Jury trial date set on closely-watched Arkansas pharmacy benefits case

In what could have a significant impact on pharmacy costs, U.S. District Judge Brian Miller has set a jury trial for the week of Dec. 5, 2016, to determine if a state law appropriately prevents middlemen from underpaying pharmacists, or if it instead illegally disrupts national drug-pricing systems.

At issue in Pharmaceutical Care Management v. Leslie Rutledge is Act 900 of 2015, which changes how pharmacists are reimbursed by pharmacy benefit managers. PBMs contract with health plans to administer generic prescription drug benefits. Pharmacies sign contracts with those PBMs in order to be reimbursed. PBMs set rates for pharmacies and guarantee terms to their plan customers using proprietary maximum allowable cost lists. The purpose of those MACs is to incentivize pharmacies to shop around for lower costs.

The act, which went into effect July 22, ensures that pharmacies can appeal to a PBM if they aren’t reimbursed at their acquisition costs and be guaranteed that cost if the reimbursement is below that. Pharmacists can turn away patients so they don’t lose money in a transaction. The law also guarantees that pharmacists are reimbursed at the same rate as the pharmacy benefit managers’ own drug-dispensing entities.

LEGAL PUSH BACK

The Pharmaceutical Care Management Association, an industry lobbying group representing 11 members, filed suit against the law. The PCMA claims Act 900 violates the Constitution’s Commerce Clause by burdening interstate commerce, as well as federal and state contract and due process clauses. By empowering state pharmacies to decline to fill prescriptions at contracted prices, the law allows pharmacies to violate their obligations, the PCMA says.

The PCMA also is arguing that the act is preempted by the Employee Retirement Income Security Act, or ERISA, because it affects prices paid by consumers through their employers’ health plans. They say it disrupts health plan administrators’ ability to uniformly administer their plans across a national network and would force them to create MAC lists specific to Arkansas or change their national pricing terms to comply with the act. PCMA also says the law is superseded by the federal Medicare Prescription Drug, Improvement, and Modernization Act regarding Medicare Part D purchases.

In a complaint filed Aug. 13, the plaintiffs argued that the act mandates PBMs reimburse pharmacies “at or above the cost invoiced by wholesalers or manufacturers regardless of whether the pharmacies could have acquired the drugs for less, and regardless of whether the pharmacies receive rebates or discounts not reflected on the wholesaler’s or manufacturer’s invoice. In essence, Act 900 guarantees Arkansas pharmacies a profit on every MAC script filled.”

On Nov. 25, Miller ruled against the PCMA’s request for a preliminary injunction, saying it could not prove PBMs had suffered from a “threat of an irreparable injury.” Separately, he also ruled against the state’s motion to dismiss, allowing the suit to move forward. On Dec. 10, he set the jury trial for the week of Dec. 5, 2016.

ARKANSAS LAW UNIQUE IN THE NATION
PCMA’s general counsel, Barbara Levy, said the law is the first like it in the nation. She said MACs are used to rationalize reimbursements across manufacturers and to incentivize pharmacists to shop carefully for generic drugs. She said pharmacy benefit managers set their own MACs using a proprietary algorithm based on a drug’s wholesale costs.

“What we’re looking at on MAC is across a whole market basket of drugs, and the vast majority of those claims, the pharmacists will make a profit on. But by pushing the number up for every single claim, it will raise prices across the board for everyone – for employers, for consumers,” Levy said.

Mark Riley, Pharm. D., executive vice president and CEO of the Arkansas Pharmacists Association, says the bill is necessary because PBMs are using their status as middlemen to arbitrarily set prices too low to increase their own profits, without being transparent about how they produce those numbers. He said PBMs charge employers one amount and charge pharmacists another and make money on the spread.

“What we’re saying is, is that (if) you’re going to tell us we’re paid on cost plus a fee, cost has to be a market cost. You can’t just make them up,” he said.

Riley said pharmacists have no choice but to sign the contracts with PBMs if they want to stay in business because three of them, CVS Health Corporation, Express Scripts and UnitedHealthcare, effectively control the market. Only 7% or 8% of pharmacists’ business is cash-based, he said. He said PBMs have been around for decades, but the problem only surfaced in the last four or five years and became worse in the last 18 months.

PHARMACISTS LOSE MONEY ON SOME ORDERS

Riley said the reimbursements often don’t reflect pharmacists’ actual costs. A survey of his membership found that pharmacists are filling 11% of their prescriptions below their acquisition costs.

Riley said pharmacists aren’t asking for guaranteed profits. Indeed, he said, the acquisition cost does not reflect the actual cost of dispensing the drug counting overhead. The state is conducting a study to determine the total cost of filling a prescription.

He said claims are adjudicated on the spot while the customer is waiting, letting pharmacists know how much they will be reimbursed and how much the customer owes. At that point, the pharmacist often knows he or she has just lost money on the transaction.

Riley said pharmacists don’t want to turn away customers. One pharmacist told him he was filling pain patches at a loss of $60 a month for a dying cancer patient who had been his customer for 45 years. Efforts to challenge the reimbursement had been unsuccessful and then ignored. The pharmacist said he would continue to trade with the customer.

“That’s a classic example of how they’re taking advantage of pharmacies because they know we have the relationship with patients, and we don’t want to say no,” Riley said.