Court: Participants Had no Standing to Sue PBM

October 18, 2006 ( - A federal appellate court has upheld a lower court ruling that two participants in employer-sponsored prescription drug benefit plans do not have a right to sue a pharmacy benefit manager (PBM).

As did the lower court, Circuit Judge Alex Kozinski, in writing for 9 th US Circuit Court of Appeals panel, rejected plaintiffs’ claims that the PBM committed a fiduciary breach by keeping the spread between what the PBM charges the plans for drugs and what it pays suppliers.

The three-judge panel asserted that the participants never proved that they were harmed by the PBM’s fiduciary missteps in a way recognized under the law. The appellate court also rejected the participants’ argument that they had standing to bring the fiduciary breach lawsuit under the Employee Retirement Income Security Act (ERISA) as representatives of their respective plans.

AdvancePCS Inc. is a PBM that manages prescription drug benefit programs including those at ALCOA and Kmart Corp. According to the appellate court, when AdvancePCS receives a prescription from a plan participant, AdvancePCS decides whether to buy the drug at a negotiated discount, turn away the participant’s claim, or move the worker to another drug option.

The two participants in the current case were in prescription drug benefit plans sponsored by ALCOA and Kmart. Their original suit alleged that AdvancePCS, in addition to earning fees from the plans, has secretly been keeping the spread between what it charges the plans for drugs and what it pays suppliers.

US District Judge Susan Bolton of the US District Court for the District of Arizona had earlier dismissed the participants’ lawsuit, finding they lacked legal standing to sue AdvancePCS.

In the appellate decision, Kozinski went on to find that the participants never showed that it would be likely that the injuries they claim to have suffered would be properly compensated for by winning their case.

“Plaintiffs don’t claim they were denied benefits or received inferior drugs. Rather, they claim that AdvancePCS charged the plans too much for drugs, and that this caused the plans to demand higher co-payments and contributions from participants,” Kozinski asserted.

The appeals court turned away the plaintiffs’ contention that plan sponsors’ drug costs would decrease and that sponsors might then reduce contributions or copayments if they had won in court.

“But nothing would force ALCOA or K-Mart to do this, nor would any one-time award to the plans for past overpayments inure to the benefit of participants. ALCOA and K-Mart would be free to reduce their contributions or cease funding the plans altogether until any such funds were exhausted. There is no redressability, and thus no standing, where (as is the case here) any prospective benefits depend on an independent actor who retains ‘broad and legitimate discretion the courts cannot presume either to control or to predict,’ ” Kozinski wrote.

The ruling in Glanton v. AdvancePCS Inc., 9th Cir., No. 04-15328, 10/17/06 is here .