Can States Regulate the Behavior of PBMS? The Supreme Court Will Decide.

Can States Regulate the Behavior of PBMS? The Supreme Court Will Decide.

Pharmacy Benefit Managers (PBMs) control pharmacy networks for a number of insurers and there are not that many PBMs, so a PBM contract is the sole gateway to a number of insurers for pharmacy service claims.  However, the PBM role is not merely processing claims; they hold a great amount of power over pharmacies because PBMs set payment criteria and policies.  The PBM makes its revenue largely on the difference between the price the PBM pays to the pharmacy and the price it receives from the insurer, known as the “retail spread.”  The role of a PBM is to act as the insurers’ administrator, prevent fraud, and to keep the prices of drugs down for the insurers; however PBMS often set rates for pharmacies which are not intended to benefit the insurer but the PBM itself.  Often these policies infuriate pharmacy owners, particularly community pharmacies, but there is little to no ability to challenge the PBMs because the loss of a PBM contract can be a loss of a substantial amount of business.

A case currently before the Supreme Court highlights the power PBMs have.  The State of Arkansas passed a law prohibiting PBMs from setting rates below the cost of medications.  It would seem strange that a pharmacy would accept having to pay more for drugs than they can receive for dispensing the drug.  However, because the PBM contract is so important for a pharmacy and under those contracts the pharmacies have little to no ability to challenge a policy, one aspect of some PBM contracts is that pharmacies are required to accept lower reimbursements for dispensed prescriptions; sometimes even below cost and so a pharmacy may lose money on a given medication in order to make it back on other medications.   

The PBMs fought the application of the statute, citing the protection of a provision of ERISA, the federal self-insured health care law, that prohibits states from passing laws regulating ERISA plans.  The PBMs argued that the federal preemption applied to its policies because those policies affected ERISA plans.  The federal appeals court agreed with the PBMs, the effect being that states have little ability to regulate PBM practices towards pharmacies, here with respect to rate setting.  The Supreme Court agreed to hear the case and the United States has come down on the side of the State of Arkansas and pharmacy owners against the PBMs.  Some court observers believe the fact that the Supreme Court agreed to hear the case indicates it has some misgivings with the lower court decision.  The Case is Rutledge v. Pharmaceutical Care Management Association.

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Bernard M. Cassidy,  Esq.
 (954) 880-9500