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

The Supreme Court has 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.,[i] 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), which is 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 health care providers.

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

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

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.[x] 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.[xi]  For example, according to a recent report commissioned by the State of Florida Agency for Healthcare Administration, PBMs cost the State of Florida Medicaid Program approximately $113 million dollars because of PBMs’ administrative practices, some of which include marking up drug prices before reimbursing the pharmacy.[xii] 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.[xiii] 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 law makers for greater oversight over PBMs.[xiv] Among their chief complaint is patient steering to PBM affiliated pharmacies, which may be the only place where the health plan covers the drug.[xv] 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,[xvi] directed 95 percent of all claims for a generic cancer drug to Acaria pharmacy, its wholly owned specialty pharmacy.[xvii] The study showed that Sunshine Health reimbursed its own pharmacy an average of $4,399 above the national average cost for the drug.[xviii]

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

The Supreme Court’s ruling may be what States need to support efforts to further regulate PBMs. The Florida House of representatives had recently proposed a bill, HB 961, to provide greater oversight of PBMs and more price transparency. However, it failed to become law.[xxii] 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.


[i] Rutledge v. Pharmaceutical Care Management Assn., No. 18-450, 2020 LEXIS 5988 (2020). Opinion available at 18-540 Rutledge v. Pharmaceutical Care Management Assn. (12/10/2020) (supremecourt.gov)

[ii] Martha M. Rumore, PharmD, JD, MS, LLM, FAPhA and F. Randy Vogenberg, RPh, PhD, PBM P&T Practices

The HEAT Initiative Is Gaining Momentum,  U.S. National Institute of Health’s Library of Medicine, May 2017, Available online at PBM P&T Practices (nih.gov); see also Paul Liotta, Independent pharmacies want Cuomo to sign bill they say could save their businesses, Silive.com, December 18, 2019, available online at Independent pharmacies want Cuomo to sign bill they say could save their businesses – silive.com 

[iii] Dr. Michael Diaz, How Pharmacy Benefit Managers Dictate Care, Tampa Bay Times, December 26, 2019, available at How pharmacy benefit managers dictate care | Column (tampabay.com) 

[iv] See n. ii, Rumore and Vogenberg; for further information, you may also visit www.pbmwatch.com.

[v] See n. ii, Rumore and Vogenberg

[vi] Id.

[vii] See n. ii, Liotta 

[viii] Visit ExpressScripts.com for more information. As of December 21, 2020, on ESI’s Homepage, it describes itself as, “[T]he country’s largest pharmacy benefit manager and one of the largest pharmacies.” (emphasis added); available at Express Scripts Members: Manage Your Prescriptions Online (express-scripts.com)

[ix] Bruce Jaspen, UnitedHealth’s Optum To Buy Diplomat Specialty Pharmacy For $300M, Forbes.com, December 9, 2019, available at UnitedHealth’s Optum To Buy Diplomat Specialty Pharmacy For $300M (forbes.com)

[x] See e.g. www.pbmwatch.com 

[xi] Justine Griffin, Tampa lawmaker Jackie Toledo leads push to lower drug costs in Florida, Tampa Bay Times December 17, 2019; available at Tampa lawmaker Jackie Toledo leads push to lower drug costs in Florida (tampabay.com); see also Carol Porter, Independent Pharmacists Stress Personal Touch In An Industry Dominated by Chains, Go Town Crier, February 28, 2020, available at Independent Pharmacists Stress Personal Touch In An Industry Dominated By Chains | Town-Crier Newspaper (gotowncrier.com)

[xii] See Michael Jackson, PBM Markups Cost State Medicaid Estimated $113 million, Florida Pharmacy Association, December 8, 2020, available online at PBM Markups Cost State Medicaid Estimated $113 million – Florida Pharmacy Association

[xiii] See AJ Ally, RPh, MBA, Andrew Gaffner, FSA, MAAA, Jim Hong, MBA, MS, Michael T. Hunter, PharmD, Micchelle Wang, Pharm D, Pharmacy Benefit Manager Pricing Practices in Statewide Medicaid Managed Care Program, December 2020, available at Report template with corporate brand colors, styles, and formatting – US letter (ymaws.com) at page 1.

[xiv] See e.g. n. ii, Liotta; fn. 11, Griffin  

[xv] See Candice Aviles, Neighborhood Pharmacies struggle to stay open, due to PBM restrictions, WTSP 10 Tampa Bay, July 9, 2020, available at Some pharmacies struggle to stay open due to PBM restrictions | wtsp.com

[xvi] Pharmacy Association (FPA) and American Pharmacy Cooperative Inc. (APCI), Sunshine in the Black Box of Pharmacy Benefits Management, at page 3, D January 27, 2020, available at Sunshine in the Black Box of Pharmacy Benefits Management (ymaws.com)

[xvii] Brian Burgess, Study finds millions in Medicaid unfairly pocketed by Pharmacy Benefit Managers, The Capitolst, February 4, 2020, available at  Study finds millions in Medicaid unfairly pocketed by Pharmacy Benefit Managers | The Capitolist; the report may be read at Sunshine in the Black Box of Pharmacy Benefits Management (ymaws.com)

[xviii] Id.

[xix] Solicitor General asks U.S. Supreme Court to hear Arkansas PBM case, Talk Business and Politics, December 5, 2019, available at Solicitor General asks U.S. Supreme Court to hear Arkansas PBM case – Talk Business & Politics

[xx] Brian Scott-Smith, Why ‘Pharmacy Benefit Managers’ Are Hurting You and Your Local Pharmacy, CT Examiner, November 10, 2020, available at Why ‘Pharmacy Benefit Managers’ Are Hurting You And Your Local Pharmacy (ctexaminer.com)

[xxi] Id.

[xxii] HB 961 Prescription Drug Benefits, Florida Senate, available at House Bill 961 (2020) – The Florida Senate (flsenate.gov) 

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