Supreme Court upholds Arkansas law regulating pharmacy benefit managers

Supreme Court
The Supreme Court dealt a huge blow to pharmacy benefit managers in a ruling Thursday. (Getty/BrianPIrwin)

In a blow to pharmacy benefit managers, the Supreme Court has upheld an Arkansas law that regulates them, potentially paving the way for other states to do the same.

The court ruled (PDF) unanimously, 8-0, against the Pharmaceutical Care Management Association (PCMA), which argued that the Arkansas law was preempted by the Employee Retirement Income Security Act of 1974 (ERISA) and thus invalidated.

Newly seated Justice Amy Coney Barrett did not participate in the ruling, the court said.

A federal appeals court previously sided with the PBM industry in the case.

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Arkansas passed the law in 2015, which bans PBMs from reimbursing pharmacies at lower rates than the cost required to dispense the drug. The law also allows pharmacies to refuse to sell a drug if the upper limit a plan will pay for it is too low.

PCMA argued that ERISA preempted the state law as it regulates the administration of health insurance to ensure greater uniformity.

The Supreme Court ruled that the Arkansas law amounts to "cost regulation" and thus is not preempted by ERISA as the PBMs claimed.

"ERISA does not pre-empt a state law that merely increases costs, however, even if plans decide to limit benefits or charge plan members higher rates as a result," the justices said in the opinion.

In a concurring opinion, Justice Clarence Thomas called into question existing precedence around laws that can preempt ERISA.

The ruling was praised by the American Pharmacists Association.

“This is a great day for pharmacists and their patients,” said Scott J. Knoer, executive vice president and CEO of the association. “For years, PBMs have threatened the sacrosanct relationship between pharmacists and their patients and have never been forced to answer to any authority for their actions. This opinion redresses that imbalance and returns the power to protect the interests of patients to the states and other local authorities, where it belongs.”

PCMA said in a statement that it is "disappointed in the Court’s decision that will 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 healthcare costs for consumers and employers," PCMA said.

2020 has proven a tough policy year for PBMs, which, in addition to this ruling, saw the Trump administration revive its previously scuttled rule to eliminate safe harbors in Part D for drug rebates. The rule was finalized last month.