Supreme Court Allows States to Regulate Pharmacy Benefit Managers

The Supreme Court unanimously ruled that US states can regulate pharmacy benefit managers. 

The decision released at the beginning of December ruled in favor of groups arguing on behalf of patients and independent pharmacies who have looked to stop pharmacy benefit managers from keeping reimbursement rates low for generic drugs. 

Overall, pharmacy benefit managers affect nearly 250 million Americans, acting as a middlemen of sorts to handle aspects of the drug purchasing process on behalf of private payers, federal and state programs, large employers, and other payer types

However, 45 states led by Arkansas have argued in court that low reimbursement rates over the years have forced thousands of independent pharmacies to close, specifically in rural areas.

With the Supreme Court ruling, states will have greater authority to protect local pharmacies and their patients from pharmacy benefit manager overreach, the states say.

“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,” said Arkansas Attorney General Leslie Rutledge. “I will always protect Arkansas and small businesses from unfair practices and fight to lower the costs of prescription drugs.”

The Pharmaceutical Care Management Association, the trade group for benefit managers such as CVS, OptumRX, and Express Scripts, stated that the Employee Retirement Income Security Act (ERISA) of 1974 preempts state laws, including one Arkansas passed in 2015. 

The 2015 Arkansas law required pharmacy benefit managers to pay pharmacies reimbursement rates for generic drugs at or above the cost the pharmacy paid to acquire the drug.

Before the bill was enacted, pharmacy benefit managers would reimburse pharmacies at less than the cost to acquire a drug, which contributed to 16 percent of rural independent pharmacy closing across the US in recent years, state policymakers stated.

Chief Justice John Roberts stated that Arkansas seeks to regulate drug prices, not the insurance plans themselves. Therefore, the panel of judges agreed that states should be able to regulate the rates that pharmacy benefit managers reimburse pharmacies. 

Notably, the case was first argued in October, but the majority of the court’s justices expressed concern that interference in the prescription drug marketplace would subject pharmacy benefit managers to dozens of state laws.

A report from the Pharmaceutical Research and Manufacturers of America (PhRMA) stated that the complexity and number of players involved in the drug supply chain may be one of the main reasons drug costs are making headlines.

Prescription drugs greatly depend on several negotiations between wholesalers, pharmacies, pharmacy benefit managers, and insurers. 

Over the past few years, rebates have increased and out-of-pocket costs for patients have soared. 

Many experts believe that the role of pharmacy benefit managers in the supply chain are the reason for these high costs, and that the recent Supreme Court ruling will ensure pharmacists and patients have a more secure and trusting relationship. 

“This is a historic victory for independent pharmacies and their patients. And it confirms the rights of states to enact reasonable regulations in the name of fair competition and public health,” Douglas Hoey, CEO of the National Community Pharmacists Association, said in a press release following the ruling. 

“The Supreme Court’s ruling means that states can finally protect our patients who receive their pharmacy benefits through their employers,” added John Vinson, Arkansas Pharmacists Association CEO. 

“This win should increase drug pricing transparency, increase pharmacy access for patients, improve freedom of choice, and improve the healthcare for our citizens both during and after the pandemic,” Vinson concluded.