Supreme Court To Hear Arkansas PBM ERISA Appeal

Arkansas Solicitor General Nicholas Bronni will defend before the U.S. Supreme Court the constitutionality of a state law regulating pharmacy benefit managers next Tuesday.

Passed in 2015, Act 900 seeks to regulate pharmacy benefit managers (PBMs), which act as middlemen between pharmacists and insurance providers. Their reimbursement rates theoretically incentivize pharmacies to find lower wholesale drug prices.

Pharmacists say the PBMs’ reimbursement rates are too low – in fact, too often below the pharmacists’ cost of procurement. The law requires PBMs to increase reimbursements for generic drugs if they are below wholesale costs, and it created an appeals process for pharmacies to challenge the reimbursements.

When the law went into effect in September 2015, the Pharmaceutical Care Management Association (PCMA), which represents PBMs, immediately sued. The industry argued that state laws can’t preempt payments made for voluntarily created employee benefit plans in private industry under the Employee Retirement Income Security Act of 1974, otherwise known as ERISA. ERISA plans are not regulated by state insurance departments and are typically self-funded.

The Eastern District of Arkansas federal court enjoined the law in March 2017, so the state appealed to the U.S. Court of Appeals for the Eighth Circuit, which ruled in favor of the PCMA in June 2018. The case is Rutledge v. Pharmaceutical Care Management Association.

Oral arguments before the Supreme Court were planned for April 27. The attorney general’s office was notified in September that the arguments will be heard via telephone, said Assistant Attorney General Shawn Johnson. The state will have 20 minutes to present its case while the U.S. solicitor general will have 10 minutes to offer its arguments in support. PCMA will have 30 minutes to make its case, and the state will have a rebuttal period at the conclusion. Justices will ask questions in order of seniority.

In a telephone press briefing along with national and state pharmacy association leaders, Attorney General Leslie Rutledge said 45 state attorneys general along with the District of Columbia have filed briefs in support of Arkansas’ argument.

Rutledge said more than 16% of rural pharmacies had closed in the years prior to the law’s passage due to declining PBM payments for generic drugs.

“This case of Rutledge v. PMCA will be the biggest health care case of the Supreme Court term and one of the two biggest health care cases for several years,” she said.

The other case involves a Texas-led lawsuit, in which Arkansas is participating, that seeks to declare unconstitutional the Affordable Care Act, otherwise known as Obamacare, she said. Rutledge has led Arkansas into an 18-state lawsuit seeking to declare the ACA unconstitutional.

“I have long argued the individual mandate is unconstitutional, and it’s time the Supreme Court finally addresses it,” Rutledge said earlier this year. “Once the Affordable Care Act with its unconstitutional mandate are behind us, the time will come for Congress to move forward and create a comprehensive healthcare law that will work with states and provide coverage for those with pre-existing conditions.”

John Vinson, CEO of the Arkansas Pharmacists Association, said pharmacists are the on-the-ground health care providers who provide flu vaccines and testing for COVID-19. He said the cities of Marvell, Junction City and Strong have lost their local pharmacies.

Rebecca Snead with the National Alliance of State Pharmacy Associations said pharmacists have been trying to regulate PBMs for 30 years, but PBMs have been able to create confusion over who has the authority to regulate them.

Douglas Hoey, CEO of the National Community Pharmacists Association, said PBMs are “powerful corporations that decide what medicines patients can take, where they must get them, and how much they pay.” The PBMs can steer patients to their own pharmacies and put their competition out of business. Three control 85% of the market: CVS Caremark, which is part of the corporation that operates the CVS drugstore chain, OptumRX and Express Scripts.

“Just imagine if the New York Yankees had the power to make the rules and supply the umpires for their own games,” he said. “There would be nothing fair or competitive about that, but that’s exactly the kind of power that the PBMs have over their competition. They are the price setter and the price taker.”

Hoey said if the Supreme Court upholds the 8th Circuit’s decision, pharmacies will close. He said that during the two years prior to the pandemic, 2,000 pharmacies, or 4% of the nation’s, were closed and not replaced.

PMCA did not respond to a request for comment. In a press release dated March 25, PCMA called the Arkansas law “misguided,” saying it would create inefficiencies in employer-sponsored plans and threaten access to prescription drugs. It said unique state laws are creating different and conflicting policies. ERISA lets employers provide uniform benefit plans to their employees nationwide.

“As our brief states, what’s at stake in this case are efficient and consistent employer-provided health care benefits for employees and their families, no matter where they live,” said J.C. Scott, PCMA president and CEO. “The Arkansas law at issue eliminates important tools that help employers — through PBMs — manage prescription drug costs and provide access to medications. These matters are central to plan administration, and protecting ERISA’s promise of uniformity is more critical than ever.”


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