Opinion evaluation: Courtroom rejects problem to states’ authority to control pharmacy reimbursements

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Posted Sun Dec 13th 2020 10:09 pm by Ronald Mann

The Supreme Court’s opinion on Thursday in Rutledge v Pharmaceutical Care Management Association strongly opposed an attack on state laws protecting pharmacies from the prescription reimbursement intermediaries that health insurers use to manage their prescription drug programs.

The case affects pharmacy performance managers like Caremark and Express Scripts, which have become the exclusive way most of us buy prescriptions that are covered by our health insurance. PBMs have come under attack in recent years as pharmacies argue that the standardized prices that PBMs pay pharmacies when pharmacies fill out prescriptions are often lower than the cost pharmacies pay to buy the drugs from wholesalers. In this case, pharmacies will actually lose money on these prescriptions. Whatever the truth of these attacks (PBMs and their amici vehemently deny them), more than 40 states have passed laws in recent years to prop up the prices paid by PBMs in hopes of increasing the profitability of pharmacies (especially of independent pharmacies) common in rural areas).

Rutledge is one such Arkansas statute that contains three important provisions. First, PBMs need to “tie” their reimbursement rates to the pharmacies’ cost of purchase by updating pricing plans when wholesale drug prices rise. Second, it establishes a complaints procedure that PBMs must put in place if a pharmacy claims that the reimbursement amount for a particular drug is less than the pharmacy’s cost to purchase the drug. Finally, law allows a pharmacy to refuse to provide a drug if the PBM’s reimbursement price is less than the pharmacy’s cost. Justice Sonia Sotomayor’s brief submission to a unanimous court (less than 10 pages) dismisses the Trade Association for PBM’s argument that federal retirement income protection law anticipates every aspect of the Arkansas statute (or dozens of other states). Statutes like it).

Sotomayor follows the Supreme Court’s standard framework for ERISA prevention cases and separately examines whether the Arkansas law has an “improper connection” with ERISA plans and whether it relates to ERISA. Sotomayor sees the law as primarily geared towards cost regulation and can easily overcome these challenges. This refers to an earlier decision (New York State Conference v. Travelers Insurance) that allowed New York to impose a 13% surcharge on hospitals operated by insurers other than Blue Cross / Blue Sign. Regarding the point of “improper context”, Sotomayor explains that ERISA “is primarily about anticipating laws that require providers to structure benefit plans in certain ways” as opposed to a law that “only affects costs” . In her view, Travelers shows that “ERISA does not anticipate government tariff regulations that merely increase costs or change incentives for ERISA plans without forcing the plans to introduce a particular system of material coverage.”[t]The logic of the travelers decides this case, “because the Arkansas statute”[l]Like New York’s Traveler Surcharges Act … is just a form of cost regulation [that] requires PBMs to reimburse pharmacies for prescription drugs at a rate equal to or greater than the cost of the pharmacy. “

Sotomayor is similarly swift in removing the argument that the Arkansas Statute “refers inadmissibly”[s] to “ERISA”, indicating that it “does not directly regulate health plans at all, ERISA or otherwise. This only affects plans to the extent that PBMs can pass higher pharmacy tariffs on to plans with which they enter into contracts. “Crucially, if PBMs pass these fees on to not only ERISA plans (those provided by employers), but also to Medicaid, Medicare, the military, or the free market plans, Arkansas law applies.

Travelers make Sotomayor’s arguments about cost regulation meaningful in relation to price regulation (the first of the three above-mentioned parts of the statute). Your point of view is less convincing on the procedural aspects of the statute (the appeal process and the rule of decline in sales). It validates these parts of the statute as a side effect of the effectiveness of the price regulation mandate. With regard to the mandate complaint procedure, she states that “any contractual dispute that implies the cost of a medical service could entail similar requirements and lead to similar results”. So if you brought the PBM’s position “to its logical endpoint … you would prevent any state lawsuit that could affect the price or terms of the services.” On this point, she cites an earlier ruling that explains that ERISA “does not interfere with the state mechanisms for enforcing judgments against ERISA social security plans, even if those mechanisms prevent plan participants from receiving their benefits”. In the same way, she approves the take-back provision and comments: “[w]If a pharmacy refuses to provide a prescription, the responsibility initially rests with the PBM to offer the pharmacy a… reimbursement that ignores the state-prescribed lower price limit.

Sotomayor concludes by rejecting the PBM Association’s argument that the Arkansas statute creates “operational inefficiencies” that “affect nationally uniform plan administration.” The problem with this argument, she explains, is that “inefficiencies alone are not enough to trigger ERISA prevention,” reiterating and emphasizing that ERISA tolerates a state law that “only increases costs … even if plans decide Limit the benefits or charge higher rates to the members of the plan. “

It’s at least possible that Rutledge is undermining the cost pressures that have led insurers to rely so heavily on PBMs, and that this may even lead to a noticeable spike in insurance premiums. On the other hand, it should come as no surprise that the Supreme Court has no interest in protecting a market that almost all states consider to be functioning so badly that it warrants legislative intervention. If Congress doesn’t agree, it could certainly change ERISA to force a different rule.

Posted in Rutledge v Pharmaceutical Care Management Association, Featured, Merits Cases

Recommended citation:
Ronald Mann, opinion analysis: The court rejects the challenge to the state authority to regulate the reimbursement of pharmacies.
SCOTUSblog (December 13, 2020, 10:09 p.m.), https://www.scotusblog.com/2020/12/opinion-analysis-court-rejects-challenge-to-states-authority-to-regulate-pharmacy-reimbursements / .


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