Focused On Health Care Law

Supreme Court: States can regulate pharmacy benefit managers

On Behalf of | Dec 16, 2020 | Health care law |

The independent pharmacy community’s wait began back in Michigan’s frigid  January when the U.S. Supreme Court decided it would take Rutledge v. the Pharmaceutical Care Management Association (PCMA). In October, the court heard arguments in the health care law dispute over whether states can regulate pharmacy benefit managers (PBMs).

A unanimous court

With its recent unanimous decision, the court ended the wait by ruling that states may pass laws requiring PBMs to reimburse pharmacies for medications at a rate equal to – or higher than – the pharmacy’s wholesale cost.

The legal battle lines were drawn back in 2015 when Arkansas passed Act 900, a law requiring PBMs to increase reimbursement rates for prescription medications if the rates dropped below the pharmacy’s wholesale costs. The law also created a process by which pharmacies could challenge PBMs’ reimbursement rates.

Unfavorable terms

In order to be able to participate in a preferred pharmacy network, some pharmacies would agree in contracts to accept unfavorable terms, such as below-wholesale reimbursements from PGMs. The Arkansas law was written to end the practice, but the PCMA (the trade association for major PBMs) argued in its lawsuit that the federal law known as ERISA (Employee Retirement Income Security Act) preempts state laws relating to ERISA-governed employee benefits plans.

The U.S. Court of Appeals for the Eighth Circuit had previously decided in favor of the PCMA, but the U.S. Supreme Court has reversed the decision, opening the way for states to pass similar laws to protect pharmacies from PBM business practices condemned by some as predatory.