Tenth Circuit Deals Pharmacy a Set Back Regarding Oklahoma PBM Law

In 2020 the pharmacy industry witnessed much needed relief with the U.S. Supreme Court ruling on behalf of pharmacy in the unanimous Rutledge v. PCMA case. That decision held that a federal law, the Employee Retirement Income Security Act of 1974 (ERISA), does not prevent states from enacting laws regulating the abusive payment practices of PBMs. 

However; this week The U.S. Court of Appeals for the Tenth Circuit issued a decision agreeing with the Pharmaceutical Care Management Association (PCMA) that Oklahoma's Patient's Right to Pharmacy Choice Act (the Act) is preempted by ERISA because it interferes with central matters of plan administration by restricting ERISA plans from structuring their pharmacy networks in a particular manner. The court also held that ERISA preempted the Act's provision that would bar pharmacy benefit managers (PBMs) from denying, limiting, or terminating a pharmacy's contract because one of its pharmacists is on probation with the state pharmacy board.

This is definitely an inconsistent decision from Rutledge and should be overturned due to recent U.S. Supreme Court precedent. 

Lanton Law is a national boutique law and government affairs firm that closely monitors legislative, regulatory and legal developments in the healthcare and life science spaces. Contact us to learn about how either our legal or lobbying services can help you attain your goals.

Pharmacy Celebrates Another Win Over PBMs in the 8th Circuit

This week the 8th Circuit issued a decision in the case of Pharmaceutical Care Management Association v. Wehbi, which supported North Dakota’s legislative actions to regulate pharmacy benefit managers (PBMs). PCMA v. Wehbi is the first case at the federal appellate level since the landmark Rutledge v. PCMA decision last year that upheld Arkansas law also regulating PBMs. 

The PCMA v. Wehbi case can be found here. 

With these huge decisions serving as tailwinds for pharmacy there is still more work to be done. 

Lanton Law is a national boutique law and lobbying firm that focuses on healthcare/life sciences and technology. Our pharmacy practice has been helping pharmacies nationwide with operational issues, mergers and acquisitions, regulatory inquiries, audits, licensure, employment issues and contracting. Our lobbying efforts help pharmacies nationwide achieve improved business climates through carefully crafted legislation.  

If you are an industry stakeholder with questions about the current landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today.

Oral Arguments Scheduled for North Dakota PBM Case

A group of nine pharmacy associations have filed an amicus curiae (friend of the court) brief in the 8th Circuit matter known as PCMA v. Wehbi. This case is formerly known as Wilke v. PCMA. The amicus brief argues that ERISA does not preempt North Dakota PBM laws.

How did we get here? Last year (August) the 8th Circuit struck down contested North Dakota PBM laws due to ERISA. This is the argument that PBM attorneys advanced as a reason that the contested PBM laws in North Dakota could not stand. This decision was prior to the now landmark Rutledge case. 

Surprisingly and much to the relief of the pharmacy community, the U.S. Supreme Court’s 2021 PCMA v. Rutledge decision determined that the 8th Circuit decision could not stand due to the Supreme Court’s Rutledge decision and its ERISA interpretations. 

Oral arguments PCMA v. Wehbi have been scheduled for September 1, 2021 at 2:00 PM CST.

Lanton Law is a national boutique law and lobbying firm that focuses on healthcare/life sciences and technology. Our pharmacy practice has been helping pharmacies nationwide with operational issues, mergers and acquisitions, regulatory inquiries, audits, licensure, employment issues and contracting. Our lobbying efforts help pharmacies nationwide achieve improved business climates through carefully crafted legislation.  

If you are an industry stakeholder with questions about the current landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today.

PBM Lobby Has 8th Circuit Win Vacated & Remanded

The U.S. Supreme Court ruled in a February 22, 2021 decision against the Pharmaceutical Care Management Association (PCMA); the Washington D.C. based trade group that represents pharmacy benefit managers (PBMs). 

The Court described the merits of Dirk Wilke, Interim State Health Officer of North Dakota, et al., Petitioners v. Pharmaceutical Care Management Association below:

In Rutledge v. Pharmaceutical Care Management Association, No. 18-540 (U.S.), this Court granted a writ of certiorari to decide whether the Employee Re- tirement Income Security Act of 1974 preempts an Arkansas law that regulates the rates that pharmacy benefit managers (PBMs) reimburse pharmacies for dispensing generic drugs. In that case, the Eighth Circuit had held that Arkansas’s law made a prohib- ited “reference to” ERISA plans and had a forbidden “connection with” such plans.

In this case, Respondent sought to enjoin two North Dakota laws that regulate, among other things, certain fees that PBMs charge pharmacies, which drugs pharmacists are allowed to dispense, and what pharmacists are allowed to say to their pa- tients. These laws apply the same standards regard- less of whether PBMs are providing services to an ERISA or non-ERISA plan.

In ruling in Respondent’s favor, the Eighth Cir- cuit applied its decision in Rutledge to do two things. First, it held that, under Rutledge’s logic, North Da- kota’s laws make an impermissible “reference to” ERISA plans because they apply to PBMs serving plans that “include[]” ERISA plans. Second, the court held that a finding of preemption under ERISA nullifies a State law “in its entirety”—even as ap- plied to non-ERISA plans. Because of the first hold- ing, the Eighth Circuit elected not to decide whether North Dakota’s laws also had a forbidden “connection with” ERISA plans. And because of the second hold- ing, the Eighth Circuit stated that it did not reach Respondent’s separate claims of preemption under Medicare Part D.

The questions in this case are: 1) Whether, contrary to decisions of this Court and every other court of appeals that has addressed the issue, ERISA preempts a State law simply be- cause it is broad enough to “include[ ]” ERISA plans among those affected by the law; 2) Whether, contrary to the text of ERISA and deci- sions of this Court and every other court of ap- peals to consider the issue, ERISA preempts a State law “in its entirety”—even as that law ap- plies to non-ERISA plans.

The Court granted the petition then vacated the prior Court’s decision and remanded the case for further consideration in light of Rutledge v. Pharmaceutical Care Management Assn. Rutledge was a December 2020 unanimous decision that ruled ERISA did not preempt Arkansas’ law on reimbursing pharmacies below acquisition costs, ruling that ERISA does not preempt rate regulations.  

Lanton Law was quoted by Law360’s article describing the Court’s Rutledge decision. 

Lanton Law is a national boutique law and government affairs firm that closely monitors and counsels clients on legislative, regulatory and legal developments in the LTC, specialty and retail pharmacy space. If you are in industry stakeholder with questions about strategy or simply need advice,contact us today.

Lanton Law Quoted in Law360 Article titled "High Court Gives Green Light to Regulate PBMs"

Lanton Law was quoted in law 360’s article titled "High Court Gives Green Light to Regulate PBMs". The article was written by Emily Brill.

For those that have trouble with the link we have provided the story below.

Law360 (December 10, 2020, 10:08 AM EST) -- The U.S. Supreme Court backed an Arkansas law Thursday that bans insurers' affiliates from shortchanging pharmacies, clearing the way for other states to regulate pharmacy benefit managers and throwing a lifeline to small pharmacies that said PBMs' business practices were bankrupting them.

Pharmacies' advocates celebrated Arkansas' 8-0 win as "a historic moment for pharmacies, patients and state's rights," saying the ruling allows states such as New York to move forward with long-discussed plans to regulate the industry that manages insurers' drug components.

The ruling clarifies that PBMs can't use their ties with employee benefit plans to argue that only the federal Employee Retirement Income Security Act can regulate their business dealings. ERISA only preempts states' ability to regulate employee benefit plans, leaving states free to oversee PBMs and other members of the health care supply chain, the justices said.

In an opinion authored by Justice Sonya Sotomayor and joined by all the justices except newcomer Justice Amy Coney Barrett, who sat out from considering the case, the court clarified that ERISA won't preempt a regulation simply because it could increase a benefit plan's operating costs. The regulation actually has to affect the way the plan works to trigger ERISA's preemption provision, the court wrote.

"ERISA does not preempt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage," Justice Sotomayor wrote.

Justice Clarence Thomas authored a concurring opinion, saying he favors more of a textualist approach to applying ERISA's preemption provision — Section 1144 of the sprawling law — than his colleagues have applied in the past.

"I write separately because I continue to doubt our ERISA preemption jurisprudence. The plain text of ERISA suggests a two-part preemption test … but our precedents have veered from the text, transforming §1144 into a vague and potentially boundless … preemption clause," Justice Thomas wrote. "That approach … offers little guidance or predictability. We should instead apply the law as written."

The ruling overturns a 2018 decision by the Eighth Circuit, which had held that ERISA preempted Arkansas' Act 900. That law, passed in 2015, forbade PBMs from reimbursing pharmacies for drugs at rates below the drugs' acquisition costs. Arkansas passed it in response to community pharmacies' complaints that PBMs were reimbursing them less than they were shelling out to purchase drugs, while reimbursing PBM-affiliated pharmacies at significantly higher rates.

The win is significant for states, which had banded together in a bipartisan coalition to back Arkansas' position in the case. Forty-seven attorneys general told the high court in the spring that preserving states' ability to regulate PBMs was essential for curbing harmful business practices in health care and protecting consumers' access to medication. Arkansas Attorney General Leslie Rutledge called the ruling "a win for all Arkansans and Americans."

The ruling also hands a victory to local pharmacists, who say PBMs' practice of shortchanging them on drug reimbursements while overpaying PBM-affiliated pharmacies has threatened to put them out of business. The National Community Pharmacists Association cheered the high court's decision Thursday, saying it was thrilled that the Supreme Court had greenlit states to clamp down on that practice.

"This is a historic victory for independent pharmacies and their patients. And it confirms the rights of states to enact reasonable regulations in the name of fair competition and public health," said National Community Pharmacists Association CEO B. Douglas Hoey, who is a pharmacist himself.

The Pharmaceutical Care Management Association, the PBM industry lobbying group that sued over Act 900, said Thursday that it was disappointed in a decision that it claimed would "result in the unraveling of federal protections under ERISA."

"As states across the country consider this outcome, we would encourage they proceed with caution and avoid any regulations around prescription drug benefits that will result in higher health care costs for consumers and employers," the group said in a statement.

Attorneys said the decision provides much-needed clarity on the scope of ERISA's preemption provision. The ruling preserves Section 1144's broad reach in the context of benefit plan legislation but establishes that preemption can't be wielded as a weapon to knock out regulation of "middlemen somewhere in the [health care] supply chain," as James Gelfand, senior vice president of health policy at the ERISA Industry Committee, put it.

"For far too long, the PBM industry has confused both legislators and regulators with overly broad interpretations of ERISA in order to dodge oversight," said health care attorney Ron Lanton. "We have been arguing for years that ERISA should not be interpreted to where it would be virtually impossible to regulate PBMs."

Linda Clark, a health care attorney and partner at Barclay Damon LLP, seconded that notion. "The fact you have a tangential relationship with entities that are regulated by ERISA doesn't make you completely immune from state regulation of anything you do," she said, adding that PBMs need to be regulated to prevent them from "employ[ing] even more draconian practices in management of their pharmacy networks."

Michael Klenov, a benefits attorney and partner at Korein Tillery, said Thursday that the ruling will likely discourage challenges to other states' attempts to regulate PBMs. But "it may also embolden states to push the boundaries of health care-related legislation further, thus leading to new challenges that will test where the courts draw the preemption boundaries," he said.

The federal government, which weighed in as an amicus in support of Arkansas, did not respond to a request for comment Thursday.

Arkansas is represented by Attorney General Leslie Rutledge, Nicholas Jacob Bronni and Shawn J. Johnson of the Arkansas Attorney General's Office.

The federal government is represented by Kate O'Scannlain, G. William Scott, Thomas Tso, Wayne Berry and Stephanie Bitto of the U.S. Department of Labor and by Edwin Kneedler and Frederick Liu of the U.S. Department of Justice.

The Pharmaceutical Care Management Association is represented by Michael B. Kimberly, Sarah P. Hogarth and Matthew Waring of McDermott Will & Emery LLP and by Seth P. Waxman, Catherine M.A. Carroll, Paul R.Q. Wolfson, Justin Baxenberg, Claire H. Chung and Hillary S. Smith 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 John Oudens and Haylee Pearl.

Update: This article has been updated with additional comments and more information about the case.

Lanton Law quoted in Bloomberg Law Article

We were quoted in Bloomberg Law’s article titled “States Risk Losing Power to Regulate Pharmacy Drug Middlemen” by Lydia Wheeler. The article discusses the pros and cons of Rutledge v. PCMA, which is currently being debated at the Supreme Court.

For those that have trouble accessing the article we have provided it below.

States are going to have a hard time controlling the cost of prescription drugs if the Supreme Court broadens a federal law prohibiting states from regulating employee benefit plans.

A challenge to an Arkansas law meant to protect independent pharmacies from abusive reimbursement practices of rate-setting pharmacy middlemen is testing the bounds of the Employee Retirement Income Security Act. A decision striking down Arkansas’s law could cripple state efforts to control the cost of prescription drugs and other health-care services. That could lead to a flood of litigation challenging dozens of similar laws in other states, health policy experts say.

“This is really the tip of the iceberg because states are trying to control drug costs in all kinds of different ways,” said Katherine Gudiksen, a senior health policy researcher at the Source on Healthcare Price and Competition, a project of the University of California Hastings College of Law.

The case could be one of the first decided by the Supreme Court this term. Arguments were heard Oct. 6.

Drawing the Line 

Arkansas’s fighting to save its law, which regulates the rates at which pharmacy benefit managers reimburse pharmacies for drugs and gives pharmacies a right to appeal the rates they set.

The U.S. Court of Appeals for the Eighth Circuit held the law was preempted by ERISA, which prohibits states from passing laws that reference an ERISA plan or have an impermissible connection to an ERISA plan. But Arkansas argues pharmacy reimbursement regulation is basic rate regulation, which the Supreme Court has ruled isn’t preempted by ERISA.

“It’s hard to see how a law that directly affects benefits claims processing isn’t central to ERISA plan administration,” said Stacey Cerrone, a principal in the New Orleans office of Jackson Lewis PC.

“The court is struggling on where to draw the line with preemption,” she said.

Patchwork of State Laws

A win for Pharmaceutical Care Management Association (PCMA)—the trade group for PBMs that’s aggressively fighting this law and others—would likely open the door for more legal challenges. Laws regulating PBMs have passed in 36 states.

“There’s no agency that oversees federally a pharmacy benefit manager,” said Ron Lanton, principal at Lanton Law, which helped lobby for some state PBM laws. “That’s the problem, so the states have had to come up with their own solution on how to regulate this problem.”

But PCMA argues Congress set out to create a uniform set of standards in administering ERISA plans, which include most private sector health plans. The trade group said employers will have to spend more money on administrative services and compliance, increasing the cost of care, if laws like the one in Arkansas remain.

“More than 266 million Americans rely on the prescription drug benefits PBMs administer, and now more than ever we’re committed to protecting accessible, affordable health care,” JC Scott, PCMA’s president and CEO, said in a statement after oral arguments in October.

In addition to Arkansas, PCMA has challenged laws in North Dakota, Oklahoma, and Iowa in recent years.

The trade group has been successful in winning challenges in the Eighth Circuit. The appeals court ruled Iowa’s law and two North Dakota lawsare preempted by ERISA. Iowa’s law regulates how PBMs establish generic drug pricing, and requires certain disclosures on their drug pricing methodology. North Dakota’s laws regulate the fees PBMs can charge pharmacies. North Dakota officials have appealed the court’s decision to the Supreme Court.

In July, a federal judge blocked part of Oklahoma’s law. PCMA filed an appeal to the U.S. Court of Appeals for the Tenth Circuit, which it later had dismissed. The case is still playing out in the district court.

Lanton, who represents independent pharmacies, said his clients hope the Supreme Court provides some uniformity to what’s become a patchwork of state laws. He’s also hoping for a clear definition of what a pharmacy benefit manager is and isn’t.

“It comes down to this split in the court of whether or not the court sees a pharmacy benefit manager as an insurer that provides benefits or as an administrator that simply regulates reimbursement and cost.”

Market Power 

The three largest PBM companies are OptumRx, a subsidiary of UnitedHealth Group; CVS Caremark, a subsidiary of CVS Health; and Express Scripts, a subsidiary of Cigna Corp. They control 85% of the market share for PBM services, according to the National Association of Specialty Pharmacy’s brief in support of Arkansas.

That market power gives health plans very little bargaining power, said Erin Fuse Brown, director of the Center for Law, Health and Society at Georgia State University College of Law.

PBMs say they use their size and power to negotiate discounts with the pharmaceutical manufacturers, but it’s not clear they’re passing along those savings to the health plans, she said.

The case is Rutledge v. Pharm. Care Mgmt. Ass’n, U.S., No. 18-540.

To contact the reporter on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com; Brent Bierman at bbierman@bloomberglaw.com

Lanton Law Quoted in Law360 Article Titled "High Court PBM Case Could Be Turning Point In 20-Year Fight"

Lanton Law was again quoted in Law360’s article titled “High Court PBM Case Could Be Turning Point in 20-Year Fight.” The article can be found here. For those having trouble finding the article written by Emily Brill we have provided it below:

Law360 (October 13, 2020, 8:47 PM EDT) -- Last week's U.S. Supreme Court arguments over Arkansas' attempt to regulate how much middlemen called pharmacy benefit managers reimburse pharmacies for drugs on insurers' behalf could mark a turning point in a broader legal fight that's been playing out for 20 years.

Here, Law360 brings you up to speed on what led to the pending high court showdown between the Pharmaceutical Care Management Association and the Natural State.

The Laws Come Down

Pharmacy benefit managers have assumed an increasingly large role in the health care landscape since the first PBM arose in 1968.

These companies started as third-party administrators, processing patients' prescription drug claims on behalf of health insurance plans. Over the years, though, PBMs have launched drug formularies, pharmacy networks and their own mail-order pharmacies as the industry has grown, and the largest PBMs have integrated with insurers in multibillion-dollar deals.

"They've always been a partner to the insurer, but now they're a crucial extension of the insurer," said Ron Lanton, an attorney and lobbyist who specializes in health care law. "The PBM has grown to this huge marketplace player — determining who's the provider in their networks, setting the prices for insurance reimbursement."

Today, PBMs have a hand in most aspects of prescription drug dispensing, from how much consumers pay and how much pharmacies are reimbursed to where patients get their drugs and whether they receive name-brand or generic versions.

PBMs have drawn praise for saving consumers and plan sponsors money, but they've also met criticism, particularly from pharmacists, who say PBMs routinely reimburse their own mail-order pharmacies at much higher rates and thus drive local pharmacies out of business.

"PBMs are not only managing benefits for their clients — they're actively competing in the networks they manage," said Linda Clark, a partner at Barclay Damon LLP. "That's the fundamental optical conflict of interest that's in play. And as a result, many states have attempted to even the playing field."

States have been attempting to regulate PBMs since at least 2003, passing laws that primarily target the industry's pricing and reimbursement practices. Today, all but three states have some legislation on the books impacting PBMs, according to the National Community Pharmacists Association.

Much of that legislation has arrived recently. An influential model bill released in December 2018 by the National Council of Insurance Legislators inspired the introduction of between 250 and 300 pieces of PBM reform legislation around the country in 2019, according to the NCPA.

Another model bill from a different insurance regulators group is in the works, with the National Association of Insurance Commissioners releasing a first draft in July after working on the policy for a year. The model bill proposes requiring PBMs to get licensed and banning practices such as self-dealing and retroactive payment reductions to pharmacies.

The Suits Flood In

PBMs have not sat idly by as states have tried to regulate them. They've met lawmakers' bills with aggressive lobbying and sued a half-dozen states that adopted PBM reform legislation.

"A lot of times when there are regulations in states proposed to provide some kind of oversight, the PBM lobby tends to get very aggressive," Lanton said. "I've directly lobbied on a lot of these issues, so I've come face to face with what they've been saying to legislators."

The PBM industry's lobbying group, the Pharmaceutical Care Management Association, began suing states over their PBM laws in the early 2000s. The first suit arose in Maine, a challenge to a law that required PBMs to disclose their payments from pharmaceutical companies and forbade them from switching patients to more expensive drugs.

That law survived the PCMA's challenge, with both a Maine federal judge and the First Circuit handing wins to the state and then the U.S. Supreme Court declining to take up the case in 2006. But other jurisdictions have not fared as well in the years since.

Since Maine's win, Washington, D.C., Iowa and North Dakota have been forced to walk back PBM regulations after the PCMA convinced the D.C. Circuit and Eighth Circuit that the laws tread on territory that could only be regulated by the federal Employee Retirement Income Security Act.

Oklahoma could be next, with a court battle playing out in the Tenth Circuit to determine the viability of a PBM law there. An Oklahoma federal judge blocked part of the law in July, ruling some of its language was likely preempted by Medicare Part D.

High Court Joins the Fray

As the Tenth Circuit weighs the legitimacy of Oklahoma's law, the U.S. Supreme Court is considering whether to strike down an Arkansas law in a case with huge implications for the legal fight between states and PBMs.

On Oct. 6, the high court heard oral arguments in the PCMA's challenge to a 2015 Arkansas law requiring PBMs to reimburse local pharmacies at the same rates as their affiliated pharmacies.

If the high court rules that the law flouts ERISA, other state laws could fall on similar grounds, attorneys say.

"There are implications for other state laws based on what happens in this case," said Ben Conley, a partner at Seyfarth Shaw LLP.

Many states have placed their PBM reform plans on hold while waiting on the outcome of the case, Barclay Damon's Clark said. Other states aren't enforcing their PBM laws but would likely start if the Supreme Court rules in Arkansas' favor, she said.

She said her pharmacist clients also have their eyes trained on the high court, waiting on a decision that could have a huge effect on them.

"The decision in this case is really going to define the scope of permissible state regulation of pharmacy benefit manager practices. It's going to define the contours of what states can and can't do," Clark said. "And there could be a lot of nuances in the decision that could affect the impact on state legislation. That's why everybody's watching it so carefully."

The case is Rutledge v. Pharmaceutical Care Management Association, case number 18-540, in the Supreme Court of the United States.

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.

Lanton Law Quoted in Law360 Article on Rutledge v. PCMA

Lanton Law was quoted in Law360’s article titled “High Court to Weight States’ Ability to Rein in Drug Middlemen,” which was written in response to current developments around the Rutledge v. PCMA case. This case was heard this morning in the U.S. Supreme Court. The article can be accessed here.

We have included Emily Brill’s article from Law360 below in case you have trouble accessing it.

Analysis High Court To Weigh States' Ability To Rein In Drug Middlemen

By Emily Brill

Law360 (October 5, 2020, 7:45 PM EDT) -- The U.S. Supreme Court will hear arguments Tuesday over whether states can control the rates at which local pharmacies get reimbursed for drugs by health insurance plans, a case that could determine whether states can regulate pharmacy benefit managers without getting waylaid by federal benefits law.

Local pharmacists call the case the most significant health care suit the high court will hear this term aside from the one that threatens the Affordable Care Act. The pharmacists say a loss for their side would give pharmacy benefit managers — the middlemen who reimburse pharmacies for drugs on insurers' behalf — a green light to put pharmacies that lack PBM ties out of business.

"The outcome of the Rutledge case will be the tipping point of whether Americans will continue to have access to their local pharmacist or whether that access will go away," said Michael Hogue, the president of the American Pharmacists Association.

The outcome could also affect how far companies can stretch the Employee Retirement Income Security Act's preemption provision, which is often used in court to strike down state and local laws regulating employee benefit plans and related entities.

Here, Law360 breaks down what's at stake and what's being argued in Rutledge v. Pharmaceutical Care Management Association .

What Are the Arguments?

The Rutledge case concerns the viability of a 2015 Arkansas law that attempted to regulate PBMs. The law arrived after lobbying from local pharmacies, which said they would be forced to close if PBMs' allegedly predatory business practices weren't reined in.

Chief among those practices was PBMs' refusal to pay local pharmacies for drugs at the same rates that they paid their affiliated pharmacies, local pharmacists said. This practice led to local pharmacies consistently getting shortchanged on prescription reimbursements, making it difficult to stay in business, the pharmacists said.

In response to these concerns, Arkansas passed Act 900, which required PBMs to reimburse local pharmacies at the same rates as their affiliated pharmacies. But shortly after the bill became law, the PBM industry slapped the state with a lawsuit alleging that Act 900 was preempted by ERISA.

The suit, filed by the PBM industry lobbying group the Pharmaceutical Care Management Association, argued that Act 900 regulated business dealings that were central to administering benefit plans and that only ERISA is allowed to do that.

An Arkansas federal judge agreed, striking down the law in 2017. The Eighth Circuit upheld the ruling the following year, at which point Arkansas asked the Supreme Court to step in. The justices agreed to take the case in January.

Arkansas has argued that ERISA doesn't stretch as far as PCMA is claiming it does and that the courts are stepping into dangerous territory by accepting the PBM lobby's argument.

"Its approach would ... exempt ERISA plans from any number of generally applicable health-and-safety regulations. And that cannot be the case," Arkansas' attorney general, Leslie Rutledge, wrote in the state's opening brief to the high court.

What's at Stake?

Rutledge v. PCMA has attracted significant attention, drawing amicus briefs from 46 attorneys general and the U.S. solicitor general in support of Arkansas and from a number of employer interest groups in support of PCMA.

The state and federal governments argue that ERISA only preempts health care regulations that have an impermissible reference to employee benefit plans, which the Arkansas law does not.

Allowing PCMA to succeed in its argument could endanger states' ability to regulate health care, which could have dire consequences, the officials argued.

A ruling in favor of PCMA would also allow PBMs to operate essentially free of oversight, continuing business practices that have already bankrupted far too many local pharmacies, the pharmacists' groups argued.

If the Supreme Court upholds the Eighth Circuit ruling, "there's really nothing stopping a PBM from doing whatever it wants," said Ron Lanton, an attorney and lobbyist who specializes in health care law.

"It would be great if the Supreme Court ruled for Rutledge because then we won't have chaos," Lanton said.

But PCMA argues that a ruling in Rutledge's favor would create chaos for the PBM industry, subjecting it to a patchwork of state laws that would complicate the process of working with employee benefit plans that operate across state lines.

This argument gained PCMA the support of groups that represent employers and their benefit plans, such as America's Health Insurance Plans, the Society for Human Resource Management and the American Benefits Council.

"It was delicate for us to weigh in on because oftentimes there's no love lost between employers and PBMs," said Ben Conley, a partner at Seyfarth Shaw LLP who helped author SHRM's amicus brief. "But at the end of the day, employers want to pay less. They want the flexibility to design their plans in a manner that allows them to do so."

A win for Rutledge "could be seen as chipping away at ERISA preemption, which large, multistate employers view as of the utmost importance because it impacts their ability to design a uniform, nationwide plan," Conley said.

PCMA also argued that it has been unfairly vilified by local pharmacists, saying they have overstated the damage PBMs have done.

"The fact is the current state of independent pharmacies in the U.S. is secure," PCMA spokesperson Greg Lopes said in an emailed statement to Law360. He added that by attacking PBMs, local pharmacies are going after "the only entity in the prescription drug supply chain that is fighting to reduce drug costs for patients."

Counsel

Arkansas is represented by Leslie Rutledge, Nicholas Jacob Bronni and Shawn J. Johnson of the Arkansas Attorney General's Office.

The Pharmaceutical Care Management Association is represented by Michael B. Kimberly, Sarah P. Hogarth and Matthew Waring of McDermott Will & Emery LLP and Seth P. Waxman, Catherine M.A. Carroll, Paul R.Q. Wolfson, Justin Baxenberg, Claire H. Chung and Hillary S. Smith of WilmerHale.

The case is Rutledge v. Pharmaceutical Care Management Association, case number 18-540, in the Supreme Court of the United States.

--Additional reporting by Danielle Nichole Smith. Editing by Jill Coffey.

Lanton Law Newsletter is Out

We have released our August newsletter. This month we discuss our presentations at the National Association of Specialty Pharmacy, the new Executive Order aimed at PBMs, our recent Blogcast with Ken Kaitin, Professor and Director at the Tufts Center for the Study of Drug Development, the new LTC Congressional pharmacy bill and our interview with Pharmacy Times on Rutledge v. PCMA. Click here to view it.

Lanton Law Speaks with Pharmacy Times about U.S. Supreme Court Case Rutledge v. PCMA & Its Implication on Pharmacy Policy

Lanton Law was interviewed by Pharmacy Times on the implications of the October 6, 2020 U.S. Supreme Court case of Rutledge v. PCMA. This case has major consequences for future PBM policies. Click here to access the interview.

Update on Closely the Watched U.S. Supreme Court Case of Rutledge v. PCMA

We have been providing occasional updates through our blog on the U.S. Supreme Court case of Rutledge v. PCMA, whose outcome could have wide ranging policy and legal ramifications on pharmacy and pharmacy benefit managers. 

This issue in this case according to the Court is “Whether the U.S. Court of Appeals for the 8th Circuit erred in holding that Arkansas’ statute regulating pharmacy benefit managers’ drug-reimbursement rates, which is similar to laws enacted by a substantial majority of states, is preempted by the Employee Retirement Income Security Act of 1974, in contravention of the Supreme Court’s precedent that ERISA does not preempt rate regulation.”

The case will now be heard on October 6, 2020 in front of the U.S. Supreme Court. Additional information on this case can be found here.  

Lanton Law is a national boutique law and government affairs firm that focuses on healthcare/life sciences, technology and finance. If you are an industry stakeholder with questions about the current landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today.

PBM U.S. Supreme Court Case Rescheduled for this Fall

We at Lanton Law along with many other pharmacy stakeholders have been closely monitoring the events surrounding the pending U.S. Supreme Court case of Rutledge v. Pharmaceutical Care Management Association.

We released our first blog about this case in December 2019 and are proud to be quoted in the January 2020 Pharmacy Times article regarding Rutledge.

To refresh the U.S. Supreme Court has provided a brief summary of the facts: 

Thirty-six States have enacted legislation to curb abusive prescription drug reimbursement practices by claims-processing middlemen-known as pharmacy benefit managers (PBMs)-who make money on the spread between the rates at which they reimburse pharmacies and the drug prices they charge health plans. In response, Respondent Pharmaceutical Care Management Association (PCMA), a PBM trade association, has launched a barrage of litigation across the country arguing that state regulations of PBMs generally, and state drug-reimbursement regulations specifically, are categorically preempted by the Employee Retirement Income Security Act of 1974 (ERISA). Disregarding this Court's ERISA precedent (and contrary to the First Circuit's conclusion that PBM regulations are categorically not preempted by ERISA), the Eighth Circuit embraced that argument.

The question presented is “Whether the Eighth Circuit erred in holding that Arkansas's statute regulating PBMs' drug-reimbursement rates, which is similar to laws enacted by a substantial majority of States, is preempted by ERISA, in contravention of this Court's precedent that ERISA does not preempt rate regulation.”

Due to COVID-19 the U.S. Supreme Court has rescheduled arguments for this case to its October 2020 term. 

Lanton Law will continue to monitor the developments around Rutledge v. PCMA and will advise our clients accordingly. If you have an issue that we can assist you with please feel free to contact us.    

Lanton Law Quoted in Pharmacy Times Article on Rutledge v. PCMA

We were quoted in the recent Pharmacy Times article titled “Supreme Court to Rule on States’ Right to Regulate Pharmacy Benefit Managers.” The article authored by Jennifer Nessel can be accessed at https://www.pharmacytimes.com/news/supreme-court-to-rule-on-states-right-to-regulate-pharmacy-benefit-managers

We have provided the article below in case you are having trouble accessing the link.

The US Supreme Court has announced it will hear a case in the coming months that could determine whether states have the right to regulate pharmacy benefit managers (PBMs).

The US Court of Appeals for the Eighth Circuit, covering Arkansas and 6 other states, previously ruled on Rutledge v. Pharmaceutical Care Management Association. The Eighth Circuit decision favored the Pharmaceutical Care Management Association (PCMA), ruling that the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that sets minimum standards for voluntarily established retirement and health plans in private industry, superseded an Arkansas law that sought to regulate PBMs.1

Passed in 2015, Arkansas Act 900 required PBMs to raise reimbursement rates for drugs if they fell below the pharmacy’s wholesale costs and created an appeal process for pharmacies to challenge PBM reimbursement rates. This effectively prohibited PBMs from reimbursing pharmacies below the pharmacies’ cost of acquisition.2

In his brief to the US Supreme Court, Solicitor General Noel Francisco disagreed with the Eighth Circuit decision, stating that the ruling was contrary to higher court’s precedent and should be reviewed and corrected. He urged the court to take up the case, siding with attorney generals from 31 states and the District of Columbia that want the US Supreme Court to reverse the Eighth Circuit’s ruling.3

The National Community Pharmacists Association’s (NCPA) vice president, Mustafa Hersi, told Pharmacy Times that the organization is optimistic about the potential for the US Supreme Court to rule in favor of Arkansas, which is represented in the case by the state’s Attorney General Leslie Rutledge. The NCPA, together with the Arkansas Pharmacists Association, previously filed a brief supporting the state before the Eighth Circuit court, and plans to file a similar brief before the Supreme Court.5

“We feel that this matter has national implications. PBMs have been relying on ERISA preemption to avoid meaningful oversight by states, and states like Arkansas have taken it upon themselves to draft well-tailored legislation—that does not implicate or involve ERISA—to regulate PBMs that operate within their state. The implications are that, if the court were to not only grant the request but rule in the favor of Arkansas, that states would be empowered to make more decisions to regulate PBMs and the role that they have in our health care system so that their citizens can make informed decisions with the respect to the choices that they have in health care,” Hersi said.

PBMs are intermediaries between health plans and pharmacies, and provide services such as claims processing, managing data, mail-order drug sales, calculating benefit levels, and making disbursements. Pharmacies acquire their drug inventories from wholesalers. When a patient buys a drug from a pharmacy, they often do so at a lower price through a health plan that covers part of the price. The PBMs then create a maximum affordable cost list that sets reimbursement rates to pharmacies dispensing generic drugs.2

Contracts between PBMs and pharmacies create pharmacy networks. Based upon these contracts, and in order to participate in a preferred network, some pharmacies choose to accept lower reimbursements for dispensed prescriptions. Thus, a pharmacy may lose money on a given prescription transaction.2

Although the Arkansas law set to change this practice, PCMA, the trade association that represents all major PBMs, has pointed to ERISA, saying that it preempts state laws that may relate to ERISA-governed employee benefit plans.4

“The (ERISA) has long enabled employers to provide consistent, nationwide health care benefits due to its preemption of state laws.  We are committed to federal preemption, which is a vitally important issue to ensuring high quality health care for patients,” said PCMA President and CEO JC Scott in a press release. “Unique state laws governing the administration of pharmacy benefits are proliferating across the country, establishing vastly different standards. These inconsistent 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.”

However, Hersi said that ERISA has been used previously by PBM groups to avoid regulation and litigation.

“Previously in the Eighth Circuit, there was litigation in North Dakota that related to the use of ERISA as a means to potentially shield meaningful oversight by states with respect to PBMs that operate in their state. We feel as though, states that have taken steps, like the state of Arkansas, to draft well-tailored legislation to ensure that ERISA is not implicated should be able to do that for their citizens,” Hersai told Pharmacy Times.

Ron Lanton, III, Esq, principal of Lanton Law, a national health care law and government affairs firm in Washington DC, agrees.

“Like many, I was disappointed in the Eighth Circuit's decision. I have advocated for retail pharmacy issues in state legislatures and ERISA and higher insurance costs were the ‘go to’ arguments from opponents like PBMs, who did not want any transparency on their business practices. Without laws like Arkansas, whose intent was to ensure transparency and patient access, pharmacies will have a harder time operating in an already challenging marketplace. I believe there is precedent that shows that the ERISA statute should not be interpreted as broad as opponents of the Arkansas law are calling for.”

The Solicitor General argued that there is no distinction between regulating PBM administration, which is not preempted by ERISA, and regulating plan administration, which could lead to preemption under ERISA. To the extent it affects health plans, the solicitor general adds, the law is not specifically focused on ERISA plans, and a Supreme Court decision would help address conflicting decisions by a federal appeals court on ERISA state law preemption.3

The Solicitor General’s brief increased the likelihood that the Supreme Court to review Rutledge and to address the scope of the States’ authority to regulate PBMs, even when those PBMS are working for ERISA plans.1

The Supreme Court will now set the case for briefing and oral argument for Rutledge, the latter of which would likely occur in March or April 2020.1

“This is an important moment for community pharmacies. There’s strong bipartisan agreement in the states that PBM behavior is out of control. The US is the only country in the world that has turned over the management of prescription drugs to PBMs and the U.S. has the highest drug costs in the world. We don’t think that is coincidence,” said B. Douglas Hoey, pharmacist, MBA, CEO of the NCPA in a prepared statement.5

In addition to Arkansas, the Eighth Circuit covers Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.

REFERENCES

1. Analysis: SCOTUS Could Open the Door for States to Regulate PBMS. NCPA website. http://www.ncpa.co/pdf/analysis-scotus-states-pbms.pdf. Accessed January 10, 2020.

2. Pharmaceutical Care Management Association v. Rutledge Case Report. FindLaw.com Published June 8, 2019. https://caselaw.findlaw.com/us-8th-circuit/1898787.html. Accessed January 10, 2020.

3. Karlin-Smith, Sarah; Owermohle, Sarah. 2020 Drug Price Increases Unlikely to Change Policy. Politco.com. Published January 7, 2020. https://www.politico.com/newsletters/prescription-pulse/2020/01/07/2020-drug-price-increases-unlikely-to-change-policy-488001. Accessed January 10, 2020.

4. ERISA Broadly Preempts State Regulation of PBM-Pharmacy and PBM-Plan Agreements. McDermott Will & Emery website. Published July 26, 2018. https://www.mwe.com/insights/erisa-preempt-pbm-pharmacy-pricing-agreement-2/. Accessed January 10, 2020.

5. Community Pharmacy Cheers SCOTUS Decision to Rule on States’ Authority to Regulate PBMs [press release]. NCPA website. Published January 10, 2020. https://www.ncpanet.org/newsroom/news-releases/2020/01/10/community-pharmacy-cheers-scotus-decision-to-rule-on-states-authority-to-regulate-pbms. Accessed January 13, 2020.

U.S. Solicitor General Advocates for writ of certiorari to be granted in Rutledge v. PCMA

One case that pharmacy stakeholders have been closely monitoring is  Rutledge v. Pharmaceutical Care Management Association. 

According to the U.S. Supreme Court blog (SCOTUSblog), the issue in this case is “whether the U.S. Court of Appeals for the 8th Circuit erred in holding that Arkansas’ statute regulating pharmacy benefit managers’ drug-reimbursement rates, which is similar to laws enacted by a substantial majority of states, is pre-empted by the Employee Retirement Income Security Act of 1974, in contravention of the Supreme Court’s precedent that ERISA does not pre-empt rate regulation.”   

As part of his response to the Court’s “CVSG” or “Call for the Views of the Solicitor General” to provide a position on an issue such as this, U.S. Solicitor General Noel Francisco on December 4, 2019 submitted his brief recommending that the Court review the Eighth Circuit’s holding that ERISA preempts state laws that regulate PBM-pharmacy reimbursements. The Solicitor General’s position advocates for the overturning of the appeals court decision. The brief can be read here.  Having this letter from Solicitor General can help push the Court into granting cert to hear the merits of this case. 

Lanton Law uses law and government affairs to advocate on behalf of supply chain clients, which includes retail, specialty, LTC pharmacies as well as home infusion providers. All of these providers have ties to PBM business practices via reimbursement. Lanton Law will continue to monitor the developments of Rutledge v. PCMA and will advise our clients accordingly. If you have an issue that we can assist you with such as us being your in house counsel or lobbyist, contact us and we’ll be happy to walk through your options.