A week after the Supreme Court ruled that a federal law governing employee benefit schemes preempts state patients' rights protections, pharmacy benefit managers (PBMs) filed suit June 29 against a District of Columbia law regulating the industry, arguing it also falls under the purview of the federal statute.

Both the Supreme Court decision and the challenge to the District law touch on the controversial question of the rights of beneficiaries under drug plans and the obligations of those who administer, or help to administer, those plans. The legal cases have direct implications for retiree drug plans that will receive subsidies under the new Medicare prescription drug benefit. Medicare HMOs and stand-alone drug plans are exempt from both the federal law at issue in these cases and from the local regulatory efforts at patient protections, although precedents set for regulation of PBMs could potentially influence how CMS regulates the drug benefit.

The suit by the Pharmacy Care Management Association (PCMA), the PBM lobby group, seeks to enjoin the District from imposing fiduciary obligations -- requirements that PBMs use manufacturer rebates and make formulary determinations in the interest of the health plans and beneficiaries that pay them -- on PBMs, arguing that the Employee Retirement Income Security Act (ERISA) gives the federal law sole authority to regulate such practices.

In a high profile June 21 decision , the Supreme Court said that the eligibility and coverage decisions made by health plans, including those governing prescription drug coverage, fell within the jurisdiction of ERISA and are "generally" a fiduciary act.

"ERISA defines a fiduciary as any person 'to the extent...he has any discretionary authority or discretionary responsibility in the administration of [an employee benefit] plan,'" the Supreme Court said. "When administering employee benefit plans, HMOs must make discretionary decisions regarding eligibility for plan benefits, and, in this regard, must be treated as plan fiduciaries."

But PCMA argues that although ERISA exempts them from local regulatory efforts such as the District law and a Maine statute also subject to court action, they are not subject to the fiduciary obligations imposed by ERISA.

PCMA attorney Paul Ondrasik said that ERISA defined which types of discretionary decisions trigger fiduciary responsibility under the law, and that the initial formulary decisions made by PBMs generally do not fall in that category. PBMs are "crucial to the administration of prescription drug plans," but that does make them fiduciaries.

To back up that view, Ondrasik cited the friend-of-the-court brief by the Bush administration, which also argued that ERISA preempted state patients' rights laws but did not base its argument on the claim that ERISA-covered plans were fiduciaries.

The patients' rights suits fall under ERISA "regardless of the fiduciary or non-fiduciary nature of the decisions," the administration argued.

Ondrasik maintained that PBMs are not faced with a trade-off between using ERISA preemption of locally imposed fiduciary obligations and accepting the fiduciary obligations under ERISA.

The question of whether PBMs have fiduciary obligations to the plans that hire them and to the beneficiaries that pay their premiums touches on a host of controversial PBM practices that have been the subject of recent litigation. Among them are whether PBMs must pass on the rebates they receive from drug manufacturers to lower the cost of the drug benefit and whether they can switch patients to alternative, sometimes more expensive, drugs to obtain such rebates from manufacturers.

Also at issue in the suit against the District law, as well as the Maine litigation, is whether PBMs have to disclose to the plans that hire them the rebates and other remuneration they receive from drug manufacturers. PCMA is challenging these requirements as illegal takings of property -- the proprietary pricing data of the PBM -- and interference with interstate commerce since they implicate PBM activity beyond the jurisdictions of Maine and the District.

Ondrasik also dismissed as a "band aid" an attempt by Maine to curtail the injunction obtained by PCMA against the state law. The state amended its law to strengthen the non-disclosure requirement governing the PBM drug price data and sought to have the law take effect against non-ERISA plans, such as state and local health plans.