Awaiting Supreme Court Ruling on Regulations, States Aim to Legislate PBMs On Their Own

This article was edited on February 25th, at 2:00pm.

As the Supreme Court prepares to hear oral arguments in Rutledge v. Pharmaceutical Care Management Association (PCMA), several states are moving forward with their own legislation to limit the influence of pharmacy benefit managers (PBMs) in managed care organizations.

Critics of PBMs have long maintained that they are damaging to independent community pharmacies, whereas supporters counter that they function as advocates and work to lower drug prices.

According to Anne Cassity, JD, vice president of Federal and State Government Affairs for the National Community Pharmacists Association (NCPA), PBMs were originally intended to function as claims processors between health plans and pharmacies. In an interview with Pharmacy Times, Cassity said PBMs have overstepped that role.

Cassity noted 3 major concerns about PBMs and their current influence: low reimbursement rates, steering patients to their own pharmacies, and controlling which services pharmacies can provide.

Additionally, she added that privacy is an increasing concern as more patient information is being shared as a result of vertical mergers. Patients may fill a prescription at a pharmacy, then receive a phone call offering services from another pharmacy that the PBM is trying to steer patients toward, according to Cassity.

This practice is not a violation of the Health Insurance Portability and Accountability Act because of the mergers, Cassity said.

"[PBMs] have more power in the industry than anyone and frankly, at the end of the day, they're not a health care provider," Cassity said.

The Supreme Court Case

Rutledge v. PCMA could be pivotal in deciding the future relationship between the states and PBMs. The justices will be deciding whether states have the right to regulate PBMs, after the US Court of Appeals for the Eighth Circuit ruled that the Employee Retirement Income Security Act of 1974, a federal law, superseded an Arkansas law aiming to regulate PBMs.¹

The 2015 Arkansas law required PBMs to increase reimbursement rates for drugs if they fell below the pharmacy's wholesale acquisition costs, essentially prohibiting the managers from reimbursing pharmacies below the cost of acquisition.¹

In a statement, PCMA CEO JC Scott said the many state laws regarding PBMs are creating inconsistent and conflicting policies, which could harm patient care.²

"Unique state laws governing the administration of pharmacy benefits are proliferating across the country, establishing vastly different standards," Scott said in the statement. "These inconsistencies and often conflicting state policies eliminate flexibility for plan sponsors and create significant administrative inefficiencies. These inefficiencies divert funds from where they should be spent: providing access to the health care services on which employees of plans across the country rely."²

Notably, before the Supreme Court agreed to hear the case, US Solicitor General Noel Francisco filed a brief, not only encouraging the Court to hear the case, but adding that he believed the Eighth Circuit decision was wrong.¹

Cassity said that although there is still no telling what the Court will decide, she's encouraged by Francisco's brief.

"I think that was huge," she said. "I think the major question there is do states have the right to regulate the relationship between the PBM and the pharmacy?"

The NCPA will be filing an amicus brief to the Court in support of Arkansas, along with the Arkansas Pharmacists Association, the American Pharmacists Association, and the National Alliance of State Pharmacy Associations.³ In a recent tweet, Leslie Rutledge, the Arkansas Attorney General, wrote, "Our brief has been officially filed with the US Supreme Court in Rutledge v. Pharmaceutical Care Management Association." The Supreme Court is set to hear oral arguments on April 27, 2020.⁴

Georgia, Kentucky Push Their Own Legislation

States across the country are working on their own legislation regarding PBMs, even as the Supreme Court decides their ability to move forward.

In Georgia, Senate Bill 313 (SB 313) had its first senate hearing February 12, according to the Atlanta Journal-Constitution.⁵ The bill aims to improve drug pricing transparency by forcing PBMs to share more information with state regulators, and by forcing them to track their prices against a federally-approved drug price list and report when they vary too widely.⁶

In a statement, a representative of PCMA said SB 313 does not focus on patients and is instead a piece of special interest legislation.

"SB 313 does absolutely nothing to reduce prescription drug costs and will only increase profits for Georgia's independent pharmacies," said the statement. "It's a piece of special interest legislation that is not patient-centric."7

Transparency is a major concern for critics of PBMs. Issues such as retroactive reimbursement adjustments can have a major effect on pharmacies, said Matt Magner, JD, director of state government affairs for NCPA, in an interview with Pharmacy Times.

"The issue is it's not transparent, the pharmacy doesn't know how much they're going to have to give back in a few months," Magner said.

Legislators in Kentucky are considering even more significant regulations for PBMs. Whereas Kentucky Senate Bill 50 was originally a carve-out bill that would have essentially eliminated the role of PBMs in the state, Cassity said it is now allowing the state to contract with 1 PBM. This single PBM would service all managed care organizations in the state and would give authority to the state health care agency to set reimbursement rates for managed care prescription claims.⁸

"It looks to me like a compromise bill," she said. "I think there's some improvements that could be made."

In an ideal world, Cassity said, PBMs would function as they were originally intended. However, she added, it's not realistic to believe legislators can get rid of them entirely.

One potential solution to the problem of opaque pricing practices is to implement a specific pricing policy, in which reimbursements for Medicaid managed care programs are the National Average Drug Acquisition Cost (NADAC) plus a dispensing fee. This idea seems to be trending, Cassity said.

"It's a very transparent benchmark, it actually reflects what drugs cost," she said. "In fact, the US Congress is actually looking at requiring NADAC-plus [pricing] in all Medicaid managed care programs."

Regardless of the various legislative decisions around the country, Magner said PBMs will continue to affect all levels of the health care continuum.

"In these bills, it's impossible to separate the PBMs' impact on pharmacies from the impact on plan sponsors, from the impact on patients," Magner said.

He concluded that legislators must consider all of these implications in order to make the best decision.

REFERENCES

• Nessel J. Supreme Court to Rule on States’ Right to Regulate Pharmacy Benefit Managers. Pharmacy Times; January 13, 2020. https://www.pharmacytimes.com/news/supreme-court-to-rule-on-states-right-to-regulate-pharmacy-benefit-managers. Accessed February 24, 2020.
• PCMA Statement on the United States Supreme Court Decision to Review Rutledge v. PCMA [news release]. Washington, DC; January 10, 2020. PCMA website. https://www.pcmanet.org/pcma-statement-on-the-united-states-supreme-court-decision-to-review-rutledge-v-pcma/. Accessed February 24, 2020.
• Pharmacy Groups Unite to Fight PBMs in Landmark Supreme Court Case [news release]. Alexandria, Virginia; February 21, 2020. NCPA website; https://www.ncpanet.org/newsroom/news-releases/2020/02/21/pharmacy-groups-unite-to-fight-pbms-in-landmark-supreme-court-case. Accessed February 24, 2020.
• Tweet. Leslie Rutledge. https://twitter.com/AGRutledge/status/1232340537786671104. Accessed February 25, 2020.
• Hart A. Georgia bill seeks lower drug prices by focusing on middlemen. The Atlanta Journal-Constitution; February 13, 2020. The Atlanta Journal-Constitution website; https://www.ajc.com/news/state--regional-govt--politics/georgia-bill-seeks-lower-drug-prices-focusing-middlemen/vdCP3o7j7uBZ2xVtSB9CKO/. Accessed February 24, 2020.
• 2019-2020 Regular Session — SB 313. Georgia General Assembly Legislation website; http://www.legis.ga.gov/legislation/en-US/Display/20192020/SB/313. Accessed February 24, 2020.
• [External] PCMA Statement; email received February 24, 2020.
• KY SB50 — 2020 – Regular Session. LegiScan website; https://legiscan.com/KY/bill/SB50/2020. Accessed February 24, 2020.