Supreme Court hears drug benefits case with wide-ranging impact

WASHINGTON — The Supreme Court heard arguments Tuesday on state regulation of prescription drug benefit companies in a case with potential impacts for health care across most of the country.

Rutledge v. Pharmaceutical Care Management Association addresses a 2015 Arkansas law regulating how pharmacy benefit managers pay for generic drugs by blocking PBMs from marking up profits and underpaying pharmacies. The law was aimed at protecting independent pharmacies from abusive pricing practices that can force them out of business.

The law requires PBMs to grant an appeal if a pharmacy can prove the reimbursement rate for a drug is lower than its acquisition cost, and it allows pharmacies to decline to dispense the prescription. The Supreme Court’s decision could affect at least 40 states that regulate PBMs in some form.

At issue is whether the 1974 Employee Retirement Income Security Act, the federal law that regulates self-insured plans, preempts the state’s rate regulation law for PBMs of plans that otherwise fall under ERISA.

Arkansas lost the initial lawsuit filed by the PBM lobbying group Pharmaceutical Care Management Association, as well as subsequent appeals, on the grounds that ERISA and the Medicare Part D drug program preempt the state law. Arkansas appealed the ERISA decision to the high court in 2018.

Arkansas attorney Nicholas Bronni sought to distinguish PBMs from their insurance clients by arguing that the law only regulates PBM mechanics. The law doesn’t directly impact most patients because it only targets the rates that PBMs pay to pharmacies, not necessarily the profits that PBMs garner from health plans. Patients are protected by the law because it helps preserve access to local pharmacies, he said.

“There’s no requirement the PBM pass on any cost increases that might come along with that to the plan,” Bronni argued. “That’s entirely up to the PBM’s business decision.”

But PCMA attorney Seth Waxman argued that there is no legal distinction between a health plan and its contractor in this context, meaning the law attempts to regulate core aspects of a plan’s decisions. The patchwork requirements across states, coupled with the fact that the Arkansas law allows pharmacies to refuse prescriptions, have a significant impact on a plan’s operations, he argued.

“It’s all of those procedures that goes to what is indeed a central matter of plan administration, and certainly makes it impossible to have a nationally uniform plan administration,” Waxman said.

Arkansas Attorney General Leslie Rutledge held a news conference after the arguments, saying the law helps preserve access to prescription drugs, especially in emergency situations that drive patients to local pharmacies. Arkansas has lost 16% of its rural pharmacies in recent years, she said.

“I know that when my daughter Julianna might get sick on a Sunday night that I want to be able to call my local pharmacist to deliver the necessary drugs to our house,” she said. “You can’t do that through a mail-order pharmacy.”

A decision could come by the end of the year but is more likely in 2021.