Supreme Court Upholds Arkansas Law Regulating Pharmacy Benefit Managers
Supreme Court decision establishes that states do have the right to regulate pharmacy benefit managers in managed care organizations.
This article was updated December 10, 2020, at 2:45 pm.
In their decision on Rutledge v. Pharmaceutical Care Management Association (PCMA), the Supreme Court ruled 8-0 that Arkansas’ Act 900 is not pre-empted by the Employee Retirement Income Security Act (ERISA). The law prohibits pharmacy benefit managers (PBMs) from reimbursing pharmacies at a lower rate than what the pharmacies pay to fill prescriptions.1
A statement from PCMA expressed disappointment with the decision.2
"We are disappointed in the Court's decision that will result in the unraveling of federal protections under the Employee Retirement Income Security Act of 1974 (ERISA)," read the statement. "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 health care costs for consumers and employers."2
“This is a historic victory for independent pharmacies and their patients,” said National Community Pharmacists Association CEO B. Douglas Hoey, BS Pharm, MBA, in a statement. “And it confirms the rights of states to enact reasonable regulations in the name of fair competition and public health.”3
PCMA is a national trade association representing the 11 largest PBMs in the country, according to the Court’s decision, written by Justice Sotomayor. The Court determined that ERISA does not preempt state rate regulations that only increase costs or alter incentives without forcing plans to adopt a specific scheme of coverage. Based on this, the justices reversed the decision of the Eighth Circuit Court, which had ruled that Act 900 was impermissible.1
“In sum, Act 900 amounts to cost regulation that does not bear an impermissible connection with or reference to ERISA,” Sotomayor wrote.1
The decision establishes that states do have the right to regulate PBMs in managed care organizations, after the 2015 Arkansas law required PBMs to increase reimbursement rates for drugs if they fell below the pharmacy’s wholesale acquisition costs.1 Although critics of PBMs have argued that they are damaging to independent community pharmacies, supporters maintain that PBMs are advocates and work to lower drug prices.4
In a response to a recent House Committee on Oversight and Reform hearing on pricing practices for prescription drugs, PCMA CEO JC Scott, JD, said “While drug manufacturers are solely responsible for setting and increasing prescription drug prices, pharmacy benefit managers, PBMs, are the only entity reducing prescription drug costs. PBMs keep prescription drug costs and premiums in check by negotiating lower costs with drug makers and pharmacies.”5
In a previous statement on the case, Scott argued that allowing individual state laws regarding PBMs will create different and confusing standards, resulting in administrative challenges and diverted funds.4 Several states, including Georgia and Kentucky, have followed Arkansas’ lead and pushed their own PBM legislation.4
“Unique state laws governing the administration of pharmacy benefits are proliferating across the country, establishing vastly different standards,” Scott said. “These inconsistencies and often conflicting state policies eliminate flexibility for plan sponsors and create significant administrative inefficiencies. These inefficiencies divert funds from where they should be spent: providing access to the health care services on which employees of plans across the country rely.”4
In March, 4 pharmacy groups filed an amicus brief in support of Rutledge, including the Arkansas Pharmacists Association, the National Alliance of State Pharmacy Associations, the National Community Pharmacists Association, and the American Pharmacists Association.7
In a press release responding to the ruling, Scott J. Knoer, PharmD, MS, executive vice president and CEO of the American Pharmacists Association, celebrated the decision and said the opinion returns power to states and other authorities, rather than PBMs.7
“This is a great day for pharmacists and their patients,” Knoer said. “For years, PBMs have threatened the sacrosanct relationship between pharmacists and their patients and have never been forced to answer to any authority for their actions. This opinion redresses that imbalance and returns the power to protect the interests of patients to the states and other local authorities, where it belongs.”7
A statement from the American Society of Health-System Pharmacists also applauded the decision, saying that they expect more states to follow suit with regulations limiting PBMs.8
"We are extremely pleased that the Court recognized the serious patient impacts of the most abusive PBM practices," said Tom Kraus, MHS, JD, ASHP vice president of global relations, in the press release. "Today's ruling should pave the way for more states to use regulation as a tool to rein in PBMs and ensure patients have access to care."8
The Community Oncology Alliance (COA) also released a statement saying the ruling will "stop abuses that harm patients and [the] health care system."9
"For too long, inaction by Congress and regulators has allowed PBMs to corrupt nearly every step of the patient journey, causing nothing but endless pain and suffering for patients with cancer who face delays and denials in being able to access their life-saving medications," said Ted Okon, executive director of the COA, in the press release. "Thanks to the Supreme Court's ruling today, states will now have clear authority and mandate to do what is right for vulnerable patients by regulating PBMs."9
- Supreme Court Decision on Rutledge, Attorney General of Arkansas v. Pharmaceutical Care Management Association. December 10, 2020; https://www.supremecourt.gov/opinions/20pdf/18-540_m64o.pdf. Accessed December 10, 2020.
- PCMA Statement on US Supreme Court Decision in Rutledge v. Pharmaceutical Care Management Association (PCMA) [news release]. PCMA; December 10, 2020. https://www.pcmanet.org/pcma-statement-on-u-s-supreme-court-decision-in-rutledge-v-pharmaceutical-care-management-association-pcma/. Accessed December 10, 2020.
- Pharmacy Groups React to Supreme Court Ruling on State Regulation of Controversial PBMs [news release]. Email; December 10, 2020. Accessed December 10, 2020.
- Antrim A. Awaiting Supreme Court Ruling on Regulations States Aim to Legislate PBMs On Their Own. Pharmacy Times; February 25, 2020. https://www.pharmacytimes.com/news/awaiting-supreme-court-ruling-on-regulations-states-aim-to-legislate-pbms-on-their-own. Accessed December 10, 2020.
- Karlovitch S. Arkansas Attorny General: States Must Be Able to Regulate PBMs. Pharmacy Times; October 5, 2020. https://www.pharmacytimes.com/news/arkansas-attorney-general-states-must-be-able-to-regulate-pbms. Accessed December 10, 2020.
- Coppock K. 4 Pharmacy Groups Document Support in Supreme Court Case Seeking to Limit PBMs. Pharmacy Times; March 2, 2020. https://www.pharmacytimes.com/news/4-pharmacy-groups-file-amicus-brief-in-supreme-court-case-seeking-to-limit-pbms. Accessed December 10, 2020.
- American Pharmacists Association Hails Supreme Court Ruling on Pharmacy Benefit Managers [news release]. American Pharmacists Association; December 10, 2020. https://www.pharmacist.com/press-release/american-pharmacists-association-hails-supreme-court-ruling-pharmacy-benefit-managers. Accessed December 10, 2020.
- ASHP Applauds US Supreme Court Ruling on Regulation of PBMs [news release]. Email; December 10, 2020. Accessed December 10, 2020.
- Community Oncology Alliance Applauds Supreme Court Ruling Supporting State Regulations of PBMs [news release]. Community Oncology Alliance; December 10, 2020. Accessed December 10, 2020.