On Tuesday morning, October 6, 2020, the United States Supreme Court heard oral arguments in the case Rutledge v. Pharmaceutical Care Management Association.
The case involves a challenge to an Arkansas law known as Act 900. The law was enacted by the State of Arkansas in 2015 to regulate the amounts that a Pharmacy Benefit Manager (PBM) must pay to a pharmacy when an individual covered under a health plan purchases prescription drugs. The law was challenged by a trade association of PBMs as a violation of the Employee Retirement Income Security Act of 1974 (ERISA). While the ERISA issues may be of great academic interest to ERISA lawyers, the case may have a more practical effect on individual consumers.
A PBM is a third-party intermediary between employers that sponsor group health plans that include a prescription drug benefit and retail pharmacies that sell prescription drugs to plan participants. They are usually engaged by an insurance company to administer a plan’s drug benefits, and their goal is to reduce the cost of prescription drugs to the insurance company. When a plan participant goes to a pharmacy, it is the PBM that determines how much the pharmacy will be paid for the medication. That amount is known as the Maximum Allowable Cost (MAC).
In addition, it is often the PBM that reimburses the pharmacy for the difference between the MAC and the co-pay paid by the plan participant. The PBM is then reimbursed by the insurance company for the amounts that it paid the pharmacy. A PBM may also be paid an administrative fee or a portion of the difference between the MAC and the amount that the insurance company is willing to pay for the medication.
A pharmacy does not purchase prescription drugs from a PBM. It purchases medication from a wholesaler. The problem that the legislation was intended to address is that, sometimes, the MAC is less than the amount that the pharmacy has to pay its wholesaler for a particular prescription drug.
As a result, Arkansas, like many other states, enacted legislation regulating the MAC that a PBM must pay to a pharmacy; requiring that a PBM set its MAC in an amount that is at least equal to the pharmacy’s purchase price. The proponents of the legislation argue that many small, independent pharmacies have been forced out of business because their acquisition costs for prescription drugs often exceeded the MAC paid by the PBM.
The lawsuit was filed by the Pharmaceutical Care Management Association (PCMA), a trade association of PBMs. The PCMA alleged that the Arkansas statute violates ERISA. ERISA is a federal law that regulates employee benefit plans and seeks to protect employees. ERISA contains a preemption provision that precludes states from enacting laws that also seek to regulate employee benefit plans. Of course, the PCMA was not motivated solely by loyalty to federal law. It claimed that the law eliminates an incentive used by PBMs to reduce the cost of prescription drugs.
It also likely reduces the profits earned by PBMs and increases the regulatory burden. The state, of course, argued the opposite. It claimed the law would protect consumers by preserving smaller, independent pharmacies and providing greater access to less profitable drugs. The PCMA won in the district court as well as in the U.S. Circuit Court of Appeals for the Eighth Circuit.
It is, of course, impossible to predict what will happen in the Supreme Court. As of October 6, 2020, when the case was argued, the Court had only eight members. This means that, if the Justices split, 4–4, the decision of the Appeals Court will be upheld, and Act 900 will be overturned.
In addition, similar laws of many other states would suffer the same consequence. While each side may have presented its case as important for consumers, the issue is much more esoteric. The issue is ERISA preemption, which has a long and confusing history. Justices may react differently to that issue than they would if the case were simply presented as pro- or anti-consumer.
For further information or for assistance with your health and prescription drug benefit plans, contact RMC Group.