Lanton Law Follow Up Interview with Law360
Lanton Law had a follow up interview with Law360 regarding the Rutledge v. PCMA Supreme Court oral arguments on October 6, 2020. Below is a link to the story titled “Justices Eye Arkansas PBM Law’s Impact on Workers.” The story can be viewed here.
If you have trouble accessing the story we have included Emily Brill’s article below.
Justices Eye Arkansas PBM Law's Impact On Workers
By Emily Brill
Law360 (October 6, 2020, 1:50 PM EDT) -- The U.S. Supreme Court on Tuesday focused on whether an Arkansas law's potential costliness to employee benefit plans is enough to place it in conflict with the Employee Retirement Income Security Act, with two conservative justices questioning whether the statute regulating pharmacy benefit managers would end up hurting workers.
Counsel for the Pharmaceutical Care Management Association, the PBM lobby that challenged Arkansas' Act 900, argued that increased plan costs could cause employers to squeeze benefits. Therefore, laws like Act 900 — which could increase plans' costs by increasing PBMs' costs in the form of compliance burdens — pose enough of a threat to workers' benefits that they should be preempted by ERISA, argued Seth Waxman, a partner at WilmerHale.
"Those additional costs, both in terms of reimbursement obligations and plan administration, would manifestly affect how munificent the pharmacy benefits a plan could offer would be," Waxman said.
Arkansas' solicitor general bucked this argument, claiming PCMA's approach to ERISA preemption would spell the end for far more laws than Congress intended to strike down when it stated that ERISA should be the only law regulating employee benefit plans.
"If you accept their position that anytime a regulation imposes cost, that can lead to preemption because it might affect the benefits calculation, that really has no limiting principle," Arkansas Solicitor General Nicholas Bronni said. "It would, frankly, preempt things like state minimum wage laws that have exactly that same effect."
Justice Brett Kavanaugh questioned why increased costs shouldn't be considered an ERISA preemption issue.
"Why shouldn't ERISA care about costs that are going to be increased and then passed on in the form of worse benefits to Arkansas workers?" Justice Kavanaugh asked the assistant to the U.S. solicitor general, Frederick Liu, who argued in support of Arkansas' position.
Liu responded that "increased costs actually don't affect the basic bargain between the plan and its beneficiaries," which was what Justice Kavanaugh had stated that ERISA was designed to protect.
"I totally agree that ERISA was enacted to protect that relationship, but increased costs don't affect the terms of that relationship," Liu argued.
Justice Samuel Alito Jr. questioned whether Act 900, which regulates how PBMs reimburse local pharmacies, would indeed increase costs for employee benefit plans and workers.
"You said that these laws affect the benefits that employees get, but do we know whether that is in fact true?" Justice Alito said. "Assuming they increase the costs for the PBMs, do we know how much of that increase in cost is passed on to plans and beneficiaries, and how much is absorbed by the PBMs?"
Waxman said he didn't "have specific data on this" but knew that "one way or another, in the very short term or the long term, this is going to cost plans more to administer," which would affect "the munificence of the pharmacy benefits that plans feel they can afford."
Arkansas Takes on PBMs
The case the justices heard Tuesday asks them to decide whether Arkansas was allowed to pass a law regulating the rates at which PBMs reimburse pharmacies for prescription drugs.
Critics of PBMs, which manage health insurance plans' relationships with pharmacies, say they're pushing local pharmacies out of business by regularly shortchanging them on prescription reimbursements, while paying PBM-owned pharmacies higher rates for the same drugs.
Those critics — which include pharmacy groups and a coalition of 46 attorneys general — say Arkansas was within its rights in 2015 to pass a law that purported to protect local pharmacies from unfair treatment by PBMs. Act 900, among other things, required PBMs to reimburse at rates at least equal to what pharmacies pay for drugs.
But supporters of PBMs, which include business and insurance trade groups, say Act 900 violated ERISA. They say Congress intended ERISA to be the only law that regulates matters impacting employee benefit plans, so Arkansas' law cannot stand.
In 2017, an Arkansas federal judge agreed with the law's challengers and struck down Act 900. The Eighth Circuit upheld the lower court's decision in June 2018, and Arkansas petitioned the Supreme Court for review in October 2018. The high court picked up the case in January.
Mulling Travelers
Much of Tuesday's debate on whether a law's costliness to benefit plans could trigger ERISA preemption centered on interpretation of the Supreme Court's 1995 decision in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co .
In the Travelers case, the high court upheld a New York law that required hospitals to impose a surcharge on patients with certain types of insurance, including employer-provided health insurance.
The justices ruled unanimously that the law wasn't preempted by ERISA because "it simply bears on the cost of benefits" without "bind[ing] plan administrators to any particular choice," as now-retired Justice David Souter wrote in the opinion.
Bronni argued Tuesday that the justices' logic in Travelers neatly applies to this case, saying that "for the same reason that New York's rate regulation wasn't preempted in Travelers, Arkansas' is not preempted here."
But Travelers left the door open for a law's costliness to trigger ERISA preemption if that statute produced "such acute, albeit indirect, economic effects as to force an ERISA plan to adopt a certain scheme of coverage," as Justice Souter put it in a footnote.
That's what PCMA is arguing could happen here, said Mark Casciari, a benefits attorney at Seyfarth Shaw LLP who watched Tuesday's oral arguments.
"A plan sponsor has to decide what they're going to cover, and this law could have the effect of forcing its hand on those decisions because of onerous administrative burdens," Casciari said. "By regulating costs, the state law is rearticulating the plan terms."
But PCMA's argument could be weakened by the fact it's choosing to pass on those costs to benefit plans, when it could just absorb those costs, said Ron Lanton, an attorney and lobbyist with 15 years of experience in health care law.
When Waxman referenced the footnote in the Travelers decision, Chief Justice John Roberts pointed out that increasing costs for PBMs doesn't necessarily increase costs for benefit plans; that only happens because PBMs set things up that way.
"If the state law produced economic effects as to force the ERISA plan to adopt a certain scheme of coverage, it would, indeed, be preempted," Waxman said.
"Well, it's not the state or the pharmacy's fault that the PBMs have such Byzantine procedures that affect drug prices," Justice Roberts said.
Lanton said he thinks Justice Roberts was "undermining PCMA's argument" with his comment.
"Where they're saying this affects the plan, I think Justice Roberts is saying, 'Yeah, I hear what you're saying, but we're only here because of the way you guys structured this business.'"
Arkansas Attorney General Leslie Rutledge is represented at oral arguments by Arkansas Solicitor General Nicholas Bronni.
The federal government is represented by Frederick Liu of the U.S. Office of the Solicitor General.
PCMA is represented by Seth Waxman of WilmerHale.
The case is Rutledge v. Pharmaceutical Care Management Association, case number 18-540, in the Supreme Court of the United States.
--Editing by Orlando Lorenzo.
Update: This article has been updated with more details from the hearing and further comment.