In the News

State law on drug middlemen upheld
Arkansas Democrat-Gazette
12/11/20


WASHINGTON -- The U.S. Supreme Court unanimously upheld an Arkansas law Thursday aimed at protecting family pharmacists from unfair business practices.

The state's restrictions on pharmacy benefit managers -- the middlemen between insurance companies and pharmacies -- are not preempted by federal law, the justices stated.

Forty-five other states, the District of Columbia and the Trump administration had all urged the court to uphold the Arkansas statute.

Under Act 900 of 2015, pharmacy benefit managers must pay drugstores at least as much as what the stores pay to wholesalers to obtain drugs. It allows pharmacists to refuse to fill prescriptions if the reimbursement is too low for them to recoup their costs. It requires a "reasonable administrative appeal procedure" so that pharmacists can challenge reimbursement rates. 

In some instances, pharmacy benefit managers and pharmacies have common ownership or control. In those instances, Act 900 prohibits managers from paying affiliated pharmacies more than they pay other drugstores for the same drugs.

The Pharmaceutical Care Management Association, which represents the nation's largest pharmacy benefit managers, filed suit shortly after the law's passage, arguing that it conflicted with the federal Employee Retirement Income Security Act of 1974, which preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan."

The Supreme Court disagreed with that interpretation.

Arkansas' law does not govern "a central matter of plan administration" or interfere "with nationally uniform plan administration," the court stated.

Act 900 was "merely a form of cost regulation"; it targeted care management middlemen, not employee health plans and is not preempted by federal law, the justices said.

Randy Kassissieh, owner of North Little Rock's Cornerstone Pharmacy Rose City, portrayed Thursday's ruling as great news for Arkansas pharmacists.

"It is smiles and joy from ear to ear," Kassissieh said.

David Smith, who owns Smith Family Pharmacy in Conway along with his wife, Shirley, was delighted by the speed and lopsidedness of the ruling.

Oral arguments had only been held in early October.

"This is not just a victory for pharmacists. It's a victory for consumers as well," Smith said.

Justice Sonia Sotomayor delivered the 8-0 decision in Rutledge vs. the Pharmaceutical Care Management Association. Justice Amy Coney Barrett, who was sworn in after oral arguments had already occurred, did not participate in the decision. 

Pharmacy benefit managers help negotiate drug prices with pharmaceutical companies, influence which drugs are covered and set the "maximum allowable cost" that is paid to pharmacies filling prescriptions.

The figures change regularly, affecting patients and pharmacists. Under Act 900, pharmacies must receive copies of updated lists "on a timely basis."

The managers claim their drug-purchasing strategies save patients money, but aren't required to reveal the financial data.

Pharmacy benefit managers sometimes get rebates from drugmakers that aren't disclosed to patients or pharmacists.

Critics of pharmacy benefit managers say they're driving many Arkansas rural and small-town pharmacies out of business by offering unreasonably low reimbursements. In some instances, the pharmacy benefit manager reimbursement doesn't even cover the pharmacists' costs for the medicine.

Arkansas Attorney General Leslie Rutledge called the ruling an important win for "not only locally owned pharmacies that have experienced financial hardships at the hands of pharmacy benefit managers, but more importantly, this is a win for all Arkansans and Americans to have access to affordable health care."

The Pharmaceutical Care Management Association said it is "disappointed in the Court's decision that will result in the unraveling of federal protections under the Employee Retirement Income Security Act of 1974."

"As states across the country consider this outcome, we would encourage they proceed with caution and avoid any regulations around prescription drug benefits that will result in higher healthcare costs for consumers and employers," the organization said in a written statement.

U.S. Rep. French Hill, R-Ark., called the ruling "a major victory for Arkansas consumers."

Lt. Gov. Tim Griffin said the decision will "benefit Arkansans in every corner of our state who rely on affordable prescription drugs to meet their health care needs."

Arkansas Pharmacists Association CEO John Vinson called it a "triumphant victory years in the making."

Since its passage by the Arkansas Legislature in 2015, the law has been tied up in federal courts.

U.S. District Judge Brian Miller ruled that portions of the statute conflict with the federal Employee Retirement Income Security Act of 1974, a position shared by the 8th U.S. Circuit Court of Appeals.

(The Employee Retirement Income Security Act of 1974 is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans, according to the U.S. Department of Labor.)

The Arkansas Pharmacists Association, the Arkansas Medical Society, and others had urged the court to uphold Act 900.

The U.S. Chamber of Commerce and J.B. Hunt Transport Services, the Lowell-based Fortune 500 company, were among those asking the court to strike it down.

Defending the law during oral arguments, Arkansas Solicitor General Nick Bronni argued that states are entitled to regulate the intermediaries between insurers and pharmacies.

In a 1995 ruling, New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., the Supreme Court allowed the state to regulate hospital rates, even though the regulation might have an "indirect economic influence" on employee benefit plans.

In that case, the high court said the Employee Retirement Income Security Act "pre-empts state laws that mandate employee benefit structures or their administration as well as those that provide alternate enforcement mechanisms."

It does not prohibit cost regulation, however, Bronni said.

Bronni suggested the Arkansas case and the New York case were analogous.

"Act 900 does not regulate benefits. Instead it regulates the price of drugs that a plan has already decided to cover," he said. "That's rate regulation and, under Traveler's, that's not preempted."

Seth P. Waxman, who argued the case for the pharmacy benefit managers, told the justices that Arkansas had exceeded its authority.

"Act 900 directly compels [Employee Retirement Income Security Act] plan administrators to comply with state-specific rules and procedures in administering their benefits programs. In doing so, it adds to a thicket of varying state laws that make uniform plan administration impossible," he said.

During oral arguments, Chief Justice John Roberts questioned whether Arkansas bears the blame for the existing pricing scheme.

"It's not the state or the pharmacy's fault that the PBMs have such byzantine procedures that affect drug prices," he said.