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March 23, 2005
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2005-05A
ERISA Sec. 514(b)(8) & 609(b)
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Mr. Patrick J. O'Connell
Chief, Civil Medicaid Fraud Section
Office of the Attorney General of Texas
P.O. Box 12548
Austin, Texas 78711-2548
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Dear: Mr. O'Connell:
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This responds to your request for guidance regarding
Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”),
29 U.S.C. 1101-1191c, in connection with an investigation of a pharmacy
benefit manager (PBM) for potential violations of the False Claims Act.
The investigation concerns allegations that the PBM improperly refused to
reimburse government health insurance programs for prescription drug
payments. In some cases, the States had made the payments without
knowledge that the individuals involved were eligible for benefits under a
private health insurance plan that was a customer of the PBM as well as
for benefits under the State Medicaid program.(1)
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It is our understanding that the great majority of the PBM's clients are
self-funded group health plans covered by ERISA. You state that the PBM
contends it properly rejected the States' reimbursement attempts with
respect to such plans for either of two principal reasons: (1) the State
submitted its reimbursement requests after the time allowed under the plan
for submission of benefit claims, and (2) the plan only offers items or
services at the point-of-sale (POS) and has no procedure for reimbursing
either a participant or third party payer. The PBM views any State law
entitling the State to obtain reimbursement in either of these situations as
preempted by ERISA.
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You have advised us generally about the States' difficulties in assuring
that their Medicaid programs are the payers of last resort if a Medicaid
recipient has another payment source for prescription drugs. In particular,
you described the inability of States to meet plans' deadlines for
submitting reimbursement claims due to unreasonably short filing deadlines
imposed by plans or difficulties in determining whether a given Medicaid
recipient is also eligible for other coverage. A State must generally obtain
assistance from the PBM in matching Medicaid recipients against the PBM's
lists of individuals eligible for other coverage, such as group health plan
coverage. You indicate that PBMs are not always willing to provide such
assistance. Moreover, in some cases, the State may not even receive a
request for payment from a pharmacist until after the deadline set by the
other coverage, particularly the time limits for a group health plan for
filing participant claims.
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In addition, some plans may only accept pharmacists'
payment requests electronically and only when the request is presented at
the time the participant receives the drug at the pharmacy. In such plans,
participants may have their prescriptions paid for by the plan only if
they have their prescriptions filled by presenting a pharmacy benefit card
at a covered pharmacy. Such plans may have no procedure to process claims
for reimbursement from participants and they may refuse to accept
reimbursement requests from State Medicaid agencies.
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ERISA § 514(a), 29 U.S.C. 1144(a), provides that, with certain exceptions,
Title I of ERISA preempts any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan subject to Title I. ERISA,
however, contains provisions specifically addressing its interaction with
State laws authorizing or directing Medicaid programs to obtain
reimbursement from ERISA-covered group health plans. In particular, ERISA §
609(b)(3) provides:
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A group health plan shall provide that, to the extent that payment has been
made under a State plan for medical assistance approved under title XIX of
the Social Security Act in any case in which a group health plan has a legal
liability to make payment for items or services constituting such
assistance, payment for benefits under the plan will be made in accordance
with any State law which provides that the State has acquired the rights
with respect to a participant to such payment for such items or services.
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In addition, ERISA § 514(b)(8) (as follows) saves from
preemption State causes of action to obtain reimbursement for their Medicaid
programs from ERISA plans:
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Subsection (a) of this section shall not be construed to preclude any State
cause of action—
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(A) with respect to which the State exercises its acquired rights under
section 609(b)(3) with respect to a group health plan (as defined in section
607(1)), or
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(B) for recoupment of payment with respect to items or services pursuant to
a State plan for medical assistance approved under title XIX of the Social
Security Act which would not have been payable if such acquired rights had
been executed before payment with respect to such items or services by the
group health plan.
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Congress enacted these provisions as part of OBRA '93
(Pub. L. 103-66), which also amended ERISA to require that group health
plans honor assignments of benefit rights to a State Medicaid plan (ERISA §
609(b)(1)), and enroll participants or beneficiaries and determine and pay
benefits without regard to any individual's eligibility for Medicaid
benefits (ERISA § 609(b)(2)).(2)
These ERISA amendments reflect changes to the Medicaid provisions of
the Social Security Act (Title XIX) requiring enactment of State laws (1) to
prohibit insurers and group health plans from taking Medicaid eligibility
into account in enrollment or in making benefit payments, and (2) to recoup
Medicaid payments from liable third parties, including self-funded ERISA
plans. 42 U.S.C. §§ 1396a(a)(25)(G) & (H).
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ERISA § 609(b)(3), quoted above, plainly requires an
ERISA plan to pay for covered benefits as required by a State law under
which the State, having made Medicaid payments, acquires the rights of a
plan participant to receive plan benefits relating to such payments.
Moreover, a State cause of action to enforce the rights created by such a
State law against a plan is expressly saved from ERISA preemption by section
514(b)(8)(A). Actions described in section 514(b)(8)(A) are essentially
actions by which the State agency asserts the rights of the participant to
payment of benefits under the plan.
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Section 514(b)(8), however, goes beyond saving State laws
that assign a participant's benefit rights to State agencies. Subparagraph
(B) of section 514(b)(8) separately saves from ERISA preemption a State
cause of action for recoupment of its expenses where the State has paid for
items or services covered by the plan, but would not have done so if the
rights with respect to the participant under an ERISA plan had been executed
before the State made payment (e.g., in the case of some pharmacy benefits,
if the participant's or a third party's (such as the pharmacist's) right to
payment by the plan had been executed at the POS). The existence of
subparagraph (B) indicates that Congress intended to save from preemption
not only those State causes of action that authorize State agencies to
exercise subrogated participants' rights to benefits under a group health
plan, but also causes of action that authorize State agencies to seek
recoupment for payments that the State would not have made if, instead, the
rights with respect to the participant had been executed before the State
made payment.(3)
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Thus, in our view, ERISA does not preempt a State cause
of action to recoup the State's Medicaid payments to the extent that the
plan would have been liable to any third party, including the participant or
the pharmacist, for those expenses when the drug was dispensed (that is
before the State made the payments). State law (including case law) that
holds a plan liable for the reimbursement of the State under such
circumstances would not be preempted by ERISA, notwithstanding the plan's
procedural requirements governing participant benefit claims, including
filing time limits.(4)
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The State cannot, however, compel the plan to reimburse
it for items or services for which the participant was not entitled to
payment from the plan for procedural reasons. For example, if, before
seeking to have Medicaid pay for a drug, the participant had already filed a
benefit claim for the drug with the plan, and the plan (or State external
review decisionmaker, if applicable) had issued a final denial of the claim
based on a failure to follow the plan's claims procedures, the Department of
Labor would not view the plan as legally liable to pay for the item or
service. On the other hand, if, at the time the participant presented a
Medicaid card to the pharmacist and received the drug, the participant had
not yet applied for benefits under the plan for that prescription, but still
could have done so in accordance with the terms of the plan, a State action
seeking reimbursement for what the plan would have paid with respect to the
prescription would not be preempted. The plan could not, in such a case,
reject a State Medicaid agency's request for reimbursement on the grounds
that the plan had no procedure to process written claims for reimbursement
from participants.
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We also conclude that ERISA does not preempt a State
action for reimbursement against a plan that provides benefits only at the
POS and does not recognize subsequent claims for reimbursement from plan
participants. A plan that makes no provision for reimbursing a State
Medicaid agency for items or services covered by the plan would not be in
compliance with ERISA § 609(b)(3). Under this section, the State's payment
for the item or service is the precondition for the plan's obligation to pay
for the benefit in accordance with State law. To deny a State's claim to
reimbursement from a plan on the grounds that the plan provides only POS
benefits and does not reimburse participants would make the statutory
precondition that the State have paid for the item or service the very
reason for denying the State's claim.
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Section 514(b)(8)(B), however, does not save from
preemption a State law requiring a group health plan to pay the State for
items or services that the plan does not cover. Moreover, a plan could not
be required to pay the full amount of the State's payment for a drug if the
amount that the plan would have paid under its terms was less. For example,
some plans pay one amount with respect to an item or service obtained from
certain designated providers or pharmacies and pay a lesser amount for the
same item or service obtained from non-designated providers or pharmacies.
If the State had paid for an item or service obtained from a non-designated
provider or pharmacy, such a plan could be required to reimburse the State
only the lesser amount. In some other cases, it may be difficult to
determine whether a plan provision affecting payment for an item or service
is solely procedural in nature or whether it actually defines the covered
benefits. These distinctions could be made only by analyzing the particular
plan provision.
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This letter constitutes an advisory opinion under ERISA
Procedure 76-1, and is issued subject to the provisions of that procedure,
including section 10 thereof relating to the effect of advisory opinions.
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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The investigation also concerns
allegedly improper rejection of reimbursement claims by Medicare and
other government insurance programs, but only the Medicaid claims are
relevant for purposes of this letter.
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The conference report accompanying
OBRA '93 states that:
[G]roup health plans are required to pay benefits in accordance with
any assignments of rights on behalf of participants and beneficiaries
that is required by Title XIX of the Social Security Act. . . . In
addition, . . .to the extent that payment has been made under Title
XIX, states would acquire the right of any other party to payment.
State laws enforcing these rights must be honored by group health
plans since those laws would be exempt from ERISA's preemption.
H. Conf. Rep. 103-213, 103rd Cong. 1st Sess. 1993, at 469; 1993 U.S.
Code Cong. & Ad. News 1088, 1158.
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See Health Ins. Assoc. v. Shalala,
23 F.3d 412, 419, (D.C. Cir. 1994); cert. denied, 513 U.S. 1147
(1995); U.S. v. Travelers Ins. Co., 815 F. Supp. 521, 523 (D. Conn.
1992); Provident Life & Accident Ins. Co. v. U.S., 740 F. Supp.
492, 501-503 (E.D. Tenn. 1990); and U.S. v. Blue Cross & Blue
Shield, 726 F. Supp. 1517, 1522 (E.D. Mich. 1989) making a similar
distinction between actions based on subrogation and independent
reimbursement actions by the Federal government under the Medicare
Secondary Payer Act, 42 U.S.C. § 1395y. The court in Shalala
invalidated a Medicare regulation authorizing the government to
recover payments from an employer group health plan without regard to
any claims filing requirements the plan imposed on other claimants,
but the court based that part of its decision on language in the Act
that differs substantially from the provisions of ERISA discussed
here.
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To the extent that the holding in
Belshé v. Laborers Health and Welfare Trust Fund for Northern
California, 876 F. Supp. 216 (N.D. Cal. 1994), is not consistent with
this position, we disagree with that case. Two other cases have cited
Belshé for the proposition that § 514(b)(8) as a whole gives the
States no greater rights than the participant in an action against the
plan. Commonwealth v. Lubrizol Corp. Employee Benefits Plan, 737 A.2d
862, 868-869 (Pa. Commw. Ct. 1999); Morrone v. Thuring, 334 N.J.
Super.456, 472, 759 A.2d 1238, 1247 (N.J. Super. 2000).
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