April 29, 2020

Supreme Court Looks at PBM Regulations

Last Monday, the Supreme Court was scheduled to hear oral arguments in a case regarding limits on the actions of Pharmacy Benefit Managers (PBMs).  Called Rutledge v. the Pharmaceutical Care Management Association (PCMA), the case was brought by Arkansas Attorney General Leslie Rutledge in February after the case was not heard in Arkansas. In her February 27 press release, Rutledge said she was petitioning the Supreme Court because “the stranglehold PBMs have on drug prices is driving many local pharmacies out of business.

PBMs perform an intermediate role by reimbursing pharmacists for prescriptions dispensed to insured patients.  To do this, they buy drugs in bulk from pharmaceutical companies (in order to access steep discounts) and then sell them to pharmacists at substantially higher prices. PBMs are not required to disclose their rates of profit and more than 70% of the PBM business in the U.S. is now controlled by just three corporations; CVS, Express Scripts and United HealthCare Optum. In most states, the profits that PBMs accrue through this process are not disclosed.

Last October, at the request of Academy members in New York State, we wrote to Governor Cuomo urging him to sign New York’s Senate Bill 6531 – legislation that would have revised PBM licensing and regulations in the state to provide increased protections for patients, taxpayers, and pharmacies. New York’s independent pharmacies complained that they are losing money on at least half of the Medicare Managed Care prescriptions they fill.  Local press reports that “70% of pharmacies in New York have been forced to lay off employees or reduce store hours in 2019,” due to PBM pricing. After leaving their bill on his desk for months, Governor Cuomo vetoed the bill late last December.

Arkansas Attorney General Leslie Rutledge began her investigation into PBM practices in 2018, after Arkansas’ largest insurer, Arkansas Blue Cross Blue Shield, revised its contract with CVS Caremark’s PBM system, resulting in Arkansan pharmacists reporting drastically reduced reimbursement rates. After research, she concluded that the new process was violating Arkansas’ Act 900 passed in 2015. The legislation requires “PBMs to pay pharmacies reimbursements for generic drugs at or above the cost the pharmacy paid to acquire the drug.”

PCMA then challenged the enforcement of Act 900 in this case and U.S. District Judge Brian Miller ruled that the Act was preempted by the federal Employee Retirement Income Security Act (ERISA). His ruling was subsequently affirmed by the 8th Circuit Court of Appeals.

By last November, Rutledge saw no alternative but to petition the U.S. Supreme Court. Her petition is supported by the U.S. Solicitor General and a bipartisan, 32-state coalition led by California. Supporters of the case include National Community Pharmacists Association, the American Pharmacists Association, National Alliance of State Pharmacy Associations and the Arkansas Pharmacists Association.

“Federal ERISA law was never meant to shield pharmacy benefit managers from state regulation,” observed Rebecca Snead, CEO and Executive Vice President of NASPA. “State pharmacy associations have championed pro-patient, pro-employer, pro-pharmacy legislation for over 25 years with limited success due to the PBMs’ claims that they are pre-empted under ERISA. But the federal ERISA law was never intended to thwart states’ attempts to regulate the business of PBMs or the business of insurance,” she added.

The Supreme Court’s hearing of this case was postponed due to the increasing load of urgent COVID-19-related cases but it will be rescheduled in the near future.  Stay tuned! In the meantime, the Academy will continue to follow this case, as well as work within states to advocate for fair reimbursement for providers and pharmacies.

View the latest Policy Update here.