- A 2015 Arkansas law requires pharmacy benefit managers (PBMs) to follow certain procedures when developing their maximum allowable cost (MAC) lists and when determining the generic drug reimbursement rates they pay pharmacies in the state.
- The Pharmaceutical Care Management Association (PCMA), the national association representing PBMs, filed a lawsuit challenging the Arkansas law.
- The Supreme Court is considering whether the Arkansas law conflicts with the federal Employee Retirement Income Security Act (ERISA).
Recently there has been a wave of state laws regulating pharmacy benefit managers. In just the past two years alone, 43 states have enacted new laws regulating PBMs in areas ranging from prohibiting “gag clauses” and payment clawbacks/DIR fees to requiring annual reporting and state licensure. However, many state efforts to regulate PBMs have been met with legal challenges by the PBM trade association, PCMA. The bulk of those lawsuits claim that state regulation of PBMs is “preempted” by the Employee Retirement Income Security Act (ERISA).
ERISA is a federal law governing the administration of employee retirement and health care plans. Generally, ERISA requires employer-sponsored health insurance plans to:
- provide plan information to participants,
- follow fiduciary requirements, and
- report plan information annually to the Department of Labor
Also included in the ERISA laws is a provision that essentially excludes ERISA-regulated plans from state laws. This preemption provision is intended to shield multi-state or national employer plans from having to comply with differing requirements from multiple states, ensuring uniform federal regulation of these plans.
What did the Arkansas law do?
The Arkansas law in question requires PBMs to:
- reimburse pharmacies for generic drugs at least as much as the pharmacy paid the wholesaler
- requires PBMs to update their MAC lists when there are changes in wholesale acquisition costs
- requires PBMs to have a process through which pharmacies can appeal the reimbursement they receive and to allow pharmacies to reverse and re-bill claims or to decline to dispense a prescription if the reimbursement amount is less than the pharmacy’s cost
The Arguments on Each Side
The State of Arkansas (Petitioner Leslie Rutledge, Attorney General of Arkansas)
The state of Arkansas has argued that the law in question regulates what PBMs pay pharmacies and does not regulate health plans. During oral arguments before the Supreme Court, Arkansas’s Solicitor General argued that PBMs determine their own reimbursement practices, noting that often plans do not even know what those practices and policies are. The state of Arkansas argued that a previous Supreme Court decision related to ERISA applies in this case and based on that ruling, the Arkansas law is not preempted. In that case (New York Conference of Blue Cross & Blue Shield Plans vs Travelers), the Supreme Court ruled that a New York law requiring hospitals to charge patients a certain rate was not preempted by ERISA because it did not relate to the employee health plans regulated by ERISA.
The United States government submitted a brief to the Supreme Court stating that its position is that ERISA does not preempt the Arkansas law in question. Other groups that submitted briefs to the Court in support of Arkansas’s position that ERISA does not preempt the state’s law include:
- Every state except Arizona, Missouri, and Tennessee
- Community Oncology Alliance; Florida Cancer Specialists & Research Institute; North Shore Hematology-Oncology Associates; Regional Cancer Care Associates; Tennessee Oncology; Texas Oncology; and Quality Cancer Care Alliance
- The National Association of Chain Drug Stores
- National Council of Insurance Legislators
- The Arkansas Pharmacists Association; the National Community Pharmacists Association; the American Pharmacists Association; the National Alliance of State Pharmacy Associations; and 51 other pharmacist associations
- The Food Industry Association and 23 other retail trade associations
- The National Association of Specialty Pharmacy
- The American Medical Association; the Arkansas Medical Society; and the State Medical Societies
PCMA has argued that the Arkansas law regulates how plans structure and administer their prescription drug benefit and therefore it should be preempted by ERISA. PCMA argues that another Supreme Court case (Gobeille vs Liberty Mutual Insurance) should be used as a guide for a decision in this case. In Gobeille, the Supreme Court ruled that Vermont’s all-payer claims database reporting requirements for self-funded employer plans were preempted because it interfered with ERISA’s goal of providing uniform federal regulation of these plans. In addition, during oral arguments before the Supreme Court, PCMA’s lawyer argued that as it relates to ERISA preemption, the Court has never drawn a line between a plan administering its benefits and third-party administration of benefits.
Groups that submitted briefs to the Court in support of PCMA’s position that ERISA preempts Arkansas’s law include:
- JB Hunt Transport Systems
- America’s Health Insurance Plans
- The Society for Human Resource Management
- The Academy of Managed Care Pharmacy
- Employers Health Purchasing Corporation
- S. Chamber of Commerce
- The American Benefits Council
The Supreme Court’s decision, in this case, will likely establish some boundaries for state PBM laws—if it does not prohibit it altogether. Based on the Justices’ questions and comments during oral arguments for the case, it seems they are carefully considering where to draw the lines.
- One line of questioning focused on whether there should be any differentiation between state laws regulating third-party administrators versus directly regulating plans.
- Another line of questioning focused on defining a “central matter of plan administration.” Previous Supreme Court decisions have ruled that ERISA preempts state laws regulating a central matter of plan administration.
- So, the Justices were attempting to sort out whether PBMs’ payment arrangements with pharmacies are plan administration.
- Finally, there was discussion about national uniformity—the core of ERISA’s goal—with Justices voicing concern about how many different states have passed laws regulating PBMs.
Because the oral arguments for this case were done remotely, with each Justice taking turns questioning the parties, there was not as much back-and-forth between the Justices, making it tough to gauge which way each may be leaning. However, as is often the case with oral arguments, a Justice’s line of questioning does not always indicate his or her position on the issue. Sometimes Justices will pursue a line of questioning to test out their position or to raise an issue with another’s position.
Even though it’s tough to guess where the Court will land on this case, it does seem the Justices want to provide a clearer definition of the types of state laws that are preempted by ERISA. It is not just which side the Court agrees with that will determine the impact of the ruling—it is also how their decision is written. If the Court rules that the work PBMs do related to MAC price setting and pharmacy reimbursement is central to health plan administration, then not only would the Arkansas law be preempted by ERISA, but other similar state PBM regulations could be, too, depending on how specifically the Court describes those functions. However, it is also possible the Court could draw a conclusion about aspects of state regulation related to ERISA without making a conclusion specific to PBMs. If that is the case, the door would remain open to state regulation of PBMs—but also to future legal challenges to different types of state PBM laws.
This case was heard by the Supreme Court on October 6th, 2020. While there is no set schedule for the release of the Court’s opinions, they typically must be released before the term ends in late June or early July. In this case, a decision is expected in the spring of 2021.
The experts at Viking Healthcare Solutions will continue to keep up with the regulatory, legislative, and legal efforts related to drug pricing and market access. When the Supreme Court’s decision is released, we will review and share our insights.
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