Pharmacy Groups and Dispensing Providers Unite in Landmark PBM Case: Rutledge v. PCMA

On October 6, 2020, oral argument was entertained by the Supreme Court of the United States (“SCOTUS”) in Rutledge v. Pharmaceutical Care Management Association (PCMA),[1] the first case to reach the high court challenging a State’s ability to regulate PBM conduct. The Supreme Court decision will determine whether States can enact laws that regulate PBM conduct, or whether such laws are preempted by ERISA. 

The case began with the 2015 Arkansas (AR) Act 900 (“Law”) which placed limits on the practice of “negative reimbursements” and was struck down by the 8th Circuit.[2] PCMA, a PBM trade group, contends that the subject Law regulated group health plans, and consequently, is preempted by ERISA.

Forty-five state attorneys general and D.C. submitted amicus briefs in support of the Law. In addition, amicus briefs in support of the Law were also filed by NCPA, APA, APhA, NASPA, state pharmacy associations, COA and several of its independent oncology provider members.

Over the past several years, approximately 45 States have enacted laws regulating PBM conduct, including laws designed to ensure pricing transparency and reasonable reimbursement, laws to regulate PBM audit practices, and laws designed to promote pharmacy network access.  These laws are a direct response to the significant and otherwise unchecked power that PBMs wield in the prescription drug marketplace. In the absence of these laws, PBMs have engaged in a variety of abusive practices including, but not limited to, the practice of reimbursing pharmacies below their acquisition cost for a drug. This is precisely the type of conduct that the subject AR Law was designed to prevent.

The primary arguments on both sides focused on whether the Law is related to plan administration and benefits, which would be preempted by ERISA, or if it is outside that scope. Petitioner argues that the Law governs the dealings between PBMs and pharmacies, which is related to reimbursement, and not to administration of the plan or the relationship between health plans and beneficiaries —and thus, is not preempted. Petitioners argue that the Law regulates PBM operations and does not directly impact patients because it only targets the rates that PBMs pay to pharmacies, not the profits that PBMs make from health plans. Respondent, PCMA argues, that there is no legal distinction between a health plan and its contractor in this context, meaning the Law attempts to regulate core aspects of a plan’s decisions and administration. PCMA further contends that the patchwork requirements across states, coupled with the fact that the AR Law allows pharmacies to refuse prescriptions, have a significant impact on a plan’s operations. Finally, Respondent argues that the Law effects plan administration and makes it impossible to have a nationally uniform plan administration.

Suffice it to say, the consequences of the SCOTUS’s decision in Rutledge may be far-reaching as the decision will likely impact the way that courts throughout the country interpret and apply ERISA preemption to similar laws enacted in other States. If SCOTUS affirms the Eighth Circuit’s decision holding that the subject Law is preempted by ERISA, then a State’s ability to regulate PBM conduct will be substantially limited thereby emboldening PBMs to continue with their abusive reimbursement, audit and network access practices. This, in turn, will likely cause many providers to close, and consequently, patient choice and most importantly, patient care will suffer. On the other hand, should the SCOTUS reverse the Eighth Circuit decision and uphold the Law, State’s will be able to regulate PBM conduct to ensure that providers are protected against abusive PBM practices and, most importantly, will ensure that patient choice and care remain of the utmost importance.

How Frier Levitt Can Help

Frier Levitt provides a robust understanding of the laws governing PBM practices and leverages its vast knowledge of these laws to ensure that pharmacy and other dispensing providers are not subjected to abusive PBM tactics such as unfair audit practices, unlawful reimbursements and improper barriers to network entry. If your pharmacy or dispensing provider practice is being subjected to unfair or unlawful PBM practices, contact us today.

[1] Case Number 18-540.

[2] PCMA v. Rutledge, 891 F.3d 1109 (8th Cir. 2018).

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