Arkansas Judge Rules in Favor of PBM Transparency Law

Act 900 requires pharmacy benefit managers to reimburse generic drugs at or above costs.

Chief US District Judge Brian Miller recently dismissed a lawsuit that claimed an Arkansas law, Act 900, was unconstitutional in its dealings with pharmacy benefit managers (PBMs).

The law, enacted in 2015, requires PBMs to provide at or above cost reimbursements for generic drugs to pharmacies operating within their network to avoid pharmacies filling prescriptions at a financial loss. Act 900 aimed to amend current laws regarding maximum allowable cost (MAC) lists, and create accountability in establishing prescription drug pricing.

However, the Pharmaceutical Care Management Association (PCMA), who filed the suit, alleges this law would lead to higher reimbursements and provide a “blank check” to pharmacies, according to a press release. PCMA also said that Act 900 would incentivize pharmacists to sell more costly drugs, and would impact access to medications.

The Arkansas Democrat-Gazette said that pharmacists supported the law because PBMs had been using outdated MAC lists to provide below cost reimbursements, which causes pharmacies to sell a prescription drug at a loss.

The National Community Pharmacists Association (NCPA) issued a press release when the law was signed into law in April 2015 endorsing Act 900, and explained the issue faced by community pharmacies.

"Community pharmacists need reasonable reimbursement in order to continue to dispense medication, counsel patients and contribute to the local economy and society,” said B. Douglas Hoey, RPh, MBA, NCPA CEO. “Unfortunately, pharmacists have been being paid below their cost of purchasing many generic drugs in recent months, partially due to certain generic drugs that rapidly skyrocket in cost, coupled with long delays in pharmacy benefit managers in adjusting maximum allowable cost, to adjust for the new marketplace pricing. In these instances, pharmacies incur significant and unsustainable losses simply for helping their patients.”

On February 17, 2017, both parties asked Judge Miller to extend the trial date, but were denied the extension. PCMA also told the court that the 8th US Circuit Court of Appeals in St Louis, MO, did not reverse the previous decision of an Iowa district court order, which agreed a similar law illegally preempted the Employment Retirement Income Security Act of 1974, according to the Gazette.

"Independent community pharmacies have had to eliminate employees during the last 5 to 10 years due to the financial hardships they have faced. The Arkansas legislature passed and amended Arkansas Code Annotated section 17-92-507 in an attempt to address this issue,” Judge Miller said in a written order dismissing the case.

Although the 8th US Circuit Court of Appeals reversed the ruling, Judge Miller does not believe Act 900 interferes with federal law.

"While Attorney General [Leslie] Rutledge is pleased that the state prevailed on 4 of the 5 claims at issue, she continues to review today's decision to determine if an appeal is warranted," said Judd Deere, Rutledge's spokesman. "In her view, Act 900, which was passed by the General Assembly to protect pharmacists across Arkansas from negative reimbursements, is fully constitutional in all applications."

Overall, the court ruled that Act 900 would not impact Medicare Part D, and does not discriminate against interstate commerce. Judge Miller wrote that the law would provide substantial benefits to the local pharmacies, who have faced financial hardships over low reimbursements.

While PBMs and their affiliated groups claim that Act 900 would increase drug costs and reduce patent access to the drugs, Judge Miller said that the law does not force PBMs to pass costs onto customers, according to the Gazette.

"Past industry regulation also suggests that PBMs could not have reasonably expected that their reimbursement practices would escape regulation forever,” Judge Miller concluded.

PBMs have been highly criticized by pharmacies and advocacy groups for various practices that have been said to harm the livelihood of pharmacies, including direct and indirect remuneration fees that recoup costs post-transaction. However, PBMs and their organizations deny these claims.

With increased focus on PBMs, legislation is increasingly being introduced to regulate their actions and to ensure they are operating transparently.

"This important legislation took necessary steps to ensure that PBMs were obeying the true intent of the existing MAC transparency law and took additional steps to ensure fair and reasonable reimbursement standards for community retail pharmacy in Arkansas,” NCPA said in their 2015 press release. “We hope that many other states will follow the example of Arkansas by enacting effective and enforceable generic drug reimbursement laws."