Legal Challenges to State PBM Laws

November 17, 2019

This year many state legislatures have enacted laws to regulate pharmacy benefit managers (PBMs) and require increased transparency and accountability from them. However, the PBMs have fought back in court. The Pharmaceutical Care Management Association (PCMA), the trade association representing PBMs, is increasingly bringing lawsuits claiming that these laws are unconstitutional. They are wrong and we urge that state laws regulating PBMs be upheld.

 

PCMA argues that state laws on PBMs are preempted by the Employee Retirement Income Security Act (ERISA). In 2003 Maine enacted a law requiring PBMs to disclose any payments they get from drug companies and to pass discounts they receive from drug companies on to consumers, and also to act in their clients' best interests. When PCMA filed a lawsuit, the First Circuit Court of Appeals ruled that Maine's law was constitutional and not preempted by ERISA.

 

Shortly thereafter, Washington D.C. passed a similar PBM law, and PCMA filed another lawsuit. This time the outcome was different; the D.C. Circuit Court of Appeals struck down the law on the grounds that ERISA preempted it.

 

Ten years later in 2014, Iowa passed its own law regulating how PBMs establish generic drug pricing and requiring PBMs to disclose information their drug pricing methodology to their network pharmacies as well as Iowa's Insurance Commissioner. The court struck down that law. And in 2015 Arkansas passed a law just like it, but the District Court of Arkansas struck it down.

 

This has created a confusing situation where some courts have ruled that state laws regulating PBMs are constitutional and other courts have ruled otherwise. Arkansas has filed a petition requesting the Supreme Court to review the case and render a decision, and 32 states have joined the amicus brief urging this as well.

 

Currently there are two pending cases: North Dakota (PCMA v. Tufte) and Oklahoma (PCMA v. Mulready). In 2017 North Dakota approved two PBM bills that regulate PBM reimbursements to pharmacies for prescription drugs and how much PBMs make from these practices-it requires PBMs to disclose drug prices and keeping their reimbursement rates above certain levels. A federal judge upheld these laws. And in 2019 Oklahoma passed the Patient's Right to Pharmacy Choice Act, which ban higher reimbursement rates for PBM-owned pharmacies and ban PBMs from preventing pharmacies from disclosing cost information to consumers. The case is currently before an Oklahoma District Court.

 

We strongly believe that state laws regulating PBMs are constitutional, and hope that the courts will rule in their favor.

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