December 10, 2020
  • Dozens of states have similar measures.
  • Arkansas’s law regulates reimbursement rates.

The U.S. Supreme Court upheld an Arkansas law Thursday that regulates the powerful pharmacy drug middlemen that employer health plans hire to manage prescription drug benefits.

In a 8-0 decision, the court held the law isn’t preempted by the Employee Retirement Income Security Act. Justice Amy Coney Barrett took no part in consideration of the case.

Arkansas’s law “is merely a form of cost regulation,” Justice Sonia Sotomayor said in the court’s majority ruling.

The case had threatened to cripple state efforts to control the cost of prescription drugs and other health-care services at a time when health-care costs are rising. Last year the Office of the Actuary in the Centers for Medicare & Medicaid Services projected national health spending would reach $6.2 trillion by 2028

Arkansas’s law regulates the rates at which pharmacy benefit managers reimburse pharmacies for drugs and gives pharmacies a right to appeal the rates they set. Arkansas argued it’s needed to control drug prices and protect independent rural pharmacies, many of which have had to close because PBMs have set their reimbursement rates below cost.

The law requires pharmacy benefit managers to reimburse prescription drugs at a rate equal to or higher than the pharmacy’s acquisition cost, Sotomayor explained.

“PBMs may well pass those increased costs on to plans, meaning that ERISA plans may pay more for prescription-drug benefits in Arkansas than in, say, Arizona,” but cost uniformity was almost certainly not an object of preemption, she said

. . .

PBM Disappointment

The court’s decision marks the first time PBMs are being told they’re going to be regulated just like everyone else, said Julie Selesnick, who is of counsel at Cohen Milstein.

“When you sue over a law that says you can’t pay someone less than they paid to get something in a reimbursement and you think that violates your rights, that probably means you’ve been operating with impunity for way too long,” she said.

. . .

The court’s decision reversed the U.S. Court of Appeals for the Eighth Circuit decision, which had sided with PCMA despite Arkansas Attorney General Leslie Rutledge’s argument that the law is basic rate regulation that’s not preempted by ERISA.

Justice Clarence Thomas filed a concurring opinion in which he said he continues to doubt the court’s ERISA preemption jurisprudence.

The court’s precedents have “veered from the text” of ERISA, transforming the test of preemption into a “vague and potentially boundless” preemption clause that relies on generalized notions of congressional purposes, he said.

Three PBM companies—OptumRx, CVS Caremark, and Express Scripts—control 85% of the market share for PBM services, the National Association of Specialty Pharmacy said in a brief supporting Arkansas.

OptumRx is a subsidiary of UnitedHealth Group, CVS Caremark is a subsidiary of CVS Health, and Express Scripts is a subsidiary of Cigna Corp.

In addition to negotiating drug prices, discounts and rebates with pharmaceutical manufacturers, conducting drug-utilization reviews, and determining the composition of pharmacy and wholesaler networks, PBMs run mail-order and affiliated specialty pharmacies that often compete with brick-and-mortar pharmacies, the 32-state coalition told the court.

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