Benefits Monthly Minute – July 2024 | Keating Muething & Klekamp PLL

July Monthly Minute considers the impact of the Supreme Court’s Loper ruling striking down Chevron’s long-standing deference standard; the district court’s ruling to award penalties for failure to produce plan documents under the Parity Act; and, finally, the FTC’s interim report on the impact of PBMs on access to and pricing of prescription drugs.

Supreme Court Overturns Chevron Deference

IN Loper Bright Enterprises v. Raimondo, Secretary of Commerce (Sup. Ct. 2024)The Supreme Court overturned a long-standing precedent, Chevron v. Natural Resources Defense Attorney (Sup. Ct. 1984), which directed courts to give significant weight to an agency’s interpretation of an ambiguous statute. In its 6-3 ruling, Drifter The court ruled that the Administrative Procedure Act requires courts to exercise independent judgment to determine whether an agency acted within its authority, and courts cannot rely on an agency’s interpretation of the law simply because the statute is ambiguous. According to Drifterentities regulated by agency guidance—whether DOL, IRS, PBGC, HHS, etc.—may more easily challenge agency regulations in the event of a lack of deference from the agency. However, it is also possible that agencies will delay issuing guidance to ensure that their regulations are strong enough to withstand judicial review. In short, this key ruling could lead to more litigation and less new agency guidance.

KMK comment: This Drifter This decision is a double-edged sword. To the extent that agency regulations provide plan administrators with clarity in the face of ambiguous statutory guidance, the resulting chilling effect on timely promulgation of agency guidance would be unfortunate. However, a judicious interpretation of gray areas in the statutory provisions can provide flexibility in complex plan administration. Impact Drifter this decision is already being implemented Utah vs. SuNo. 23-11097, where the Fifth Circuit is currently grappling with the application of the Biden administration’s ESG rules, and Fed’n of Ams for Consumer Choice, Inc. v. Department of Labor, 2024 BL 255392 (E.D. Tx. July 25, 2024), in which the District Court of Texas relied on Drifter in support of its ruling that the court is “not bound by any DOL interpretation of ERISA” and a related order temporarily blocking the DOL’s 2024 Fiduciary Rule, which expanded the class of retirement advice providers that constitute fiduciaries. We will keep you updated on the impact of these cases.

Ask and you shall receive (plan documents)

IN WH v. Allegiance Benefit Plan Mgmt, Inc., 2024 WL 2830792 (D. Mont. 2024), a self-funded health plan prevailed over plaintiffs’ claims that mental health benefits were wrongfully denied, but it still faced penalties for failing to produce ERISA plan documents. Citing a lack of medical necessity, the plan denied mental health benefits and affirmed the denial on appeal. A Montana district court upheld the denial, finding that the decision was not arbitrary or capricious. However, plaintiffs separately argued that defendants also violated the statutory disclosure requirements of the Parity Act by failing to disclose certain documents during the appeal process. ERISA plan administrators must provide participants with various plan documents upon written request, including SPDs, Form 5500s, and “other instruments on the basis of which the plan is established or implemented”. The provisions of the Parity Act define “(i)instruments The defendants referred to the “instruments by which the plan is established or operated” as “documents containing information about the medical necessity criteria for both medical/surgical services and mental health and substance use disorder services, and the processes, strategies, standards of proof, and other factors used to apply a nonquantitative treatment limitation to medical/surgical services.” However, defendants relied on a Ninth Circuit Court ruling (which preceded the Parity Act provisions) that “the instruments by which the plan is established or operated” refer to “documents that provide individual participants with information about the plan and its benefits,” which includes “only legal documents describing the terms of the plan, its financial status, and other documents that limit or govern the operation of the plan.” While the court found that the court disagreed on whether to apply Ninth District narrow definition or the expanded definition contained in the Parity Act provisions, ultimately stated: “(b)because the Parity Act provisions specifically interpret 29 U.S.C. § 1024(b)(4))apply in this case(,)” and ordered the defendants to pay the maximum penalty of $110.00 per day for 294 days, for a total of $32,340.00.

KMK comment: Overall, this case is an important reminder to carefully review and respond to requests for ERISA documents. The division of authority as to whether the Ninth Circuit’s definition or the regulatory definition should be applied makes the court’s ruling on maximum penalties somewhat surprising. However, given the court’s clear reliance on the Parity Act provisions, this could have been decided differently under the post-Drifter authority, eliminating the need to rely on agency guidance when interpreting an unclear provision.

FTC Sounds the Alarm on PBM Practices

Earlier this month, the FTC released an interim report from its ongoing investigation into the impact of pharmacy benefit managers (PBMs) on access to and affordability of prescription drugs. The report describes how PBMs, as middlemen, can profit by inflating drug costs and restricting local pharmacies. The report finds that PBMs negotiate the terms of access to prescription drugs, and the three largest PBMs now manage nearly 80% of all prescriptions filled in the United States. In addition, PBMs also serve as health plans and pharmacists and also influence the drug supply chain. Collectively, the report argues that PBMs have undue power and influence over access to and pricing of drugs. The interim report makes the following specific points, supported by documents and data obtained to date, as well as publicly available information:

The market for PBM services has become highly concentrated, and the largest PBMs are also vertically integrated with major health insurers and specialty and retail pharmacies.
Leading PBMs can have a significant impact on access to and pricing of medicines.
Vertically integrated PBMs may have the ability and incentive to favor their own related businesses.
Greater concentration may give leading PBMs an advantage in entering into complex and opaque contractual relationships.
PBMs and brand-name drug manufacturers sometimes negotiate discounts that are contingent on limiting access to potentially cheaper generic drugs.

KMK comment: The backlash from leading national PBMs in response to the FTC’s criticism was swift, with FTC Commissioner Melissa Holyoak also issuing a statement of opposition, saying the report “leaves us without a better understanding of the competition concerns surrounding PBMs or how PBM practices affect consumers.(…)” Whether the FTC report offers a candid analysis of PBM practices and the resulting impact on drug prices and access, it sheds light on the importance of understanding the role PBMs play in setting drug prices and access, which is a matter of primary concern to health plans and participants.