I have purloined this and reprinted almost in full from AISHealth.com’s Government News of the Week.
Caremark Rx, Inc. did not breach its fiduciary duties when negotiating drug prices and managing the formulary for a multi-employer health fund because it was not acting as a fiduciary, a federal appeals court ruled last month. The pharmacy benefit management (PBM) industry hailed the opinion, saying it sets a precedent for other lawsuits and state initiatives that claim PBMs have fiduciary responsibilities. In a Jan. 19 ruling (No. 05-3476), the U.S. Court of Appeals for the Seventh Circuit upheld a lower court ruling that found Caremark was not an Employee Retirement Income Securities Act (ERISA) fiduciary for the Chicago District Council of Carpenters Welfare Fund (Carpenters). The fund had sued Caremark, claiming it breached fiduciary duties under three multiyear contracts to provide Rx benefits to union members.The parties disagree about the nature of Caremark’s obligations under the contracts, according to the ruling. Carpenters portrays Caremark as its fiduciary, responsible for, among other things, negotiating prices with retail pharmacies and drug manufacturers on behalf of Carpenters. Caremark claims only to have agreed to provide the stated benefits at prices determined via "arm’s-length negotiations between Caremark and Carpenters," the ruling says.In fact, each contract provided that Caremark "was not a fiduciary as that term is defined by ERISA, and that Carpenters possessed the sole authority to control and administer the plan," according to the ruling. "Nonetheless, Carpenters alleges that, under the three contracts, Caremark has discretionary authority over the management and administration of Carpenters’ drug benefit plan and also exercises discretion and control over Carpenters’ assets," according to the appeals court. The fund contends this "discretionary authority" gives rise to fiduciary duties under ERISA, the ruling adds.Specifically, the union alleges Caremark has discretion (and therefore fiduciary duties) in four specific areas: (1) negotiations with drug retailers over drug prices; (2) negotiations with drug manufacturers over rebates and other discounts; (3) the management of the formulary program; and (4) the management of the drug switching program. Among other things, Carpenters contends that Caremark breached its fiduciary duties by charging the fund a higher price than Caremark negotiated with retail pharmacies, and by choosing drugs for the formulary that were more expensive so that Caremark could pocket extra rebates it obtained from drug makers, according to the ruling. The district court, however, found nothing in the contracts that required Caremark to pass through cost savings to Carpenters, according to the appeals court.Stephanie Kanwit, special counsel at PBM trade group Pharmaceutical Care Management Association (PCMA), described the appeals court decision as an "important ruling" that will set a precedent for other cases. <SNIP>. At least 20 states rejected PBM fiduciary and/or disclosure bills in the first half of last year, according to PCMA. The latest appeals court ruling makes clear from one of the most economically sophisticated courts in the country that these are matters of contracts, Kanwit contends. "It doesn’t do any good and, in fact, harms the interest of customers like this union to start claiming breach of fiduciary duty. That’s a red herring."Kanwit says PBM customers generally don’t want their PBMs to be fiduciaries. "Customers want the PBM to do what the Carpenters did here, enter into a contract," she says. "You do not want them to be in charge of what this court calls ‘discretion.’ There is no discretion about it. In a contract, here it is, here is the price. It’s spelled out."Others say the ruling on the federal ERISA law will have a limited effect on state efforts to impose PBM fiduciary duties. Some states have adopted or are considering legislation that says fiduciary duties exist between a PBM and any company or health plan that hires a PBM to negotiate rebates and other discounts from a drug company, says Sharon Treat, executive director of the National Legislative Association on Prescription Drug Prices, which has worked with states to develop PBM fiduciary laws."That legislation really isn’t affected by a decision that interprets ERISA, because these laws aren’t intended to interpret ERISA," she says. The legislation, rather, defines the relationship between contracting parties as a "fiduciary relationship under state law," Treat says, adding that states have had the right to regulate contracts since time immemorial. "How courts rule on ERISA is, in some cases, beside the point," she adds.
This may sound like complex legal stuff. And it is. I don’t know whether its reasonable or useful to call a PBM a fiduciary with the obligations that go along with it. But one hopes that, whether or not it is legally obligated to serve its clients’ interests, at least the PBM sincerely believes that its interests and those of its clients are the same. But I’ll leave you to be the judge of whether it really does.