Supreme Court Rules Against Pharmacy Benefit Managers, Scoring a Win for Independent Pharmacies

The U.S. Supreme Court recently ruled against Pharmacy Benefit Managers (PBMs), scoring a win for smaller, independent pharmacies. The opinion by the high court will allow states to regulate how much money PBMs are required to reimburse pharmacies for prescription medication.

On December 10, 2020, in Rutledge v. Pharmaceutical Care Management Assn., the Supreme Court held that an Arkansas law, which required PBMs to reimburse pharmacies at a rate equal to or higher than the acquisition cost from the wholesaler drug distributor, to be valid and enforceable.

More specifically, the court held that the Arkansas law was not preempted by ERISA (Employee Retirement Income Security Act), a federal law that governs employee sponsored benefit plans. Had the law been preempted by ERISA, then it would not have applied, and the PBMs would not have had to abide by Arkansas’ cost regulation. PBMs and other large insurance companies often use this preemption argument as a legal strategy to avoid state laws that provide greater protection for consumers and healthcare providers.

PBMs are multibillion-dollar organizations that serve as middlemen between your health insurance company, drug manufacturers, and pharmacies. They have influence over what type of medication your health plan covers, as well as the amount of money your pharmacy will be reimbursed. According to an article published by the National Institute of Health, there are approximately 60 PBMs in the United States. The three largest PBMs – CVS Caremark, Express Scripts, and Optum RX – account for approximately 62 percent of the market.

Some PBMs also own or have affiliate pharmacies: CVS Caremark is a subsidiary of CVS Health, (which owns CVS Pharmacies); Express Scripts offers an online pharmacy; and Optum RX also purchased The Diplomat Pharmacy for $300 million in 2019.

In recent years, PBMs have come under scrutiny by consumers and independent pharmacies who claim that PBMs are not focused on the consumer but are driven by profit. Critics claim that this has resulted in higher drug costs to the consumer, and small reimbursements to independent pharmacies, which are being squeezed out of business by PBMs. For example, according to a recent report commissioned by Florida’s Agency for Healthcare Administration, PBMs cost Florida’s Medicaid program approximately $113 million dollars because of PBMs’ administrative practices, some of which include marking up drug prices before reimbursing the pharmacy. This process is known as “spread pricing” – it occurs when the PBM charges the managed care plan a different amount than what it reimburses the pharmacy for the medication. This ultimately results in more money paid by the patient’s health plan for the medication, more profit for the PBM, and less money for the pharmacy.

Independent pharmacy owners in many states have petitioned their government officials and lawmakers for greater oversight over PBMs. Among their chief complaint is patient steering to PBM-affiliated pharmacies, which may be the only place where the health plan covers the drug. For example, in a study commissioned by the Florida Pharmacy Association, it found that Sunshine Health, which is a managed care organization that contracts with CVS Caremark for PBM services, directed 95 percent of all claims for a generic cancer drug to Acaria pharmacy, its wholly owned specialty pharmacy. The study showed that Sunshine Health reimbursed its own pharmacy an average of $4,399 above the national average cost for the drug.

Independent pharmacies also have complained that PBMs reimburse independent pharmacies for medication at rates lower than what the pharmacy paid for the medication from the wholesale drug distributor. These concerns prompted Arkansas to pass a law regulating the minimum amount that a PBM can reimburse a pharmacy for medication. PBMs fought against the law, and the case made it all the way to the Supreme Court.

The Supreme Court’s ruling may be what states need to support efforts to further regulate PBMs. The Florida House of Representative recently proposed a bill, HB 961, to provide greater oversight of PBMs and more price transparency. However, it failed to become law. Nevertheless, the Supreme Court ruling has opened the possibility of Florida enacting new regulations, if the Florida Legislature can get them passed.

In addition to reimbursement issues, independent pharmacies often face other disputes with PBMs, such as overpayments, drug invoice shortfalls, and possible terminations. If you or someone you know is facing a termination or other dispute with PBM, please contact our firm for further assistance. The Health Law Offices of Anthony C. Vitale has experience in termination appeals, overpayments, and audits against major PBMs, including CVS Caremark, Express Scripts, and Optum RX.

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Daniel Ferrante