Pharmacy Benefit Manager Cases

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Rutledge v. Pharmaceutical Care Management Association

Brief Summary: On August 13, 2015, the Pharmaceutical Care Management Association (PCMA), a trade association representing Pharmacy Benefit Managers (PBMs), filed suit against Attorney General Leslie Rutledge of Arkansas. The suit alleged that a state statute regulating PBMs is preempted by the Employee Retirement Income Security Act (ERISA), Medicare Part D, among other claims.

Overview:  The statute at issue regulates how PBMs use and manage their maximum allowable cost lists. PBMs use maximum allowable cost lists to set reimbursement rates for dispensed medications. These lists often include reduced rates that pharmacies accept in exchange for participating in the PBM’s preferred pharmacy network. However, if the maximum allowable cost for a dispensed medication is below the pharmacy acquisition cost, the pharmacy loses money on that transaction. Notably, the statute requires that PBMs to allow a pharmacy to challenge claims if the pharmacy would lose money on a transaction by accepting the PBM’s maximum allowable cost. PCMA argued that the statute is preempted by ERISA as it interferes with ERISA’s uniform national treatment of employee benefit plans. It also argued that Medicare Part D preempts the statute because this provision interferes with the Medicare law’s requirement that beneficiaries have access to negotiated prices.

A second provision of the statute, known as the “decline-to-dispense” provision, allows pharmacies to decline to provide pharmacy services to a patient or PBM if the pharmacy would be paid less than the pharmacy acquisition cost due to the PBM’s maximum allowable cost list. PCMA asserted that the decline-to-dispense provision interferes with Medicare Part D’s pharmacy access standard, which requires Part D sponsors to structure their networks to ensure that a certain percentage of beneficiaries live within a certain distance of a network pharmacy.

Court Updates: U.S. District Court for the Eastern District of Arkansas – Opinion, March 1, 2017

The District Court held that the statute is preempted by ERISA but not by Medicare Part D.

The court reasoned that ERISA preempts the PBM statute because state regulation of maximum allowable cost pricing interferes with uniform plan administration. Additionally, PBMs may not be able to determine final drug benefit payments and monitor funds. The court’s holding invalidated the statute as it applies to the administration and management of prescription drug benefits for ERISA plans.

The court held that Medicare Part D does not preempt the PBM statute because the maximum allowable cost and decline-to-dispense provisions did not significantly interfere with the federal standards established by the Medicare Part D program. The Medicare Part D program’s negotiated prices standard excludes “additional contingent amounts” that “cannot be reasonably determined at the point of sale.” The court reasoned that these “additional contingent amounts” are inclusive of the maximum allowable cost pricing. The court further noted that a pharmacy declining to dispense a prescription does not remove the pharmacy from the Part D plan sponsor’s network, and therefore, the statute did not interfere with the pharmacy access standard.

PCMA appealed the Medicare Part D ruling while Attorney General Rutledge appealed the ERISA ruling.

U.S. Court of Appeals for the 8th Circuit – Opinion, June 8, 2018

The court affirmed the District Court ruling that the Arkansas statute was preempted by ERISA, but reversed the Medicare Part D ruling, holding that it also preempted the statute because it interfered with the negotiated prices and pharmacy access standards.

Regarding the negotiated prices standard, the court held that the appeal process does not make the final price “contingent” because after the appeal is completed the final price could be the maximum allowable cost, the pharmacy acquisition cost, or the best price from the wholesaler. This removes the final price from the definition of “additional contingent amounts,” which results in the statute interfering with Medicare Part D’s negotiated prices standard.

Regarding the pharmacy access standard, the court held that the decline-to-dispense provision interferes with the standard because a pharmacy effectively becomes out-of-network if it refuses to fill a prescription. The court reasoned that the statute’s decline-to-dispense provision could result in a beneficiary being unable to fill a prescription at any nearby pharmacy. Because of this, the statute acts “with respect to” the pharmacy access standard, and is preempted by Medicare Part D.

Current Status: On January 10, 2020, the Supreme Court has granted certiorari in Rutledge v. PCMA. The Court will decide this case during the Court’s 2020 term.

Impact: The Supreme Court could shrink or expand states’ authority to regulate the operations of PBMs. Additionally, the Court could further clarify the scope of ERISA preemption, which could have an impact on other types of state laws that regulate health care.

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