top of page

Can States Regulate PBMs? Supreme Court to Decide— Arkansas law is test case

MedPage Today

State efforts to protect independent pharmacies from alleged depredations by pharmacy benefit managers (PBMs) are at stake as an eight-member Supreme Court considers whether federal law precludes such actions.

The high court heard oral arguments on Tuesday in a case involving a 2015 Arkansas law requiring PBMs to pay back pharmacies at or above the cost the latter pay to obtain the drugs in the first place, and gives pharmacies a right to appeal PBM reimbursement rates.

It's considered a test case for managing PBM reimbursement rates, as many other states have sought to regulate PBMs' conduct. At issue is whether federal law, specifically the Employment Retirement Income Security Act (ERISA), preempts state law when a state begins to deal in rate settings.

"Overall [the Arkansas law] ... is an effort to keep pharmacies, particularly independent pharmacies, from going out of business," Elizabeth McCuskey, JD, of the University of Massachusetts School of Law in Dartmouth, told MedPage Today.

PBMs typically use what's known as a "maximum allowable cost" list to determine how much pharmacies should be reimbursed. Pharmacies may lose money on these prescriptions because of the lower reimbursement, leading some to declare bankruptcy.

In a petition filed in 2018, Arkansas Attorney General Leslie Rutledge, JD, charged that PBMs "abusive prescription drug reimbursement practices" of profiting from the "spread" or difference between the rates they reimburse pharmacies and the price they charge health plans for a drug. This behavior has driven 16% of independent rural pharmacies out of the healthcare system entirely, wrote Rutledge.

But the Pharmaceutical Care Management Association (PCMA), which represents PBMs, has sought to overturn the statute and others like it. (Around 40 states have enacted similar laws, said McCuskey.) The group argues that ERISA, which aims to keep employer-sponsored health plans uniform throughout the country, supersedes Arkansas's.

A district court had ruled in PCMA's favor that ERISA preempts the Arkansas law, and the U.S. Court of Appeals for the Eighth Circuit in part upheld the ruling and in part reversed but also amplified it, finding that both ERISA and Medicare Part D preempt the law.

"If a federal law and a state law cover the same grounds, the federal law will always preempt the state law," explained Miles Zaremski, JD, of the Zaremski Law Group, and a columnist for MedPage Today. The only exception is when the federal law makes it explicitly clear that it would not do so.

In Rutledge v. Pharmaceutical Care Management Association, if both the Arkansas and the ERISA law are found to relate to the "the general area of administering plans and plan benefits," then ERISA would preempt state law, Zaremski said.

At the Supreme Court on Tuesday, Arkansas Solicitor General Nicholas Bronni, JD, argued that his state's law should remain in place because it does not regulate benefits or plan administration.

"We haven't dictated what to provide," Bronni said. ERISA should not preempt Arkansas' law because it does not regulate benefits, only the price of drugs, and doesn't regulate plan administration or discriminate against ERISA entities.

Bronni pointed to a 1995 case, New York State Blue Cross v. Travelers, in which the court determined that New York could require hospitals to impose surcharges on patients insured by some plans but not others, without ERISA preempting that law.

Bronni acknowledged that Arkansas's law might mean plans would have to pay a little more and that beneficiaries enrolled in such plans could see increases in their premiums, but suggested this was a cost issue, and not one that would "dictate substantive plan decision-making."

Winners and Losers

"If the Supreme Court holds that this kind of regulation is preempted, then it narrows what states are allowed to do in the face of inaction from the federal government," McCuskey said, essentially broadening the scope of ERISA preemption. Continue Reading


bottom of page