law Applying Fiduciary Duties Upon

Financial Advisors 3 (2008), http://www.fiduciarynow.com ..................... 16 Kathy Robertson, PCN Pays $800k to Settle Lawsuit; Feds Tighten Reins on

Benefits Manager, SACRAMENTO BUS. J., June 5, 2006 .............................. 27 Arnold J. Rosoff, Symposium: The Changing Face of Pharmacy Benefits

Management: Information Technology Pursues a Grand Mission, 42 ST. LOUIS U. L.J. 1 (Winter 1998) ......................................................... 23

Mark V. Siracuse, Bartholomew E. Clark, Robert I. Garis, Undocumented Source of Pharmacy Benefit Manager Revenue, 65 AM. J. HEALTH- SYSTEM PHARMACY 552 (2008) ................................................................... 26

Mark Siracuse, Robert Garis & Bartholomew Clark, Abstract 11: Further

Evidence to Support Hidden Sources of PBM Revenue; Preliminary Results, 45(2) J. AM. PHARM. ASSOC. 222 (2005) ....................................... 26

* Authorities upon which we chiefly rely are marked with asterisks.

xiii

GLOSSARY

Access Rx Title II of the District of Columbia AccessRx Act, D.C. Act 15-164, amended by “AccessRx Act Clarification Emergency Act of 2006”

DOL Department of Labor

ERISA Employee Retirement Income Security Act

LCE Legal Counsel for the Elderly

PAL Prescription Access Litigation Project, L.L.C.

PBM Pharmacy Benefits Manager

PCMA Pharmaceutical Care Management Association

1

SUMMARY OF ARGUMENT

Amici contend that appellant has not met the considerable burden of

overcoming the presumption that the Employee Retirement Income Security Act

(ERISA) does not preempt Access Rx Act of 2004, D.C. Code §§ 48-831.01 to -

833.09 (Supp. 2009) (Access Rx) – a state law regulating health care. New York

State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S.

645, 654 (1995). Far from referring to or having a significant connection to an

ERISA plan, Access Rx is a legitimate state law that is needed to rein in the rising

cost of prescription drugs.

Access Rx does not refer to ERISA plans because it does not act

immediately and exclusively upon an ERISA plan, nor is the existence of an

ERISA plan essential to its operation. Rather, Access Rx only acts upon ERISA

plans to the extent that they choose to hire pharmacy benefit managers (PBMs) and

choose to request specific information from PBMs. Furthermore, Access Rx will

continue to function regardless of whether ERISA plans choose to hire PBMs and

request information from them.

Access Rx does not have a significant connection to an ERISA plan because

it does not mandate employee benefit structures, bind employers or administrators

to particular choices, preclude uniform administrative practices, or provide

2

alternative enforcement mechanisms to obtain benefits. Also, in enacting ERISA,

Congress did not intend to preempt laws like Access Rx. Far from implicating “an

area of core ERISA concern,” Access Rx is a state law of general applicability that

(1) regulates PBMs in the same way that state laws regulate other service

providers, and (2) does not affect the relations among the principal ERISA entities.

In addition to being a legitimate state law, Access Rx is also a necessary

state law. The rising cost of prescription drugs is limiting consumers’ access to

such drugs, and in turn threatening consumers’ health. When charging plans for

prescriptions, PBMs charge plans at a higher rate than they pay pharmacies for

those prescriptions, pocketing the difference. PBMs also fail to pass on to plans

the rebates they receive from drug manufacturers in exchange for switching drugs.

Such “rebates” may account for 10 percent of the money Americans spend on

prescription drugs. Julian E. Barnes, When is a Rebate a Kickback?, U.S. NEWS &

WORLD REPORT, Aug. 4, 2002, available at http://www.usnews.com/usnews

/biztech /articles /020812/archive_022264_3.htm [Barnes]. Without laws like

Access Rx, which require PBMs to engage in transparent dealings and pass on

savings to plans, prescription drugs will continue to be unaffordable to many

people and the public health will continue to be at risk.

3

STATEMENTS OF INTEREST

AARP is a nonpartisan, nonprofit membership organization of nearly 40

million persons, age 50 or older, dedicated to addressing the needs and interests of

older persons. Approximately 89,000 AARP members, more than 60% of DC’s

50+ population, live in the District of Columbia.

Participants and beneficiaries in private, employer-sponsored employee

benefit plans rely on the ERISA to protect their rights under those plans. 29 U.S.C.

§ 1001 et seq. Contrary to ERISA’s purpose, however, a statute that was designed

to safeguard employee benefits has too frequently been used to deprive employees

of rights and protections which state law provides. Although the Supreme Court

has recognized that health care regulation is an area of traditional state concern,

ERISA has often been used to challenge state attempts to regulate health care and

provide better protections for its citizens. AARP has long advocated against

attempts to extend ERISA preemption to state laws that serve an essential state

interest in regulation that advances the welfare of its citizens – here a law that

attempts to lower drug costs.

AARP advocates for access to affordable health care and for controlling

costs without compromising quality, and supported passage of Access Rx in the

District of Columbia. As part of this advocacy, AARP and PAL filed a brief as

4

amici curiae in similar litigation concerning Maine’s Pharmacy Benefit Manager

(PBM) transparency law, Pharm. Care Mgmt. Ass’n (PCMA) v. Rowe, 429 F.3d

294 (1st Cir. 2005), cert. denied, 126 S.Ct. 2360 (2006), and, along with LCE,

previously in this case before this circuit. 522 F.3d 443 (D.C. Cir. 2008).

Moreover, since May of 2004, AARP’s Public Policy Institute has issued a series

of reports closely monitoring the pricing actions of the pharmaceutical industry.

See, e.g., AARP, Brand Name Drug Prices Climb Again in 2006, RX WATCHDOG

REPORT (March 2007), available at http://assets.aarp.org/www.aarp.org_/cs/elec

/watchdog_ march_2007.pdf.

Legal Counsel for the Elderly (LCE) is an affiliate of AARP providing legal

services to older D.C. residents. LCE represents clients denied health and long

term care benefits, assists older persons in completing applications for prescription

drug benefits, and represents low-income older persons who choose between

purchasing prescription medications and paying for basic necessities such as food,

clothing, and shelter. LCE has hosted numerous community seminars to educate

older persons about prescription drug legislation.

The Prescription Access Litigation Project, L.L.C. (PAL) is a project of

Community Catalyst, Inc., a nonprofit, nonpartisan organization that builds

consumer and community participation in the shaping of the U.S. health system to

5

ensure quality, affordable health care for all. PAL is a coalition of over 130

organizations in 35 states and the District of Columbia. The organizations in

PAL’s coalition have a combined membership of over 13 million people, and

include state and local organizations representing consumers and older patients,

statewide health care access coalitions, and labor unions, including a number of

organizations based in the District of Columbia: AIDS Action, Alliance for

Retired Americans, American Federation of Labor – Congress of Industrial

Organizations (AFL-CIO), American Federation of State County and Municipal

Employees (AFSCME), the Association for Community Affiliated Plans, the DC

Primary Care Association (DC PCA), the Government Accountability Project, the

National Women's Health Network, Service Employees International Union

(SEIU), and USAction. PAL works to end illegal prescription drug price inflation

by pharmaceutical manufacturers and others by facilitating the participation of

consumers, advocacy organizations, and third party payors (health plans, union

benefit funds, and others) in class action litigation challenging such price inflation

practices.

PAL is concerned that price inflation and lack of pricing transparency is

blocking access to vitally needed medications for a significant segment of the U.S.

population. Given PBMs’ importance to the ability of most Americans to afford

6

their needed medications, PAL feels strongly that transparency is vital to ensure

that the interests of consumers and their health plans are being fairly and

adequately protected by the PBMs with which they contract to manage their

prescription drug benefits.

Thus, all amici curiae have a substantial interest in the issue presented on

appeal - whether ERISA preempts legislation aimed at achieving affordable

prescription drug benefits.

ARGUMENT0F

1

I. ERISA DOES NOT PREEMPT ACCESS RX BECAUSE IT DOES NOT RELATE TO AN ERISA PLAN.

A. The Presumption Against Preemption Applies to Access Rx Because It Regulates Health Care – an Area of Traditional State Concern. ERISA limits a State’s power to regulate only to the extent that its laws

relate to employee benefit plans. ERISA § 514(a), 29 U.S.C. § 1144(a).1F

2

Travelers unanimously adopted the traditional presumption that federal law should

not preempt state laws unless Congress clearly intended to do so. Travelers, 514

U.S. at 654-55 (1995), quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 1 Amici were granted permission to file by this court on June 22, 2009.

2 ERISA § 514(a) states, in pertinent part, that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.”

7

(1947) (stating that whether a federal law preempts state law starts with “the

assumption that the historic police powers of the States were not to be superseded

by the Federal Act unless that was the clear and manifest purpose of Congress.”);

accord, Wyeth v. Levine, 129 S. Ct. 1187, 1194-95 (2009) (relying on Rice); PCMA

v. Rowe, 429 F.3d at 301 (“the language of ERISA preemption provision is not as

broad as it seems”); Bd. of Tr. of the Hotel & Rest. Employees Int’l Union Local 25

v. Madison Hotel, 97 F.3d 1479, 1486 n. 13 (D.C. Cir. 1996) (recognizing the

limits Travelers placed on the breadth of ERISA preemption). The Supreme Court

reinforced this presumption against preemption in Dillingham, holding that there

must be an "indication in ERISA . . . [or] its legislative history of any intent on the

part of Congress to preempt" a traditionally state-regulated area of law. Cal. Div.

of Labor Standards Enforcement v. Dillingham Constr., 519 U.S. 316, 331 (1997).

Dillingham reaffirmed that a state law only "relates to" an ERISA plan if it refers

to or has a significant connection with an ERISA plan. Id. at 324.

In order for a state law to reference an ERISA plan, the state law must act

immediately and exclusively upon an ERISA plan, or the existence of an ERISA

plan is essential to the law’s operation. Id. at 325. In order to determine whether

the law has a significant connection to an ERISA plan, a court must examine

ERISA’s objectives to determine whether the type of state law at issue is one that

8

Congress would not have intended to preempt and then analyze the effect the state

law has on ERISA plans. Id. at 332. “[I]f ERISA were concerned with any state

action – such as medical-care quality standards or hospital workplace regulations –

that increased costs of providing certain benefits, and thereby potentially affected

the choices made by ERISA plans, we could scarcely see the end of ERISA’s

preemptive reach.” Id. at 329; accord, Egelhoff v. Egelhoff, 532 U.S. 141, 147

(2001). Moreover, if the law merely “alters the incentives” which exist for an

ERISA plan, “but does not dictate the choices,” then the law is not sufficiently

connected with an ERISA plan to require preemption. Dillingham, 519 U.S. at 333.

In De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806

(1997), the Court held that ERISA did not preempt New York from imposing a

gross receipts tax on medical centers which were owned and operated by an

ERISA-covered employee benefit plan. The Court emphasized its preemption

paradigm, stating that any law “that increases the cost of providing benefits to

covered employees will have some effect on the administration of ERISA plans,

but that simply cannot mean that every state law with such an effect is preempted

by the federal statute.” Id. at 816. The Court concluded that this state law was

“one of 'myriad state laws' of general applicability that impose some burdens on

9

the administration of ERISA plans but nevertheless do not 'relate to' them within

the meaning of [ERISA]. . . .” Id. at 815, quoting Travelers, 514 U.S. at 668.

The Court’s more recent analysis of ERISA preemption cases demonstrates

a conscientious application of this presumption so that state laws only relate to an

employee benefit plan, and therefore are preempted, if they truly impact ERISA’s

core concerns. Compare Egelhoff, 532 U.S. 141 (state law governing the payment

of benefits is preempted) and Boggs v. Boggs, 520 U.S. 833 (1997) (state law

governing entitlement to benefits is preempted) with De Buono, 520 U.S. 806 (state

tax on gross receipts with minimal impact on plan administration is not preempted)

and Dillingham, 519 U.S. 316 (prevailing wage statute posed no requirement on

ERISA plans and is not preempted).

Because health plans were not a focus of Congress’ concern during the

enactment of ERISA, ABA SECTION OF LABOR AND EMPLOYMENT LAW, EMPLOYEE

BENEFITS LAW lxviii-lxix (2d ed. 2000), and regulation of matters surrounding

health “has been traditionally occupied by the States,” see DeBuono, 520 U.S. at

814; Travelers, 514 U.S. at 654-55, generally state health laws are not preempted.

See DeBuono, 520 U.S. at 814.

ERISA’s preemption clause simply does not reach Access Rx because the

state law merely requires PBMs to provide certain disclosures to any customer of a

10

PBM and to perform their duties to their customers in accordance with fiduciary

standards. Access Rx functions to regulate health care – a traditional area of state

power which Congress did not intend to limit when it enacted ERISA. Travelers,

514 U.S. at 654-55.

B. Access Rx Has No Reference To ERISA Plans Because It Functions Regardless of the Entity that Purchases a PBM’s Services.

A state law references an ERISA plan if it acts immediately and exclusively

upon an ERISA plan or the existence of an ERISA plan is essential to its operation.

Dillingham, 519 U.S. at 325. In that case, the Court held that a state prevailing

wage law did not reference ERISA plans even though most, if not all of the

affected apprenticeship programs, were ERISA plans. Id. at 327, n. 5. The Court

stated that such programs “need not necessarily be ERISA plans,” id. at 325, and

the employer could pay apprentices out of its general assets. Id. at 327. Thus, the

prevailing wage law functioned regardless of whether an ERISA plan existed. Id.

at 328.

Like Dillingham’s prevailing wage law, Access Rx functions irrespective of

whether an ERISA plan is involved. It functions regardless of the entity (e.g.,

health plans, church plans, governmental plans, insurers) which purchases the

services of a PBM as a medical service provider. Access Rx makes no reference to

11

ERISA plans, and is not preempted on that basis. See id. at 328; PCMA v. Rowe,

429 F.3d at 304; accord, La. Health Serv. & Indem. Co. v. Rapides Healthcare

Sys., 461 F.3d 529, 536-37 (5th Cir. 2006) (finding that reference prong is

inapplicable to assignment statute because “it applies to insurance companies,

employee benefit trusts, self-insurance plans, and other entities” . . . .).

C. Access Rx Does Not Have A Significant Connection To An ERISA Plan.

1. Access Rx does not mandate employee benefit structures,

bind employers or administrators to particular choices, preclude uniform administrative practices, or provide alternative enforcement mechanisms to obtain benefits.

Travelers recognized that three types of state laws will always have a

connection to an ERISA plan and thus be preempted: (1) state laws that mandate

employee benefit structures or their administration; (2) state laws that bind

employers or plan administrators to particular choices or preclude uniform

administrative practice, thereby functioning as regulations of ERISA plans

themselves; and (3) state laws providing alternate enforcement mechanisms for

employees to obtain ERISA plan benefits. Travelers, 514 U.S. at 657-60; accord,

Bd. of Tr. of the Hotel & Rest. Employees Int’l Union Local 25 v. Madison Hotel,

97 F.3d at 1486 n. 13. Accordingly, preemption will not occur if a state law has

12

only a “‘tenuous, remote, or peripheral’ connection with” benefit plans. District of

Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130 (1992).

Since Travelers, the Court has provided guidance on the types of laws that

fall into these categories. State laws that interfere with ERISA’s distribution of

benefits scheme or a plan’s administrative functions are preempted. See, e.g.,

Egelhoff, 532 U.S. at 146; UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 378-

79 (1999); Boggs, 520 U.S at 843 (1997). In contrast, where the state statute

merely alters the economic incentives involved, ERISA does not preempt it. See,

e.g., De Buono, 520 U.S. at 815; Dillingham, 519 U.S. at 334.

Access Rx does not address who will receive benefits, the kind of benefits to

be paid, or how those benefits will be paid. See, e.g., Egelhoff, 532 U.S. at 141

(2001); Boggs, 520 U.S. 833 (1997); Metro. Life Ins. Co. v. Massachusetts, 471

U.S. 724 (1985); La. Health Serv. & Indem. Co. v. Rapides Healthcare Sys., 461

F.3d at 538-37. Unlike the statutes involved in Egelhoff and Boggs, nothing in

Access Rx dictates processing of claims and disbursement of benefits. Egelhoff,

532 U.S. at 148. Access Rx is triggered only if a plan decides to employ a PBM as

a provider of medical services. The plan maintains that choice at all times.

Dillingham, 519 U.S. at 325; PCMA v. Rowe, 429 F.3d at 303 (nothing in the

13

Maine PBM law compels ERISA plans to reevaluate their working relationships

with PBMs).

In a somewhat different context, in Wash. Physicians Serv. Ass’n v.

Gregoire, 147 F.3d 1039 (9th Cir. 1998), the Ninth Circuit found that a state’s

alternative provider statute did not have a significant connection with an ERISA

plan because the statute required action solely by health providers; it did not

require an ERISA plan to do anything. Merely because a state law regulates a

service provider to an ERISA plan “does not mean that it ‘relates to’ an ERISA

plan." Id. at 1045.

Thus, Access Rx does not bind the employer or the plan administrator to any

particular choice concerning benefits or administrative practices. It gives the plan

no directives. The plan may be structured in whatever manner the employer or

administrator desires. See PCMA v. Rowe, 429 F.3d at 303 (Maine PBM law

applies to a wide variety of situations with an appreciable number that have no

linkage to ERISA plans). Therefore, “plans and plan sponsors” are not subject to

the “administrative and financial burden” of “complying with conflicting directives

among States or between States and the Federal Government.” Ingersoll-Rand Co.

v. McClendon, 498 U.S. 133, 142 (1990). Instead, Access Rx requires the PBM as

medical service provider to meet certain obligations.

14

Moreover, Access Rx does not provide an alternate enforcement mechanism.

In Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), the Court decided whether

claims alleging that a plan administrator’s refusal to provide coverage for treatment

recommended by their physicians which resulted in injury to the participant could

be brought as state tort claims or must be brought as benefit claims under ERISA.

The Court characterized the claims as merely ones to rectify a wrongful denial of

benefits, not “to remedy any violation of a legal duty independent of ERISA.” Id.

at 214. Because these lawsuits were, at bottom, requests for benefits, the lawsuits

must be brought in federal, not state, court. Failure to recognize these claims as

benefit claims would have resulted in a state law cause of action that duplicates,

supplements or supplants the ERISA civil enforcement remedies under § 502. Id.

Because the state claims were really benefit claims, they were completely

preempted under ERISA.

Here, Access Rx provides a legal duty independent of ERISA. As a law of

general applicability, the disclosure duty is required of all covered entities. It

makes no distinction between the entities to which the PBM provides its services

or in what capacity those services are provided. It does not touch upon rights

expressly guaranteed by ERISA. See generally PCMA v. Rowe, 429 F.3d at 305.

The PBMs are not part of the part of the intricate web of relationships among the

15

principal players in ERISA. See Brief at pp. 18-21, infra. Consequently, Access

Rx does not provide an alternative enforcement mechanism to ERISA.

Accordingly, unlike other state statutes found to be preempted, Access Rx

does not “implicate[] an area of core ERISA concern,” Egelhoff, 532 U.S. at 147,

and thus does not fall into any of the three categories of state laws that the Court

has recognized will always have a connection with an ERISA plan. At most,

Access Rx alters the incentives but does not dictate the choices for an ERISA plan.

See, e.g., De Buono, 520 U.S. at 815; Dillingham, 519 U.S. at 334. Hence, Access

Rx does not relate to an ERISA plan and is not preempted.

2. Access Rx does not have a significant connection with ERISA plans because there is no clear indication that Congress intended to preempt laws concerning the relationship of service providers to ERISA plans.

Where the state law regulates health care, there must be an "indication in

ERISA . . . [or] its legislative history of any intent on the part of Congress to

preempt" this traditionally state-regulated area of law. See Pegram v. Herdrich,

530 U.S. 211, 237 (2000); Dillingham, 519 U.S. at 331; Travelers, 514 U.S. at

654-55.2F

3

3 Consistent with Congressional intent to not preempt traditionally state-regulated areas of law is the Supreme Court’s recognition that “ERISA leaves room for complementary or dual federal and state regulation, and calls for federal supremacy when the two regimes cannot be harmonized or accommodated.” John

16

Consequently, laws of general applicability do not have a connection to

ERISA plans and are generally not preempted. See De Buono, 520 U.S. at 815.

Access Rx is a statute of general applicability as it regulates PBMs’ relationships

with various purchasers of their services regardless of whether they are ERISA

plans. D.C. Code § 48-831.02(4)(A) (2004). ERISA plans are only affected by

Access Rx to the extent that they choose to employ a PBM. ERISA plans are not

regulated by the statute; rather, PBMs are regulated as marketplace actors,

regardless of with whom they contract.

Indeed, Access Rx is just one of many such laws of general applicability

similar to other state laws regulating potential plan service providers such as banks,

insurers, hospitals and financial advisors. See, e.g., D.C. CODE § 26-551.05; D.C.

CODE § 31-2231.17; see generally Ron A. Rhoades, State Common Law Applying

Fiduciary Duties Upon Financial Advisors 3 (2008), http://www.fiduciarynow

.com (follow “State Law” hyperlink; then follow “Fiduciary Financial Advisor

Case Law Review”). Moreover, states license attorneys and accountants who

provide services to ERISA plans to practice in their jurisdictions, D.C. Code § 47-

2853.04(a)(3); D.C. Code § 47-2853.04(a)(6), and provide specific directives as to

certain disclosure requirements. See, e.g., D.C. RULES OF PROF’L CONDUCT R.

Hancock Mut. Life Ins. Co. v. Harris Trust and Sav. Bank, 510 U.S. 86, 98 (1993).

17

1.5(e) at 19 (2007), available at www.dcbar.org /new _rules/Rule.cfm; D.C. MUN.

REGS. tit. 17, §§ 2510.1, 2510.3 (1990). Access Rx is another example of

regulation for the public good.

The proposed Department of Labor (DOL) regulation does not change the

rule that laws of general applicability are not preempted. The regulation proposes

to place disclosure requirements not only on PBMs, but on a wide variety of

service providers: those who are also fiduciaries, those who provide “banking,

consulting, custodial, insurance, investment advisory (plan or participants),

investment management, recordkeeping, securities or other investment brokerage,

or third party administration” services, and those who receive indirect

compensation or fees for “accounting, actuarial, appraisal, auditing, legal, or

valuation” services. Dep’t of Labor, Reasonable Contract of Arrangement Under

Section 408(b)(2) – Fee Disclosure, 72 Fed.Reg. 70988, 71004 (Dec. 13, 2007).

The mere fact that the DOL regulation would require a service provider to disclose

certain information does not mean that state laws regulating those service providers

are preempted. Otherwise, the above-referenced regulations of banks, insurers,

hospitals, financial advisors, attorneys, accountants, and actuaries would all be

preempted, as would regulations of any other service provider affected by the

proposed DOL regulation.

18

An instructive case on this point is Gerosa v. Savasta & Co., 329 F.3d 317

(2d Cir. 2003). Defendant actuaries argued that ERISA’s actuarial standards

preempted the plaintiffs’ state law claims. Id. at 320. The court upheld the state

law claims, in part because plans “must deal with outsiders…under the same

diverse hodge-podge of state law as any other economic actor” and because

ERISA’s actuarial provisions “guarantee at least a floor of responsible reporting

standards. State standards, while possibly inconsistent with one another, could

only add to the protections afforded to the plan and its beneficiaries.” Id. at 328-

29. Similarly, Access Rx requires a PBM to “perform its duties with care, skill,

prudence, and diligence and in accordance with the standards of conduct applicable

to a fiduciary in an enterprise of a like character and with like aims.” D.C. Code

§ 48-832.01(b)(1)(A). The proposed DOL regulation would not prevent the

District of Columbia from imposing professional obligations on PBMs any more

than ERISA prevented New York from imposing professional obligations on

actuaries. ERISA plans contract with PBMs as outside service providers in the

same way that any other economic actor contracts with PBMs.

Another indicator of a generally applicable law is that the state law does not

affect the relations among the principal ERISA entities. Neither ERISA nor its

legislative history evince a clear intent to preempt state laws that do not affect the

19

relations among the principal ERISA entities – the employer, the plan fiduciaries,

the plan, and the beneficiaries. See e.g., Penny/Ohlmann/Nieman, Inc. v. Miami

Valley Pension Corp., 399 F.3d 692 (6th Cir. 2005); Ariz. State Carpenters

Pension Trust Fund v. Citibank, 125 F.3d 715 (9th Cir. 1997); Coyne & Delany

Co. v. Selman, 98 F.3d 1457, 1468 (4th Cir. 1996). A state law that does not

regulate an ERISA-governed relationship is not preempted because, more likely

than not, there will be no significant effect on the structure, administration, or type

of benefits provided by the plan. See Coyne, 98 F.3d at 1468; Hospice of Metro

Denver, Inc. v. Group Health Ins. of Okla., Inc., 944 F.2d 752, 756 (10th Cir.

1991) (law affecting the relations between an ERISA entity and an outside party is

not preempted). Indeed, “[c]ontract law is a general area of law, traditionally

regulated by the states, which does not necessarily affect the relationships

regulated under ERISA among employer, plan, participant, and fiduciary.”

Geweke Ford v. St. Joseph’s Omni Preferred Care Inc., 130 F.3d 1355, 1359 (9th

Cir. 1997). For this reason, the Ninth Circuit upheld a state law breach-of-contract

claim against a third party administrator for failure to administer and process

benefit claims covered under a plan. Id. The court found that the state contract

law did not directly regulate ERISA plans or force them “to adopt a certain scheme

of substantive coverage or effectively restrict [their] choice of insurers.” Id.

20

Access Rx does not regulate any of the principal ERISA entities. It does not

mention employers, fiduciaries or beneficiaries. And, plans are not regulated in

that they are not required to engage in or refrain from any activity. Rather, Access

Rx regulates contracts between PBMs and covered entities. It requires a PBM to

notify a covered entity of any conflict of interest, remit to a covered entity any

payment received, and provide financial information about the cost of purchased

drugs and arrangements for remuneration. These are all terms that regulate the

contractual relationship between a PBM and covered entity, rather than terms that

affect the processing or payment of benefits.

Moreover, like the law in Geweke, Access Rx does not directly regulate

ERISA plans. Rather, it regulates PBMs as service providers within the general

healthcare marketplace, not in an ERISA capacity. See Ariz. State Carpenters, 125

F.3d at 724. Access Rx neither adopts a certain scheme of substantive coverage

nor does it effectively restrict a plan’s choice of service provider. Access Rx does

not change the structure of ERISA plans or the eligibility for and amount of

benefits. See generally Kollman v. Hewitt Assocs., 487 F.3d 139 (3d Cir. 2007).

Instead, the relationship between PBMs and covered entities are traditional

commercial relationships of a purchaser-provider where claims have been held not

to be preempted. See Mackey v. Lanier Collection Agency & Serv. Inc., 486 U.S.

21

825, 833 (1988); Ariz. State Carpenters, 125 F.3d at 724; Coyne, 98 F.3d at 1471.

Conversely, but analytically parallel, the Supreme Court has recognized that

“lawsuits against ERISA plans for run-of-the-mill state-law claims such as unpaid

rent, failure to pay creditors, or even torts committed by an ERISA plan” are

against the plan in a capacity other than as a plan – i.e., as a commercial entity –

and are not preempted. Mackey, 486 U.S. at 833.

Because Access Rx provides purchasers information about the service they

have purchased, it cannot be preempted as those claims do not significantly impact

ERISA-governed relationships. While Access Rx regulates PBMs as providers of

medical services, the mere fact that PBMs provides those services to an ERISA

plan does not mean Access Rx relates to an ERISA plan.

II. ACCESS RX IS A LEGITIMATE STATE LAW AIMED AT LOWERING RUNAWAY DRUG COSTS.

High prescription drug costs place an increasingly heavy burden on the

elderly population. Because PBMs secretive actions drive up those costs, business

transparency such as that required by Access Rx is necessary to bring down drug

expenses. Access Rx thus relates centrally to the District of Columbia’s health

care concerns.

22

A. High Prescription Drug Costs Threaten Older Consumers’ Health.

High prices for prescription drugs have serious, harmful consequences for

millions of consumers. Manufacturer prices for brand name and specialty

prescription drugs widely used by Medicare beneficiaries continued to far outstrip

price increases for other consumer goods and services in 2008. AARP,

Manufacturer Drug Prices Reach Record Highs, RX WATCHDOG REPORT (April

2009), available at http://assets.aarp.org/www.aarp.org_/cs/elec/Watch

dog _april_2009.pdf (differences between drug manufacturers prices increases

range from 2.9 to 4.9 %). Unfortunately, when costs become too high, consumers

forgo their medicines. Sixteen percent of all older patients taking one or more

prescription, and twenty-one percent of older patients with three or more chronic

conditions, do not fill or delay filling prescriptions due to cost.3F

4 Patricia Neuman

et al., Medicare Prescription Drug Benefit Progress Report: Findings From a 2006

National Survey of Seniors, 26(5) HEALTH WATCH (WEB EXCLUSIVES) w630, w634

(2007), available at http://content.healthaffairs.org/cgi/reprint/26/5/w630. For

older persons on Medicare Part D, the numbers are twenty percent and twenty-five

percent, respectively. Id. The result is “increased emergency department visits,

psychiatric admissions and nursing home admissions, [and] decreased health

4 Percentages are rounded to whole numbers.

23

status.” John D. Piette et al., Cost Related Medication Underuse Among

Chronically Ill Adults: the Treatments People Forego, How Often, and Who is at

Risk, 94 AM. J. PUB. HEALTH 1782 (2004).

B. The PBM Industry Is a Key Marketplace Entity Greatly Influencing Prescription Drug Prices. PBMs contract with heath plans to help them administer prescription drug

coverage for their consumer beneficiaries. Depending on the contract with the

health plan, PBMs perform a variety of tasks ranging from negotiating price

discounts with drug manufacturers, running and contracting with pharmacy

networks, establishing and encouraging use of formularies, and sometimes

consulting with health plans to advise them how to manage their prescription

benefits. See Arnold J. Rosoff, Symposium: The Changing Face of Pharmacy

Benefits Management: Information Technology Pursues a Grand Mission, 42 ST.

LOUIS U. L.J. 1, 11-23 (Winter 1998). They act as middlemen by creating

relationships with the drug manufacturers, retail pharmacies, and pharmacists and

then brokering business arrangements with the health plans which are the PBM’s

clients. See generally Regina Sharlow Johnson, PBMs: Ripe for Regulation, 57

FOOD DRUG L.J. 323, 328-334 (2002).

Four PBMs control 55 percent of all prescriptions filled nationally:

CVS/Caremark Rx, Medco Health Solutions, Argus Health Systems, and Express

24

Scripts/CuraScript. A second tier of five companies control an additional 28

percent. Pharmacy Benefit Management Institute, PBM Market Share: Top 25

Pharmacy Benefit Management Companies and Market Share By Annual

Prescription Volume, as of 1st Quarter 2009, available at http://www.pbmi

.com/PBMmarketshare2.asp (last visited August 10, 2009). The major PBMs have

become some of the country’s most profitable companies: On the 2009 Fortune

500 list, CVS/Caremark was number 19 with profits of about $3.2 billion, Medco

was number 45, and Express Scripts was number 115. Fortune 500 Largest U.S.

Corporations, Fortune, available at http://money.cnn.com/magazines/fortune

/fortune500/2009/ full_list/.

C. New Research Questions the Degree to Which PBMs Reduce Health Care Costs.

As drug costs climb precipitously, researchers have begun to investigate

whether PBMs actually provide savings to their customers. One tactic garnering

particular attention is that of negotiating rebates with drug manufacturers. PBMs

routinely make arrangements with drug manufacturers wherein the manufacturers

pay rebates to PBMs for favoring the drug makers’ products on formularies – lists

of drugs approved or favored for payment by a health care provider or health plan.

Robert Garis et. al., Examining the Value of Pharmacy Benefit Management

Companies, 61 AM J. HEALTH-SYST PHARM. 81, 83(2004) [Garis, Value of PBMs].

25

See also James Langenfeld & Robert Maness, The Cost of PBM “Self-Dealing”

under a Medicare Prescription Drug Benefit (Sept. 2003), available at http://www.

ncpanet.org/pdf/pbm_selfdealing090903.pdf [Langenfeld]. These arrangements

are confidential by contract allowing PBMs to keep rebates for themselves without

informing their clients. When a PBM does return part of a rebate to a plan, it may

pass on varying percentages of the rebates to different plans, rather than returning

the entire portion of every rebate to every plan. Cf. GAO, Medicare Part D

Prescription Drug Coverage: Federal Oversight of Reported Price Concessions

Data, (GAO-08-1074R, Sept. 2008) (“…sponsors that use different formularies

across various plans may choose an allocation [of rebates] method that accounts

for the differences.”). Such “rebates” may account for 10 percent of the money

Americans spend on prescription drugs. Barnes, supra. Because PBMs typically

retain up to 30 percent of manufacturers’ rebates, they have an incentive to switch

prescriptions to drugs paying higher rebates, even if that drug costs the end payor

more. Langenfeld, supra, at 4-5.

The problem of drug switching is heightened in those situations where a

PBM acts both as a plan administrator and the seller of drugs through its own mail

order pharmacy. In such situations, prescription costs increase due to drug

switching. Lagenfeld, supra. The conflict of interest arises because the PBM “has

26

both the incentive and ability to dispense higher priced products to its patients and

to earn profits on the difference between its [post-rebate] acquisition costs and its

inflated price.” Id. at 2. PBM self-dealing could cost the Medicare program and

beneficiaries as much as $30 billion from 2004 to 2013. Id. at 25.

Another PBM practice under scrutiny is “spread pricing” – negotiating low

rates with pharmacy networks but not passing them on to clients. Garis, Value of

PBMs, supra, at 83-84; Mark Siracuse, Robert Garis & Bartholomew Clark,

Abstract 11: Further Evidence to Support Hidden Sources of PBM Revenue;

Preliminary Results, 45(2) J. AM. PHARM. ASSOC. 222 (2005). In an especially

egregious example, a PBM billed a client $215 for a generic stomach medication,

Ranitidine, but only paid the pharmacy $15 for the drug. Robert Garis &

Bartholomew Clark, The Spread: Pilot Study of an Undocumented Source of

Pharmacy Benefit Manager Revenue, 44(1) J. AM. PHARM. ASSOC. 15, 18 (2004).

In a study of 20,376 prescription transactions, researchers at Creighton University

found an average spread of $1.82, or 3.8%, a substantial sum considering the

nearly four billion prescriptions processed by PBMs every year. Mark V. Siracuse,

Bartholomew E. Clark, Robert I. Garis, Undocumented Source of Pharmacy

Benefit Manager Revenue, 65 AM. J. HEALTH-SYSTEM PHARMACY 552, 554 (2008);

Pharmacy Benefit Manager Institute, supra.

27

Several PBMs have recently settled lawsuits accusing them of keeping

rebates, switching drugs, spread pricing, or some combination of the three. In

exchange for avoiding any admission of wrongdoing, CVS Caremark paid $38.5

million, Medco paid $29 million, Express Scripts paid $9.5 million, and

Pharmaceutical Care Network paid $800,000. Gloria Gonzalez, PBM Express

Scripts Reaches Multistate Pact to End Switching Probes; Joins Other PBMs in

Agreeing to Alter Business Practices, BUS. INS., June 2, 2008; CVS Caremark

Settlement, AM. HEALTH LINE, February 15, 2008; Ohio Awarded $410K in Rx

Benefits Settlement, COLUMBUS BUS. FIRST, May 27, 2008; Kathy Robertson, PCN

Pays $800k to Settle Lawsuit; Feds Tighten Reins on Benefits Manager,

SACRAMENTO BUS. J., June 5, 2006. Express Scripts also agreed to reimburse the

City of Baltimore more than $240,000 as a result of its spread pricing. Karen

Buckelew, Benefits Firm to Reimburse Baltimore for Overpayments to City

Workers, THE DAILY RECORD (Balt., Md.), Dec. 21, 2006.

D. Some PBMs Offer Transparency to Clients.

When a PBM agrees to provide transparency concerning rebates,

discounts and drug switching, two things occur. First, the cost of drugs charged to

an entity is reduced. Second, those PBMs willing to provide transparency can

obtain clients.

28

In 2004, Wisconsin contracted with Navitus Health Solutions to serve as

PBM for its state employee health plans. Gary Harki, W. Va. Prescription Drug

Program Could be Good Medicine, CLARKSBURG EXPONENT TELEGRAM, June 13,

2005 [Harki]. Due to contractually required disclosures, Wisconsin spent less on

prescription drugs than the year before and achieved average drug savings of 30.6

percent. Guy Boulton, State Gets Prescription for Savings, MILWAUKEE JOURNAL

SENTINEL, June 7, 2005 [Boulton]. Inspired by Wisconsin’s success, West

Virginia adopted a similar program of transparency with similar savings. Harki,

supra; Boulton, supra.

Subsequent to the contracts with these two states, more PBMs now advertise

themselves as transparent. E.g., Argus Health Systems, www.argushealth.com

(last visited Aug. 10, 2009); EnvisionRxOptions, www.envisionrx .com (last

visited Aug. 10, 2009); MedImpact, www.medimpact.com (last visited Aug. 10,

2009); PharmaStar, www.pharmastar.biz (last visited Aug. 10, 2009); see also Fred

Gebhart, Under Mounting Pressure, New Breed of PBM is Born, DRUG TOPICS

(September 12, 2005). Even Medco, in its dealings with thirty companies working

together as “RxCollaborative,” has agreed to disclose to the companies all rebates

and discounts from drug manufacturers, to pass on all savings to them, and to

29

charge them only an administrative fee. Milt Freudenheim, Employers Unite in

Effort to Curb Prescription Costs, N.Y. TIMES, Feb. 3, 2005.

Alternative PBM business models and legislation such as Access Rx

demonstrate the existence of both a problem with traditional PBMs and of a

legitimate state interest in solving that problem. Additionally, the responses of

some PBMs, such as Medco, to these actions show that transparency in the PBM

industry is neither as dangerous as appellee has previously suggested, nor are all

PBMs uniformly opposed to transparency provisions.

CONCLUSION

PBM practices such as spread pricing and keeping rebates contribute to the

oppressive problem of prescription drug costs. Access Rx would shed light on

PBM dealings to ensure that health care expenses are fair and appropriate.

PCMA has not met the considerable burden of overcoming the presumption

that ERISA does not preempt Access Rx, a state law regulating a traditional area of

state regulation – health care. For the foregoing reasons, amici respectfully urges

the Court to reverse the judgment of the District Court and find that ERISA does

not preempt Access Rx.

30

Respectfully submitted,

____________________________ Jan May Stacy Canan Rawle Andrews, Jr. Mary Ellen Signorille Legal Counsel for the Elderly AARP Foundation Litigation 601 E Street, NW Washington, DC 20049 Michael Schuster (202) 434-2160 AARP Wells Wilkinson 601 E Street, NW Prescription Access Litigation Washington, DC 20049 Project, L.L.C. (PAL) (202) 434-2060 30 Winter Street Boston, MA 02108 (617) 275-2822

Attorneys for Amici Curiae

31

CERTIFICATE OF COMPLIANCE WITH RULE 32(A)

1. This brief complies with the type-volume limitation of Fed. R. App.

P. 32(a)(7) and Circuit Rule 32(a)(2) because: this brief contains 6,266 words,

(excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii)) as

determined by the word counting feature of Microsoft Office Word version 2003).

2. This brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because this

brief has been prepared in a proportionally spaced typeface using Microsoft Office

Word version 2003 14 point Times New Roman font.

Dated: August 21, 2009 ____________________________ Stacy Canan AARP Foundation Litigation 601 E Street, NW Washington, D.C. 20049 (202) 434-2060 Attorney for Amici Curiae

32

CERTIFICATE OF SERVICE

I certify that on August 21, 2009 the original and 8 copies of the foregoing

Brief Amici Curiae of AARP, Legal Counsel for the Elderly and the Prescription

Access Litigation Project in Support of Appellants were hand delivered to Mark

Langer, Clerk of U.S. Court of Appeals for the District of Columbia Circuit and 2

copies were Federal Expressed to the following counsel:

James Creighton McKay, Jr. Todd Sunhwae Kim Donna M. Murasky Counsel for the District of Columbia Office of the District of Columbia Attorney General Office of the Solicitor General 441 Fourth Street, N.W., 6th Floor Washington, D.C. 20001-2714 and Paul J. Ondrasik, Jr. Alice E. Loughran Martin D. Schneiderman Linda S. Stein Counsel for PCMA Steptoe & Johnson 1330 Connecticut Avenue, N.W., Suite 738 Washington, D.C. 20036-1795 ___________________________________ Stacy Canan