Michigan Attorney General Dana Nessel joined a bipartisan coalition of 35 attorneys general from across the country in an amicus brief to the Tenth Circuit Court of Appeals supporting Oklahoma’s laws that regulate abusive behavior of pharmacy benefit managers (PBMs). Oklahoma’s laws regulating PBMs are similar to newly enacted laws in Michigan.
Oklahoma’s laws are being challenged in the latest of a string of lawsuits by the PBM industry’s national lobbying association, Pharmaceutical Care Management Association (PCMA). In this case, the PCMA alleges that federal law (ERISA and Medicare Part D) preempts Oklahoma’s laws. The district court held that federal law did not preempt the state laws. PCMA appealed to the Tenth Circuit, which will decide whether ERISA or Medicare preempts Oklahoma’s laws.
AG Nessel and the bipartisan coalition seek to protect Michigan consumers by assuring that Michigan and all states can regulate PBMs. As the coalition writes in the amicus brief to the Tenth Circuit, “states have an interest in preserving states’ authority to regulate companies doing business in their states, protecting their residents’ access to healthcare, and curbing abusive business practices. To advance these interests, nearly all states regulate pharmacy benefit managers.” PCMA’s broad approach to federal preemption, however, would “severely impede states’ abilities to protect their residents and potentially upend licensing and regulatory structures in nearly every state.”
“I have made it clear that reducing prescription drug costs is a top priority for me,” Nessel said. “The actions of unregulated PBMs drive up the cost of prescription drugs. Without meaningful regulation, PBMs will continue to operate irresponsibly, motivated only by profits. These entities need to know they cannot set their own rules to the detriment of pharmacies and consumer health and well-being. I have joined actions that support regulating PBMs in the past and I gladly join my colleagues now in supporting Oklahoma's necessary law.”
The case in which AG Nessel filed the brief, PCMA v. Mulready, is the second case to reach a federal court of appeals since the U.S. Supreme Court made clear in PCMA v. Rutledge in 2020 that PBMs cannot evade state consumer protection regulations under the cloak of Employee Retirement Income Security Act (ERISA) preemption. In Rutledge, the Supreme Court held that ERISA preemption is limited to the questions of who receives benefits and what benefits they receive, rejecting PCMA’s challenge to Arkansas’s pharmacy-reimbursement regulations. AG Nessel was part of a bipartisan coalition of 46 attorneys general who supported Arkansas in an amicus brief to the Supreme Court.
Following Rutledge, in 2021, AG Nessel joined another bipartisan coalition of 34 attorneys general in an amicus brief to the Eighth Circuit Court of Appeals in support of North Dakota’s laws regulating PBMs. In that case, PCMA v. Wehbi, the Eighth Circuit agreed with the states that ERISA did not prohibit states from generally regulating PBMs to protect consumers, such as by prohibiting PBMs from imposing conditions on pharmacies that reduced consumer choice and pharmacy access. The court also rejected PCMA’s sweeping approach to Medicare preemption and upheld several of North Dakota’s laws as applied to Part D health plans.
Abusive business practices of PBMs
PBMs are intermediaries in the prescription pharmaceutical industry between prescription-drug plans, pharmacies, and drug manufacturers. PBMs profit from fees charged to market participants and by reimbursing pharmacies less than the PBM is paid by plans for dispensing medications. PBMs have imposed self-serving protections that reduce competition, limit prescription medication access, and impose various confidentiality requirements. For example, PBMs have tried to force consumers to use PBM-affiliated pharmacies at the expense of independent, often more convenient, pharmacies, by giving consumers preferential rates if they use a PBM-affiliated pharmacy, or by denying coverage at non-affiliated pharmacies altogether.
These business practices have harmed consumers, pharmacies, and states. Rural and independent pharmacies have especially struggled to survive when PBMs impose financially unsustainable conditions. The PBM industry, however, reaps hundreds of billions of dollars annually.
PBMs have been largely unregulated for decades. States like Michigan, Oklahoma, and others have stepped up with PBM regulation to protect consumers and pharmacies.
Regulating PBMs in Michigan
In 2022, Michigan passed legislation to regulate PBMs and combat some of the abusive practices in the industry. This included the Pharmacy Benefit Manager Licensure and Regulation Act which, beginning January 1, 2023, charges the Michigan Department of Insurance and Financial Services (DIFS) with the responsibility to regulate PBMs’ licenses. The Act further requires PBMs to file transparency reports with DIFS to ensure Michiganders have access to information about the backend cost and profits of the medications they are prescribed.
In addition to providing greater oversight of PBMs by DIFS, this Act and other companion legislation is aimed at making medications more affordable for Michigan residents. The legislation prohibits a PBM from requiring a patient to pay a co-pay that is higher than the selling cost of the drug dispensed to him or her. Additionally, it prohibits a PBM from excluding or discriminating against a pharmacy solely because the pharmacy is not affiliated with the PBM, thereby limiting options for consumers.
Joining AG Nessel in filing the brief are Minnesota Attorney General Keith Ellison, who led the bipartisan coalition, and the attorneys general of Arizona, Arkansas, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Mississippi, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Texas, Utah, Virginia, and Washington.