Supreme Court justices on Tuesday questioned whether states have the authority to regulate how much middlemen hired by insurance plans pay pharmacies.
During oral arguments, several justices asked about the burden health plans face since many states have a patchwork of PBM regulations. The case, Rutledge v. Pharmaceutical Care Management Association, could decide the fate of those state PBM regulations. The justices are weighing whether the Employee Retirement Income Security Act allows states to force pharmacy benefit managers to pay pharmacies at least their cost of acquiring a drug.
The conflict in the case is over an Arkansas law that requires PBMs to pay pharmacies at least the price stated by the pharmacy's wholesaler and regularly update their Maximum Allowable Cost price lists. The law also outlines a process for pharmacies to appeal particular MACs.
Pharmacy benefit managers argue that a patchwork of state regulations that complicate plans' operations and that requiring PBMs to cover acquisition costs discourages pharmacies for searching out the lowest price from suppliers. America's Health Insurance Plans is not a party to the case, but asked the court to affirm the lower court's ruling for the sake of national uniformity.
Justice Clarence Thomas highlighted a potential lack of uniformity as a potentially interesting issue for him, and PCMA counsel Seth Waxman, a partner at Wilmer Cutler Pickering Hale & Dorr, argued that compliance across state lines is onerous for PBMs acting on behalf of plans. However, Justice Samuel Alito pointed out that PBMs are sophisticated entities that already deal with a large volume of information.
Justice Elena Kagan questioned whether having more than 40 different state standards created a patchwork of varying state regulation.
"I'm wondering why that doesn't raise exactly the specter that the drafters of ERISA were concerned about," Kagan said.
The 8th U.S. Circuit Court of Appeals decided that the Arkansas law was preempted by ERISA. Since the late Justice Ruth Bader Ginsburg's death, if the court were to come to a split decision the 8th Circuit's decision would stand.
More than two dozen states, led by Arkansas, argue that the law should not be preempted because it only regulates rates between pharmacies and third-party administrators and does not change plans' administration decisions. The Trump administration supports the states' position.
Justice Brett Kavanaugh appeared skeptical of states' argument that PBM reimbursement is completely separate from plan administration.
"Why shouldn't ERISA care about costs that are going to be increased and thereby passed on in the form of worse benefits to Arkansas workers?" Kavanaugh asked Frederick Liu, who represented the Trump administration.
Many of the nation's largest PBMs have merged with health insurers in recent years.
Legislation regulating PBMs, which is generally supported by drugmakers, has gained popularity in state legislatures in recent years. In 2020 alone more than 150 bills regulating PBMs were introduced nationwide, and states including Colorado, Georgia, Idaho, Indiana and Maryland adopted new laws on the issue, according to data compiled the National Academy for State Health Policy.
The larger implications of the case were on the mind of Justice Neil Gorsuch, who asked how a ruling for PBMs could affect regulation on other employer-provided benefits such as day care for employees' children. Lower court rulings on ERISA preemption on healthcare regulation have been somewhat inconsistent, so the case presents an opportunity for the justices to clarify their most recent stances.
The court is expected to deliver an opinion by the end of June 2021 at the latest. If justices split 4-4 on the case, they may choose to rehear it.