Independent and specialty pharmacies across the country continue to face mounting pressure from pharmacy benefit managers (PBMs): exclusion from networks, below-cost reimbursement, patient steering to affiliated mail-order or specialty pharmacies, delayed payments, and burdensome audits.
While PBMs often behave as if their authority is without limitation, that narrative is increasingly inaccurate. While numerous protections have existed for several years, state legislatures have enacted a broad array of laws designed to curb abusive PBM practices and rebalance the relationship between PBMs and pharmacy providers.
This article outlines six major categories of state laws that pharmacies can leverage:
- Any Willing Provider laws
- Fair Pharmacy Audit laws
- MAC Appeal and Minimum Reimbursement laws
- Prompt Pay laws
- Anti-Patient Steering laws
- 340B Reimbursement Parity laws
For each, we describe how the laws operate, what conduct they target, who they apply to, and examples from leading states. We then address ERISA and Medicare Part D preemption, the two most significant legal headwinds in this area.
1. Any Willing Provider (AWP) Laws
Any Willing Provider laws prohibit PBMs or insurers from excluding a pharmacy from participation in a network if the pharmacy is willing to accept the plan’s standard terms and conditions.
- What They Address – PBMs have historically used selective contracting to exclude independent pharmacies, particularly from specialty networks. In many cases, networks are structured to favor PBM-affiliated pharmacies or vertically integrated entities. AWP laws aim to ensure network access on non-discriminatory terms.
- How They Work – These statutes generally require:
- Equal access to network participation if contractual terms are accepted
- Non-discriminatory credentialing standards (and sometimes reasonable and relevant terms and conditions)
- Uniform reimbursement methodologies
- Applicability – AWP laws typically apply to:
- Fully insured commercial plans
- State and municipal employee plans (in many states)
- Medicaid managed care plans (in many states)
Because AWP laws have often been found to require benefits (i.e., coverage at a particular pharmacy), they are often vulnerable to ERISA preemption when applied to self-funded employer plans. Notably, however, there is a robust AWP law available at the federal level, applicable to Medicare Part D.
- Examples:
- Arkansas – Ark. Code §§ 23-99-801, et seq.: Arkansas has one of the most pharmacy-friendly AWP frameworks. It requires PBMs to admit pharmacies into networks if they meet credentialing requirements and agree to terms.
- Texas – Texas Insurance Code § 1369.0541: A health insurance policy or managed care plan may not deny a pharmacy the right to participate as a contract provider under the plan if the pharmacy agrees to provide pharmaceutical services that meet all terms and requirements, including professional conditions, that apply to pharmacies participating under the plan.
- Enforcement – State insurance departments and attorneys general have initiated investigations where pharmacies were denied network participation despite meeting criteria. In some states, particularly where the statute provides a “private right of action,” pharmacies have brought private actions under unfair trade practices laws.
2. Fair Pharmacy Audit Laws
These statutes regulate how PBMs conduct audits of pharmacies, both in terms of frequency and scope, as well as the conduct PBMs may engage in and rights available to pharmacies.
- What They Address – Fair pharmacy audit laws are meant to address a variety of tactics employed by PBMs, including:
- Extrapolation of minor clerical errors
- Recoupments for immaterial technical violations or clerical errors
- Lack of audit transparency
- Retroactive claim reversals
- Incentive compensation paid to auditors
- Lack of defined appeal rights
- Excessive or overly broad audits
- How They Work – Typical safeguards include:
- Advance notice of audits
- Limits on audit frequency
- Prohibition on extrapolation
- Materiality standards
- Defined appeal rights
- Restrictions on recouping for non-material clerical errors
- Applicability – Most apply to:
- Commercial plans
- Medicaid managed care plans
However, depending on how they are drafted, fair audit laws may also apply to self-funded ERISA plans and Medicare Part D plans, despite objections from PBMs.
- Examples:
- Kentucky – Ky. R.S. §§ 304.17A-740, et seq.: Kentucky’s audit law limits extrapolation and prohibits recoupment for non-material clerical errors absent fraud.
- Louisiana – La. R.S. § 22:1856.1: Louisiana provides detailed procedural protections, including appeal timelines and documentation requirements.
- Enforcement –Several state boards of pharmacy and insurance departments have penalized PBMs for non-compliant audits. Most recently, the Rhode Island Attorney General’s Office took action against Prime Therapeutics for violations of the fair pharmacy audit law, requiring the PBM to halt audits and strengthen compliance practices. In addition, pharmacies have successfully leveraged audit statutes as defenses to audit recoupment demands.
3. MAC Appeal and Minimum Reimbursement Laws
These laws address opaque maximum allowable cost (MAC) lists and below-cost reimbursement rates.
- What They Target – Common PBM practices include:
- Using outdated MAC lists
- Reimbursing below NADAC or available acquisition costs
- Failing to provide meaningful appeal processes
- How They Work – MAC statutes typically require:
- Transparent MAC list disclosure
- Regular updates to the MAC list
- Defined appeal process with turnaround timelines
- Adjustment of similarly situated claims if an appeal succeeds
Minimum reimbursement laws may require reimbursement at or above:- NADAC
- Acquisition cost
- A defined benchmark formula
- The amount the PBM pays a wholly owned or affiliated pharmacy
- Applicability – Frequently apply to:
- Commercial insured plans
- Medicaid managed care
- Self-funded ERISA plans (following the Supreme Court’s decision in Rutledge v. PCMA)
- Examples:
- Arkansas – Act 900: Requires PBMs to reimburse pharmacies at or above acquisition cost and provide an appeal mechanism. Upheld by the U.S. Supreme Court in Rutledge v. PCMA (2020).
- West Virginia – W. Va. Code § 33-51-1 et seq.: Requires reimbursement not less than NADAC for certain claims and includes a structured MAC appeal process.
- Enforcement – Arkansas has actively enforced Act 900. Several states have imposed administrative penalties for failure to update MAC pricing.
4. Prompt Pay Laws
Prompt pay statutes require PBMs or insurers to pay clean claims within a specified timeframe.
- What They Address – Pharmacies routinely experience delayed payments, particularly during disputes or audit periods.
- How They Work:
- Payment of clean claims within 15–30 days
- Interest penalties for late payment
- Defined clean claim standards
- Limitations on lookback periods to retroactively deny a claim
- Applicability – Most apply to:
- Fully insured commercial plans
- Medicaid managed care
ERISA preemption often limits the reach of these laws for self-funded employer plans.
- Examples:
- Florida – F.S.A. § 627.6131: Requires prompt payment and imposes interest penalties, and includes a 30-month lookback period and a prohibition on payors from unilaterally recouping claims after they have been paid.
- New York – N.Y. Ins. Law § 3224-a: Mandates payment of undisputed claims within 30 days and imposes interest penalties.
- Enforcement – While state insurance departments have sometimes investigated patterns of delayed payments by PBMs, pharmacies have often used these laws to recover statutory interest in enforcement actions or used prompt pay laws as a defense to attempted recoupment actions by PBMs.
5. Anti-Patient Steering Laws
These laws prohibit or seek to limit PBMs from steering patients to their wholly-owned or affiliated pharmacies.
- What They Target – Common conduct includes:
- Requiring use of PBM-owned specialty pharmacies
- Differential copay structures
- Limiting mail/delivery rights by unaffiliated pharmacies
- Engaging in conduct aimed at directing or rerouting patients to affiliated pharmacies (i.e., prescription trolling, patient slamming, claims hijacking)
- How They Work – Statutes typically prohibit:
- Mandated mail-order use
- Restricting pharmacy delivery
- Financial penalties tied to pharmacy selection
- PBM conduct designed to steer or direct patients to affiliated pharmacies
- Applicability – Often applies to:
- Commercial insured plans
- Medicaid managed care
Medicare Part D and self-funded plans are often subject to preemption risks. However, other legal principles may apply to prohibit patient steering in those contexts.
- Examples:
- Florida – Fla. Stat. § 626.8825: Prohibits PBMs from restricting a pharmacy’s ability to offer mail or delivery services at the patient’s discretion.
- North Carolina – N.C. Gen. Stat. § 58-56A-4: Prohibits steering and discriminatory reimbursement to affiliated pharmacies.
- Enforcement – Several state attorneys general have publicly investigated steering practices, particularly involving vertically integrated PBMs. In 2022, Oklahoma entered into a $4.8 million settlement with CVS Caremark, related to the PBM’s improper steering of patients to affiliated pharmacies and restrictions on pharmacy access.
6. 340B Reimbursement Parity Laws
These laws prohibit PBMs from reimbursing contract pharmacies and covered entities differently for 340B claims as compared to claims using inventory not purchased through the 340B program.
- What They Target – PBMs have increasingly:
- Imposed 340B-specific reimbursement reductions
- Required 340B claim identifiers
- Conducted targeted audits/reconciliation demands
- How They Work – 340B parity statutes generally prohibit:
- Differential reimbursement based on 340B status
- Contract terms conditioning payment on 340B disclosure
- Any other discrimination against 340B covered entities or contract pharmacies
- Applicability – Usually applies to:
- Commercial insured plans
- Medicaid managed care
While some laws are written to apply to all plans, PBMs have sometimes argued that these laws are inapplicable to self-funded ERISA plans and Medicare Part D plans based on federal preemption.
- Examples:
- Arkansas – Ark. Code § 23-92-604: Prohibits PBMs from reimbursing less for 340B drugs than non-340B drugs.
- Louisiana – La. R.S. § 22:1860.3: Prohibits discrimination in reimbursement for 340B claims.
- Enforcement – While a few state regulators have initiated investigations following PBM policy changes targeting 340B contract pharmacies, these statutes have been generally used by pharmacies pushing back against PBM rate amendments targeting 340B claims.
ERISA and Medicare Part D Preemption
While these laws can provide great protections and rights to independent pharmacies, no discussion of state PBM regulation is complete without addressing preemption (that is, where federal laws trump state laws on the same subjects).
ERISA Preemption
ERISA broadly preempts state laws that “relate to” employee benefit plans. PBMs frequently argue that AWP laws, reimbursement mandates, and audit statutes cannot apply to self-funded employer plans.
However, the U.S. Supreme Court’s decision in Rutledge v. PCMA (2020) narrowed that argument, holding that Arkansas’s reimbursement regulation was not preempted because it regulated PBMs, not plan administration directly. As a general rule, laws that merely impact or increase costs of administering a plan in a particular state are not preempted by ERISA, while laws that require or establish specific benefits are often preempted.
This has meant that:
- Laws directly dictating benefit design (such as AWP laws) are at higher risk of preemption.
- Reimbursement floor laws have survived scrutiny post-Rutledge.
- Audit and prompt pay statutes are sometimes applied to PBMs as service providers, avoiding direct ERISA conflict.
In any event, preemption analysis is highly fact-specific and depends heavily on the specific language of each state’s statute.
Medicare Part D Preemption
Likewise, Medicare Part D is a federal program, and Part D plans operate under extensive federal regulation. Courts have held that state laws conflicting with CMS standards or interfering with plan design may be preempted. This standard has evolved under a slightly different framework than ERISA preemption.
In this regard, high-risk areas include:
- Mandatory reimbursement floors
- Network design mandates
- Restrictions conflicting with CMS pharmacy access standards
However, states retain authority over PBM licensure and certain trade practices, and a number of state PBM reform efforts have been held to withstand preemption under Medicare Part D.
Conclusion
With the shifting legal landscape, states are becoming increasingly willing to regulate PBMs. These laws have created numerous additional rights available to pharmacies in leveling the playing field with PBMs. In seeking to leverage these laws, pharmacies must be mindful of which line of business is involved (i.e., commercial insured vs. self-funded vs. Medicaid vs. Medicare Part D), as well as the specific language and requirements set forth in each law. In addition, pharmacies must employ coordinated strategies to assert these rights, which may include filing regulatory complaints, raising defenses in audits, asserting rights during contract renegotiation, and engaging in strategic litigation or arbitration.
How Frier Levitt Can Help
Frier Levitt routinely represents pharmacies across the country in leveraging these various state laws. We have successfully raised these laws in favor of pharmacies during audits, network terminations, and credentialing application processes. In addition, we have successfully litigated claims against PBMs based on these statutory protections.
If you are facing abusive PBM conduct (whether in the form of audits, network terminations, admission denials, or below cost reimbursement), contact Frier Levitt today.
