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USSC to hear arguments on PBMs

By submitted, 02/1/20 7:42 AM

LITTLE ROCK – In April the United States Supreme Court will hear arguments on an Arkansas law that has potentially far-reaching implications for the health care, pharmaceutical and insurance industries.

It is an appeal of Act 900 of 2015, which the legislature enacted to regulate Pharmacy Benefit Managers. More commonly known as PBMs, they are middlemen between pharmacies and insurance companies.

Act 900 passed in the state Senate by a vote of 32-to-0 and in the House of Representatives by a vote of 64-to-14.

The PBMs set reimbursement rates that are supposed to provide incentives for pharmacies to hold down prices as much as possible. However, some pharmacies contended that the rates were so low it was driving them out of business, or forcing them to operate at a loss.

After passage of Act 900, the Pharmaceutical Care Management Association, representing PBMs, filed a legal challenge. That is the case headed to the U.S. Supreme Court.

The state attorney general will argue that Act 900 should be upheld. Many other states will be closely watching the outcome of the case, as will all the organizations and companies that make up the health care industry.

Arkansas will argue that the legislature has authority to regulate PBMs, and in order to prevail it must clear a hurdle that has affected health care litigation for decades. It is the question of whether or not a state can regulate health plans that come under a broad federal law known as the Employee Retirement Income Security Act, or ERISA.

At a recent meeting in Little Rock, the state Senate Committee on Insurance and Commerce heard a status report from the Arkansas attorney general’s office and the Arkansas Insurance Department.

In addition to its potential importance nationwide, there is a unique Arkansas angle to the case. Within living memory, no case out of Arkansas has gone to the U.S. Supreme Court on the motion of the state attorney general.

High-profile cases have gone to the U.S. Supreme Court on the motion of plaintiffs challenging a state law, such as frequently occurs in death penalty cases. But the PBM case is unique in that the Arkansas attorney general petitioned the high court to hear it.

According to a spokesman for the attorney general, the U.S. Supreme Court is expected to rule on the case by June, before it takes a summer break.

In a 2018 special session, the legislature enacted a licensing law for PBMs. Officials of the Insurance Department told legislators that licensing of PBMs has made enforcement stronger and more thorough.

When considering Act 900, legislators heard reports that PBMs sometimes reimbursed independent pharmacists at a lower rate than they did other drugstores with which the PBMs had a corporate affiliation. That is no longer allowed.

Consumers benefited from the 2018 law because it prohibits PBMs from writing gag rules into their contracts with pharmacists. That means pharmacists are able to advise customers on how to purchase alternative prescriptions that are equally effective but not as expensive.

According to national organizations, Arkansas is one of the first states to regulate PBMs.