SCOTUS ruling allows states to regulate what PBMs pay pharmacists

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Joseph Burns (@jburns18), a Massachusetts-based independent journalist, is AHCJ’s topic leader on health insurance. He welcomes questions and suggestions on insurance resources and tip sheets at joseph@healthjournalism.org.

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States seeking to regulate pharmacy benefit managers (PBMs) won an important victory on Thursday when the U.S. Supreme Court ruled 8-0, rejecting a challenge to a law the state of Arkansas passed in 2015 to put restrictions on PBMs. The ruling could allow states to regulate PBMs, as Darrel Rowland reported for The Columbus Dispatch.

Rowland is a member of an award-winning team of reporters and editors at the Dispatch who have covered PBMs in Ohio and elsewhere since January 2018, as we reported on this blog.

In the case, Rutledge v. Pharmaceutical Care Management Association, Arkansas’ Attorney General Leslie Rutledge defended the state law against the contentions of the PBM trade group, PCMA, that said the state’s regulations under Act 900 violated the Employee Retirement Income Security Act (ERISA) of 1974. Previously, the PCMA’s arguments prevailed in lower federal courts but the 8-0 ruling on Thursday reversed those lower-court decisions. Associate Justice Amy Coney Barrett did not vote. The SCOTUSblog has the details.

Rowland reported that in the ruling, the justices noted that, “ERISA pre-empts state laws that ‘relate to’ a covered employee benefit plan.”

In other words, a state law relates to an ERISA plan if it has a connection with or reference to employee benefit plans. “Act 900 has neither of those impermissible relationships,” the justices added. For more on ERISA, see our previous coverage, here and here.

Writing for STAT News, Ed Silverman reported that Act 900 requires PBMs to reimburse pharmacies at or above their wholesale costs paid for generic drugs and prevents PBMs from paying their own drug stores more than what they pay other pharmacies. CVS Health owns both a PBM and pharmacies, he added.

The SCOTUS ruling is a victory for independent pharmacies, Arkansas and 44 other states that sought to stop PBMs from keeping reimbursement rates low for generic drugs. Those low rates have caused thousands of independent pharmacies to close, particularly in rural areas, according to reporting by Richard Wolf in USA Today. Under contracts they have with health insurers and employers, PBMs process prescription drug claims and then reimburse pharmacies.

PCMA, which represents PBMs such as CVS/Caremark, Express Scripts and OptumRX, argued that ERISA preempts state laws such as Act 900, Wolf noted.

But during oral arguments last month, Chief Justice John Roberts acknowledged that Arkansas seeks to regulate drug prices, not the insurance plans themselves, Wolf explained. In February, we reported on this SCOTUS case.

In a joint statement, executives from the National Community Pharmacists Association, the American Pharmacists Association and other groups representing pharmacists, hailed the ruling.

The PCMA said in a statement that it was disappointed in the ruling and that the decision could result in the unraveling of federal protections under ERISA.

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