States back Arkansas’ effort to regulate drug-claim firms

Forty-five states, the U.S. solicitor general and groups representing doctors, pharmacists, grocery store owners and retirees have filed briefs with the U.S. Supreme Court in support of Arkansas’ efforts to regulate companies that pay drug claims on behalf of health plans.

At issue is whether the country’s top court should overturn lower court rulings that have limited the reach of Arkansas laws passed in response to pharmacists’ complaints of low reimbursement from the companies, known as pharmacy benefit managers.

Siding with the pharmacy benefit managers, U.S. District Judge Brian Miller and the 8th U.S. Circuit Court of Appeals have ruled that the Employee Retirement Income Security Act, a 1974 federal law, prohibits such state regulations from applying to the drug benefits offered by plans in which an employer, rather than an insurance plan, is ultimately responsible for paying employees’ health expenses.

Writing on behalf of the 45 states and the District of Columbia, California Attorney General Xavier Becerra disagreed.

“In response to troubling business practices that have harmed patients, independent pharmacies, and state governments, the vast majority of the States have adopted statutes regulating pharmacy benefit managers,” Becerra said in the brief. “These statutes serve important interests and are consistent with the traditional role of the States in protecting the health and welfare of their residents.”

Similarly, U.S. Solicitor General Noel Francisco, in a brief also signed by attorneys for the U.S. Labor Department, said upholding the lower court rulings would “call into question a broad range of traditional state regulation that could be said to affect a plan’s costs,” including prices charged by pharmacies, drug manufacturers and wholesalers and the cost of death benefits, child care and prepaid legal services.

In all, 11 briefs were filed Monday in support of Arkansas on behalf of dozens of entities, including AARP, the American Medical Association, the Arkansas Medical Society and the Food Marketing Institute, a trade association for grocers and food retailers.

Citing information from the National Conference of State Legislators, Becerra said at least 44 states have passed laws in the past five years restricting pharmacy benefit managers’ business practices. Those include regulations on what the companies pay pharmacies and prohibitions of “gag clauses” preventing pharmacists from telling customers about cheaper options for filling prescriptions.

The grocer association noted that its members are affected by pharmacy benefit managers’ practices, not only through in-store pharmacies, but also through the multistate health plans that hire the companies to handle grocery employees’ drug claims.

The Arkansas Grocers and Retail Merchants Association and groups representing grocery stores or other retailers in 22 other states also signed onto the brief.

The Arkansas law at issue in the case “imposes obligations only on [pharmacy benefit managers],” not on the health plans, the associations said in the brief.

As a result, the grocers “have an interest in preserving the ability of States to enact similar laws that curtail [pharmacy benefit managers’] abuses of their concentrated market power and protect public access to health care through pharmacies without burdening the uniform administration” of health plans, the associations said.

The case was sparked by Arkansas’ Act 900 of 2015, which prohibits pharmacy benefit managers from paying affiliated pharmacies more than what they pay other drugstores for the same drugs.

The law also added requirements designed to ensure the pharmacy benefit managers pay drugstores at least as much as what the stores pay to wholesalers to obtain drugs, and it allows pharmacists to refuse to fill prescriptions if the reimbursement is too low for them to recoup their cost.

Ruling in a lawsuit by the Pharmaceutical Care Management Association, which represents pharmacy benefit managers, Miller and the 8th Circuit appeals court found that the law was preempted by the federal Employment Retirement Income Security Act, popularly called ERISA.

That law sets out standards for health plans that employers fund for their employees. It contains a sentence saying it “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan” that must meet its requirements.

Supporters of Arkansas’ law argue that regulating pharmacy benefit managers doesn’t amount to an attempt to regulate the health plans themselves.

“Unfortunately, contrary to ERISA’s purpose, a statute that was designed to safeguard employee benefits too frequently has been used to deprive employees of benefits and protections states create for them,” AARP, which advocates for Americans age 50 and older, said in its brief. “Attempts to use ERISA to undercut health care regulation are contrary to this Court’s recognition that such regulation is a traditional area of state concern.”

In their brief, the American Medical Association and Arkansas Medical Society said laws such as Arkansas’ are needed to provide transparency into “which treatments are preferred by a particular payer, what level of costs-sharing their patients will bear, and whether medications are subject to sometimes unreasonable utilization management requirements.

“This lack of transparency in patients’ drug coverage can interfere with sound medical practice and may lead to delays in and other disruptions to necessary medication treatment,” the physician groups wrote.

The National Association of Chain Drug Stores, National Community Pharmacy Association, American Pharmacists Association, National Alliance of State Pharmacy Associations, Arkansas Pharmacists Association, National Council of Insurance Legislators and the AIDS Healthcare Foundation, which operates HIV clinics around the country, were also among groups signing onto briefs in support of Arkansas.

“Having such large bipartisan support from the public and private sectors shows the overwhelming need to regulate abusive PBM reimbursement practices,” Arkansas Attorney General Leslie Rutledge said in a statement Tuesday, using the acronym for pharmacy benefit managers. “Abusive PBM reimbursement practices are harming Arkansas patients and community pharmacies nationwide, all the while lining the pockets of PBMs with billions of dollars.”

A spokesman for the Pharmaceutical Care Management Association referred to a statement last month by its president, J.S. Scott, in response to a filing by Rutledge last week laying out the state’s case.

Scott said in that statement that laws passed by states are “proliferating across the country, establishing vastly different standards” for pharmacy benefit managers.

“These inconsistent and often conflicting state policies eliminate flexibility for plan sponsors and create significant and costly administrative inefficiencies,” Scott said. “This will result in increased premiums and prescription drug costs for patients and payers.”

The case is set for oral arguments before the Supreme Court on April 27.