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.

National Community Pharmacists Association (NCPA) Files Lawsuit Against HHS Seeking to Eliminate Pharmacy DIR Fees

NCPA has sued the Department of Health and Human Services (HHS) over DIR fees. The lawsuit can be viewed here.  Specifically the crux of the case is found below:

This is an action for judicial review of a policy of the Department of Health and Human Services (“HHS”) that undermines Medicare beneficiaries’ access to negotiated prices for prescription drugs and otherwise alters Medicare payment for those drugs in a way that reduces their availability. 

Despite having been reopened time and time again over the last several years, the agency’s current definition of “negotiated prices” continues to enable Medicare Part D plans under the Medicare program (and the pharmacy benefit managers (“PBMs”) with which they contract) to downward-adjust reimbursement to pharmacies for prescription drugs months after a patient has paid cost-sharing for the prescription drugs based on an artificially inflated price. This dynamic results from an exception to the definition of “negotiated prices” for pharmacy price concessions that cannot “reasonably be determined” at the time of sale, an exception that HHS said would be narrow but never was. In reality, this exception swallows the rule and hereby threatens the solvency of independent community pharmacies and drives up the cost of prescription drugs for Medicare patients nationwide. Plaintiff asks this Court to set aside that invalid exception and the agency’s guidance on it.

Lanton Law applauds NCPA’s leadership in filing this much needed lawsuit. Lanton Law has been assisting pharmacies on the state level with issues such as DIR via lobbying. If you are a pharmacy that would like to discuss your advocacy options, contact Lanton Law to discuss your lobbying and legal strategies.

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.

Amazon Launches U.S. Pharmacy Business

Many supply chain stakeholders have been fearing whether Amazon would ever open a retail pharmacy business. There have been traces of this occurring for years from its sporadic applications of pharmacy licenses in various states, to its June 2018 $753 million acquisition of PillPak. However; no coherent plan had come into focus until now. 

Today (November 17) Amazon has launched Amazon Pharmacy. According to the press release: 

“ Amazon.com, Inc. (NASDAQ: AMZN) today announced two new pharmacy offerings to help customers conveniently purchase their prescription medications. Amazon Pharmacy, a new store on Amazon, allows customers to complete an entire pharmacy transaction on their desktop or mobile device through the Amazon App. Using a secure pharmacy profile, customers can add their insurance information, manage prescriptions, and choose payment options before checking out. Prime members receive unlimited, free two-day delivery on orders from Amazon Pharmacy included with their membership. 

Also new today, Prime members can access savings on medications at Amazon Pharmacy when paying without insurance, as well as at over 50,000 other participating pharmacies nationwide. The Amazon Prime prescription savings benefit saves members up to 80% off generic and 40% off brand name medications when paying without insurance. Prime members will have access to their prescription savings at checkout on Amazon Pharmacy, or can learn more at amazon.com/primerx.

Together the Amazon Prime prescription savings benefit and Amazon Pharmacymake it simple for customers to compare prices and purchase medications for home delivery, all in one place. Now, filling prescriptions is as convenient as any other purchase on Amazon’s online store:

• Research Medications and Order Confidently: The same browsing experience customers are familiar with from Amazon makes it easy to discover what medications – including branded and generic versions, and different forms or dosages – are available through Amazon Pharmacy. Before checking out customers can compare their insurance co-pay, the price without insurance, or the available savings with the new Prime prescription savings benefit to choose their lowest price option.

• Seamless Transactions: Customers can add insurance information and ask their prescriber to send new or existing prescriptions directly to Amazon Pharmacy for fulfilment. Purchase is as simple as confirming the request on the Amazon App or website.

• Access Fully Digital, Personalized Quality Care: Customers have online self-service help options combined with phone access to customer care at any time. Friendly and knowledgeable pharmacists are available 24/7 to answer questions about medications.”

Notwithstanding today’s market moving news, we fully expect that our healthcare supply chain will continue to evolve. New players are moving into the sector and are looking for ways to either disrupt the model or have significant influence on reimbursement. To succeed you need to be in the know and planning ahead. 

Lanton Law is a national boutique law and government affairs firm that closely monitors legislative, regulatory and legal developments in the LTC, CBD/hemp, specialty and retail pharmacy space, as well as manufacturers and suppliers. If you are an industry stakeholder with questions about strategy or simply need advice, contact us today.    

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.

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Reuters did a great summary found here that explains the major differences from the economy, trade, healthcare, etc.

The winner of this election will certainly have policies affecting your interests. Whether you are in technology, healthcare/lifesciences or finance, it is important to know what your organization’s priorities are and to have a plan for either candidate should they win.

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Contact us today to get started in understanding your range of options as the new legislative session approaches.

New York Comptroller finds $605 million in unnecessary costs to the Medicaid program

The New York Comptroller recently released the results of an audit titled “Medicaid Program-Cost of Pharmacy Services Under Managed Care.” The audit covered the period January 1, 2016 to December 31, 2019.

The following outline the key findings of the audit;

• The Department missed opportunities to minimize costs on pharmacy services delivered through Medicaid managed care because Department officials did not take steps to ensure the use of the lowest net cost drugs to the Medicaid program. As a result, for the period January 1, 2016 through December 31, 2019, we estimated $605 million in unnecessary costs to the Medicaid program.

• The Department does not require MCOs to use the most cost-effective drugs to the Medicaid program, nor does it provide MCOs with information or assistance to determine the most cost-effective drugs.

• Medicaid-participating MCOs are required to regularly provide their drug formulary information, as well as information on costs and supplemental rebates (which MCOs did not always provide as required) for all drugs delivered under managed care, but the Department does not review this information to determine if MCO formulary preferences result in the use of the most cost-effective drugs.

The audit gave the following recommendation:

• Conduct timely routine analyses to identify the most cost-effective drugs to the Medicaid program and ensure drug utilization is steered toward drugs with the lowest net cost when medically appropriate.

If you are a healthcare stakeholder with an interest in New York state or do business within New York’s insurance system then you should be aware of this type of scrutiny. The legislature has already enacted a bill that will carve pharmacy benefits out of the Medicaid managed care program beginning in April 2021.

Lanton Law is a national boutique law and government affairs firm that focuses on healthcare and technology. 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!

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.

New Executive Order Aimed at Pharmacy Benefit Managers (PBMs)

The White House has released an Executive Order titled “Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen.” 

“One of the reasons pharmaceutical drug prices in the United States are so high is because of the complex mix of payers and negotiators that often separates the consumer from the manufacturer in the drug-purchasing process.  The result is that the prices patients see at the point-of-sale do not reflect the prices that the patient’s insurance companies, and middlemen hired by the insurance companies, actually pay for drugs.  Instead, these middlemen — health plan sponsors and pharmacy benefit managers (PBMs) — negotiate significant discounts off of the list prices, sometimes up to 50 percent of the cost of the drug.” 

This Executive Order advocates for HHS to complete its prior January 2019 proposed rule aimed at “revising the discount safe harbor to explicitly exclude from the definition of a discount eligible for safe harbor protection certain reductions in price or other remuneration from a manufacturer of prescription pharmaceutical products to plan sponsors under Medicare Part D, Medicaid managed care organizations as defined under section 1903(m) of the Act (Medicaid MCOs), or pharmacy benefit managers (PBMs) under contract with them.”  

Not only does this Executive Order state that discounts offered on prescription drugs should be passed on to patients, but that HHS must confirm publicly prior to finalizing its proposed rule that “that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.”

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. 

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.

National Association of Insurance Commissioners release PBM Model Legislation Draft

The National Association of Insurance Commissioners’ (NAIC) Pharmacy Benefit Manager (PBM) Regulatory Issues Subgroup has released a draft of its model PBM legislation. The model is called the [State] Pharmacy Benefit Manager Licensure and Regulation Act and “it seeks to establish the standards and criteria for the licensure and regulation of pharmacy benefit managers providing claims processing services or other prescription drug or device services for health benefit plans.”

The Task Force began discussion on this issue last year as the proposed model seeks to build on state legislative and regulatory efforts surrounding PBMs. The draft model addresses issues such as PBM licensure, the prohibition of gag clauses, state insurance commissioner enforcement, clawbacks, affiliate compensation and spread pricing to name a few.

A conference call is scheduled for July 16th to discuss this issue further.      

Lanton Law is a national boutique law and government affairs firm that focuses on healthcare and technology. If you are an industry stakeholder with questions about the draft or if you would like to discuss how your organization’s strategic initiatives might be impacted by the NAIC’s actions, contact us today.