Hawaii seeks remand in pharmacy benefit manager lawsuit

The lawsuit comes as part of a broader trend where states are targeting pharmacy benefit managers over their rebate practices.

by Jeremy Yurow, Court House News, February 28, 2025

Honolulu (CN) — The state of Hawaii pressed a federal judge Friday to send its lawsuit against major pharmacy benefit managers back to state court, arguing that the defendants cannot hide behind federal officer jurisdiction when the state has explicitly excluded federal health programs from its claims.

During a motion hearing before U.S. District Judge Leslie E. Kobayashi, attorneys debated whether pharmacy benefit managers (PBMs) such as Caremark PCS Health, Express Scripts, Inc., OptumRx, Inc., can retain federal jurisdiction over a case challenging their prescription drug rebate negotiation practices.

The hearing centered on Hawaii's renewed motion for remand following the filing of a second amended complaint that contains what the state calls a more robust disclaimer of federal claims. Kobayashi began by indicating her inclination to grant the motion.

At issue is whether the PBMs, which negotiates drug rebates for both federal employee health benefit plans and Hawaii state plans, can invoke federal officer removal jurisdiction when Hawaii's complaint explicitly disclaims any claims related to federal health plans.

Frederick Baker, representing Hawaii, argued that the state's revised disclaimer in the second amended complaint effectively eliminates any basis for federal jurisdiction by specifically excluding "federally directed conduct" from the lawsuit.

"The revised disclaimer states there's no federal related or federally directed conduct that forms the predicate of any of the state's claims," Baker told the court. "The lawsuit is focused solely on proprietary Caremark's negotiation and conduct relating to Hawaii plans under Hawaii law."

Caremark's counsel countered that the disclaimer is ineffective because the company's negotiations on behalf of federal and non-federal plans are "indivisible" — making it impossible to separate the conduct related to federal programs from that related to state programs.

"The negotiations are collective," Caremark's attorneys argued. "Discovery only shows an irrelevant fact... we did not allege in our notice of removal that we were directed to negotiate collectively."

Kobayashi questioned Caremark about the implications of its argument, noting that the company unilaterally decided to conduct collective negotiations for all clients.

"The non-federal clients have no say in deciding whether or not you're going to do it collectively, individually, or separately," Kobayashi said. "Then your client's always going to make that decision unilaterally, and then that would implicate federal officer jurisdiction in all of those cases."

Jurisdictional discovery revealed that Caremark combined negotiations for federal and non-federal plans for its own business convenience, rather than due to any federal agency requirement

"Caremark engaged in those joint negotiations for its own benefit," Baker said. "There's nothing that the federal government required of Caremark to negotiate simultaneously."

Caremark maintained that it qualifies for federal officer removal under the "acting under" standard because it assists the Office of Personnel Management (OPM) in implementing the Federal Employee Health Benefits Act (FEHBA) program. The company repeatedly cited a First Circuit decision in a similar case from Puerto Rico that found Caremark acted under federal officers.

"There has to be a nexus between federally directed conduct and the plaintiff's claims," Baker responded, citing the Ninth Circuit's Cedars-Sinai case. "Here we took them through discovery, there was no federally directed conduct of any kind, and so they can't cloak themselves in that federal protection based upon their own unilateral decision."

The lawsuit is part of a broader trend of states targeting PBMs over their rebate practices. In June 2024, 32 state attorneys general and five pharmacist trade groups backed a lawsuit supporting an Oklahoma law that would impose stricter regulations on pharmacy benefit managers (PBMs).

More recently, individual lawsuits have been filed by Texas, Michigan, Vermont, Minnesota, Massachusetts, Oklahoma and the Federal Trade Commission (FTC), among others. In a scathing report issued in July 2024, the FTC suggested that PBMs were "profiting by inflating drug costs and squeezing main street pharmacies"

Hawaii claims that Caremark and other PBMs violated state law in their handling of drug rebate negotiations for Hawaii health plans.

Caremark defended its collective negotiation approach as beneficial to all clients, including federal plans, by increasing bargaining power against drug manufacturers. The company argued that this approach results in federal funds benefiting from the collective process, as "100% of those rebates are passed back to carrier clients."

Should Kobayashi rule in Hawaii's favor, her decision could set a precedent for lawsuits in other states. She took the matter under advisement at the conclusion of the hearing. Her ruling will determine whether the case remains in federal court or returns to Hawaii state court for further proceedings.