High Court Lets 2015 Arkansas Law Regulating PBMs Stand

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In a ruling seen as a win for local pharmacies, the U.S. Supreme Court on Thursday reversed a lower court decision that prevented a 2015 state law regulating pharmacy benefit managers from going into effect.

The Legislature passed the law, Act 900, to ensure that pharmacies are fully reimbursed for the cost of drugs they dispense to customers. It allowed Arkansas pharmacists, for the first time, to refuse to fill a prescription at a loss, or to fill it and appeal the below-cost reimbursement.

It was an 8-0 decision by the court, which found the state law was not pre-empted by federal law. Justice Amy Coney Barrett had not yet joined the court when the case was argued and did not take part in the decision.

More: Read the court’s decision here.

“Today, Arkansas pharmacists join their colleagues across the country to celebrate a triumphant victory years in the making,” Arkansas Pharmacists Association CEO John Vinson said in a news release celebrating the decision. 

“The Supreme Court’s ruling means that states can finally protect our patients who receive their pharmacy benefits through their employers. This win should increase drug pricing transparency, increase pharmacy access for patients, improve freedom of choice, and improve health care for our citizens both during and after the pandemic.”

Reaction from the Pharmaceutical Care Management Association, the national association that represents pharmacy benefit managers, or PBMs, was muted.

“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),” the group said in a news release.

“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.”

The PCMA had argued that Act 900 was in conflict with ERISA, a federal law that would pre-empt state laws that relate to a covered employee benefit plan. But the high court found that Act 900 has no “impermissible connection with an ERISA plan” and was therefore not in conflict with it.

The opinion, written by Justice Sonia Sotomayor, notes that Act 900 does not refer to ERISA, does not act “immediately and exclusively upon ERISA plans” and “the existence of ERISA plans is [not] essential to the law’s operation.”

“Act 900 affects plans only insofar as PBMs may pass along higher pharmacy rates to plans with which they contract, and Act 900 regulates PBMs whether or not the plans they service fall within ERISA’s coverage,” she wrote. “ERISA plans are therefore also not essential to Act 900’s operation.”

In a statement, Arkansas Attorney General Leslie Rutledge praised the court’s decision.

“This is an important unanimous 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,” she said.

Act 900 was sponsored by state Rep. Michelle Gray, R-Melbourne, and state Sen. Ron Caldwell, R-Wynne. The PCMA sued three weeks after it went into effect, and U.S. District Judge Brian Miller ruled that part of the law was pre-empted by ERISA. The Eighth U.S. Circuit Court of Appeals upheld the ruling, and Rutledge appealed the decision to the U.S. Supreme Court. 

Many states have passed PBM laws similar to Arkansas’ since 2015. Forty-five states, the District of Columbia and the Trump administration were among those who sided with Arkansas’ appeal. Rutledge’s office argued the case before the Supreme Court over teleconference in October.

In an interview Thursday afternoon, Vinson said Rutledge deserved credit for sticking with the case.

“… You cannot imagine how many things that had to go right for this to happen,” he said. “The attorney general deserves a lot of credit for sticking her neck out there on this issue — and her staff for her advising her to do this.”

Legislators revisited the issue of PBMs in 2018, passing the Arkansas Pharmacy Benefits Manager Licensure Act, which requires licensure of any PBM that services any insurance plans that are not self-funded by employers.

That act, also led by Gray and Caldwell, put PBMs under the oversight of the Arkansas Insurance Department, which promulgates regulations addressing licensed PBMs’ use of spread contracts. It also banned PBM “gag clauses” that prevented pharmacists from discussing the total price of a drug or cheaper alternatives.

(The Associated Press contributed to this report.)