SCOTUS case tests states' power to regulate PBMs
More than 30 states are pushing for greater oversite of PBMs, but companies argue that doing so would unduly burden ERISA plans.
On Tuesday, the US Supreme Court heard arguments in a case that could affect pharmacy benefits for employers in the US. The case, Rutledge v Pharmaceutical Care Management Association (PCMA), concerns an Arkansas state law that regulates pharmacy benefits managers (PBMs), ostensibly to protect pharmacies from low reimbursements that they say threaten their ability to stay in business.
Arkansas passed a law, known as Act 900, that aimed to protect pharmacies from unreasonably low reimbursements from PBMs. Pharmacies have argued that in some cases, drug reimbursement rates set by PBMs are lower than the wholesale price they pay, forcing them to take financial losses.
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The Arkansas law has been challenged by PCMA, and the resulting case made its way to the Supreme Court, with the insurance industry on one side, and Rutledge joined by 32 other states in pushing for the right to more aggressively regulate PBMs operating in their states.
Arkansas Attorney General Leslie Rutledge said the law was passed to protect both pharmacies and consumers. “For many Arkansans, we interact most frequently with our local pharmacists, but the stranglehold PBMs have on drug prices is driving many local pharmacies out of business,” said Attorney General Rutledge. “It’s time we hold PBMs accountable for skyrocketing prescription drug prices and directly hurting Arkansan’s pocketbooks.”
PBMs argue against new regulations, cite ERISA
The PBM industry, on the other hand, said the new regulations will put a burden on insurance plans sponsored by employers. “A decision found in favor of Rutledge threatens the employer-provided coverage upon which hundreds of millions of Americans rely,” the PCMA said in a statement after the Supreme Court heard arguments in the case.
PBMS are relying on the Employee Retirement Income Security Act of 1974 (ERISA) as a bulwark against state laws that would regulate PBM plans. Companies with employees in more than one state often adopt ERISA plans, which are regulated on the federal level and are generally exempt from state regulation. PBMs argue that a patchwork of state laws about PBMs would unduly burden companies with ERISA plans. An earlier court ruled against Rutledge based on ERISA, and the case was appealed to the Supreme Court.
According to SCOTUSblog.com’s analyst, Ronald Mann, ERISA has traditionally offered protections against state regulation, but the application of the law has varied. “ERISA has a notoriously broad preemption provision that prohibits states from enacting laws that ‘relate to any employee benefit plan’ covered by ERISA,” Mann writes. “That provision generally reserves the regulation of such plans to Congress, but its scope is often unclear.”
A split ruling would maintain the status quo
Mann noted that with the court divided evenly, 4-4 between conservative and liberal judges, a split decision is at least somewhat likely. If that happens, the lower court ruling would stand, meaning that Rutledge would fail, and ERISA law would continue to preclude this type of regulation.
As the newsletter Inside Health Policy related, the Supreme Court has a history of upholding ERISA preemption of state regulations. Conservative justices did not seem inclined to change their stance in questioning of the parties.
The article noted an exchange between Justice Samuel Alito and Arkansas Solicitor General Nicholas Bronni. “‘If we follow the way we generally interpret statutes in the case you would be in a lot of trouble, wouldn’t you?’ Justice Samuel Alito asked Bronni. The Arkansas attorney argued that Congress did not intend the scope of ERISA to ‘relate to’ every aspect of an employee benefit plan and have such a broad interpretation.”
Mann’s analysis noted that the case has flown under the radar, largely because it is seen as an industry dispute, rather than something that directly affects consumers. “The case primarily is about shifting the share of profits in the pharmaceutical supply chain,” he wrote. “[The Rutledge-related laws] increase the profit share that pharmacies get and depress the share that flows to PBMs and insurers.”
A ruling on the case is expected in the spring of 2021.
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