Arkansas’ PBM law unanimously upheld by U.S. Supreme Court

The U.S. Supreme Court ruled in favor of an Arkansas law on a controversial pharmacy benefit manager (PBM) statute on Thursday (Dec. 10). The 19-page decision from the nation’s high court was unanimous.

The ruling in Rutledge v. Pharmaceutical Care Management Association centered around Act 900, which was passed in Arkansas in 2015. Act 900 regulated pharmacy benefit managers, which act as middlemen between pharmacists and insurance providers. Their reimbursement rates theoretically incentivize pharmacies to find lower wholesale drug prices.

Pharmacists said the PBMs’ reimbursement rates were too low – in fact, too often below the pharmacists’ cost of procurement. The Arkansas law requires PBMs to increase reimbursements for generic drugs if they are below wholesale costs, and it created an appeals process for pharmacies to challenge the reimbursements.

When the law went into effect in September 2015, the Pharmaceutical Care Management Association, which represents PBMs, immediately sued. The industry argued that state laws can’t preempt payments made for voluntarily created employee benefit plans in private industry under the Employee Retirement Income Security Act of 1974, otherwise known as ERISA. ERISA plans are not regulated by state insurance departments and are typically self-funded.

The Eastern District of Arkansas federal court enjoined the law in March 2017, so the state appealed to the U.S. Court of Appeals for the Eighth Circuit, which ruled in favor of the PCMA in June 2018. The Supreme Court decision today reverses that lower court ruling blocking enforcement of the Arkansas law.

Arkansas Attorney General Leslie Rutledge, whose office argued the case before the Supreme Court, said the legal victory was a major one for the state’s pharmacies.

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

The PMCA provided the following statement to Talk Business & Politics after the court’s decision:

“We are disappointed in the Court’s decision that will result in the unraveling of federal protections under the Employee Retirement Income Security Act of 1974 (ERISA). As states across the country consider this outcome, we would encourage they proceed with caution and avoid any regulations around prescription drug benefits that will result in higher healthcare costs for consumers and employers.”

John Vinson, CEO of the Arkansas Pharmacists Association, said, “Today, Arkansas pharmacists join their colleagues across the country to celebrate a triumphant victory years in the making. The Supreme Court’s ruling means that states can finally protect our patients who receive their pharmacy benefits through their employers. This win should increase drug pricing transparency, increase pharmacy access for patients, improve freedom of choice, and improve the health care for our citizens both during and after the pandemic.”

Editor’s note: Steve Brawner contributed to this story.