Facing increased scrutiny, PBMs will press case before High Court

pharmacy benefit managers

Photo: FunGi_ (Trading) via Flickr

The U.S. Supreme Court recently agreed to hear a case that pits two groups on opposite sides of the debate over prescription drug costs: community pharmacists and pharmacy benefit managers.

In the case, Rutledge v. Pharmaceutical Care Management Association, the court will consider whether the federal Employee Retirement Income Security Act (ERISA) of 1974 pre-empts an Arkansas law regulating PBMs’ drug-reimbursement rates.

Technically, the sides will debate whether the U.S. Court of Appeals for the Eighth Circuit erred in holding that ERISA prevents Arkansas from regulating those rates. As SCOTUSblog reported, Arkansas’ efforts to regulate drug prices are similar to laws enacted in many states.

Health care journalists covering the case will require an understanding of ERISA pre-emption and the role of PBMs play as middlemen in the health care system. Therefore, this new tip sheet on PBMs may be useful. Reporters can find some of the most thorough coverage of PBMs in the Side Effects series on prescription drugs in The Columbus Dispatch. Since early 2018, a team of journalists has been investigating the rising cost of medications, writing more than 100 articles on Ohio’s efforts to make PBM contracts with Medicaid managed care plans more transparent.

Covering how PBMs work is a story in every state because, as the National Law Review reported earlier this month (January), 14 states passed laws just last year (or those laws became effective) requiring PBMs to be licensed or to register as PBMs or as third-party administrators (TPAs) of health care benefits. Also, some states started regulating other aspects of PBM operations, NLR said.

Last month (December), New York Gov. Andrew Cuomo vetoed legislation that would have regulated PBMs, upsetting independent pharmacists, as Heather Yakin reported for the Times Herald-Record of Middletown, N.Y. Independent pharmacists and groups that represent them said PBMs have adversely affected consumers through “secretive negotiations and use of spread pricing, in which the PBM profits on the difference between the amounts they charge health plans and reimburse pharmacies.”

In explaining his position, Cuomo cited ERISA pre-emption and one of several reasons for the veto. Previously, we’ve covered how ERISA pre-emption affects states and consumers here and here.

In the SCOTUS case, those who side with PBMs support the idea that ERISA pre-empts state efforts to regulate PBMs, as Ed Silverman explained for Stat. The Arkansas law requires PBMs to pay pharmacies at or above their wholesale costs they pay for generic drugs and prevents PBMs from paying their own drug stores more than they pay to other (independent) pharmacies, he explained, noting that CVS Health owns a PBM (CVS/Caremark) and pharmacies in many states.

“The dispute has been festering out of the view of the average consumer, but independent pharmacies have long argued the matter affects what Americans pay for their medicines if mom-and-pop drug stores are forced to close due to shrinking margins,” Silverman wrote.

In a statement on the case, the PCMA, which represents some of the nation’s more than 60 PBMs, explained its position, saying that by passing laws governing pharmacy benefits, states have set different standards that are inconsistent and eliminate the ability of PBMs and health plans to improve administrative efficiency.

Among the problems journalists face when covering PBMs is that the terms PBMs have in their contracts with pharmaceutical manufacturers, health plans and employers are hidden from view. “The opaque nature of the supply chain has generated scrutiny of rebates drug makers pay PBMs for placement on formularies, the lists of medicines covered by insurance, and the fees that PBMs pay pharmacies for dispensing drugs,” Silverman added. We’ve covered formularies in a webcast and how they include what experts consider to be wasteful drugs in a blog post last year.

Revealing how undisclosed contract terms harm consumers and independent pharmacists makes the work the Columbus Dispatch journalists have done useful to all reporters. Much of the Side Effects series focuses on how public records laws require the state to reveal the terms of contracts Ohio has with its PBMs. By the way, the staff members on the Dispatch series include public affairs reporters Cathy Candisky and Marty Schladen; Darrel Rowland, the public affairs editor; and Lucas Sullivan, a projects reporter.

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