The Potluck

Big fight over drug pricing with implications for Minnesota heads to the Supreme Court

By: - October 6, 2020 11:18 am

A pharmacy manager retrieves medication. Photo by Joe Raedle/Getty Images.

A years-long fight over whether states have the authority to regulate important aspects of drug pricing will be argued before the U.S. Supreme Court Tuesday morning.

At issue is whether prescription middlemen, known as “pharmacy benefit managers,” will have to bow to state authority over a huge swath of their business or if federal law preempts state regulation. Both sides in the litigation say that if the other wins, the result will be even higher costs for prescription drugs when their prices already are growing at three times the rate of inflation.

The magnitude of the case, Rutledge v Pharmaceutical Care Management Association, is illustrated by the parties fighting it, and it may have ramifications in Minnesota. 

They include some of the country’s largest corporations, including CVS Health, Cigna and UnitedHealth through their professional association. Aligned against them are 47 state attorneys general, the U.S. Solicitor General and professional organizations such as the American Medical Association.

Minnesota is among the states who signed on to an amicus curiae brief led by California. In 2019, Minnesota lawmakers passed a law requiring pharmacy benefit managers to be licensed, and it also set a new requirement that a PBM “must make the list of the maximum allowable costs available to a contracted pharmacy in a format that is readily accessible and usable to the network pharmacy.” 

The lead plaintiff in the case, Arkansas Attorney General Leslie Rutledge, said more than just the cost of drugs is in play.

“For many local pharmacies, this decision will determine the future of their family-owned business and the future of local healthcare access for millions of Americans,” she said in a conference call with reporters Thursday. “Now more than ever in the climate of our current pandemic, we must protect local pharmacies, which play a vital role as front-line health care providers in rural Arkansas and across the country.”

For their part, the pharmacy benefit managers, or PBMs, are saying that if Rutledge and the attorneys general win, the result will be a crazy quilt of regulation that can only result in higher prices.

“Unique state laws governing the administration of pharmacy benefits are proliferating across the country, establishing vastly different standards,” Greg Lopes, spokesman for the PBM industry group, the Pharmaceutical Care Management Association, said in an email. “These inconsistent and often conflicting state policies, if applied to employer health plans, eliminate flexibility for plans and create costly administrative inefficiencies.”

Specifically at issue in the case to go before the high court is Act 900, a 2015 Arkansas law that takes certain powers away from PBMs such as CVS Caremark and Express Scripts to decide how much pharmacists will be reimbursed for the medicine they dispense. A U.S. district court and Eighth U.S. Court of Appeals sided with the PBMs, ruling that the Arkansas law is preempted by federal law.

States have imposed regulations on some PBM activities, such as those provided on behalf of Medicaid managed-care providers. The case going before the court on Tuesday asks whether self-insured plans such as those carried by many large employers are subject to state regulation, or if the federal Employee Retirement Income Security Act (ERISA) preempts them.

It all might sound arcane, but PBMs might be the most important part of the health care system you’ve never heard of.

They occupy the space between insurers, drugmakers and pharmacies. Hired by insurers, they create lists of preferred drugs and negotiate rebates from manufacturers in exchange for putting their products on the preferred-drug lists. They also create pharmacy networks and reconcile claims, usually reimbursing pharmacies for generic drugs using “maximum allowable cost,” or MAC, lists.

It’s this latter practice that is at the core of the case to go before the Supreme Court.

PBMs insist that their MAC-list reimbursements are objective and based on market forces. But the processes used to create them are opaque and many pharmacists believe the PBMs like CVS Caremark use them to benefit the parent company’s own retail pharmacies and drive smaller competitors out of business.


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Marty Schladen
Marty Schladen

Marty Schladen has been a reporter for decades, working in Indiana, Texas and other places before returning to his native Ohio to work at The Columbus Dispatch in 2017 and coming to the Ohio Capital Journal in 2020. He's won state and national journalism awards for investigations into utility regulation, public corruption, the environment, prescription drug spending and other matters.