Posted Sun Dec 13th 2020 10:09 pm by Ronald Mann
Thursday’s Supreme Court opinion in the Rutledge v Pharmaceutical Care Management Association case strongly opposed an attack on state laws protecting pharmacies from prescription reimbursement intermediaries who use health insurers to manage their prescription drug programs.
The case affects pharmacy benefit 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 has one such Arkansas statute, which contains three salient provisions. First, PBMs need to “tie” their reimbursement rates to the cost of purchase paid by pharmacies 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, separately examining whether the Arkansas law is “improperly related” to 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 that operated other insurers 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 specific system of material coverage.” So she argues that “[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 adjustment [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 eliminating the argument that the Arkansas Statute “refers improperly[s] to “ERISA, indicating that it” does not directly regulate health insurance plans, ERISA or otherwise at all. 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 not only to ERISA plans (those provided by employers), but also to Medicaid, Medicare, the military, or the open market, Arkansas law applies.
Travelers make Sotomayor’s cost regulation arguments meaningful in relation to price regulation (the first of the three parts of the law mentioned above). Your position 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 complaints 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 took the PBMs position “to its logical endpoint … would anticipate any lawsuit under state law that could affect pricing or performance rules.” On that point, she cites a previous decision stating 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 price floor prescribed by the state.
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 is that “inefficiencies alone are not enough to trigger ERISA prevention,” and the point is repeated and emphasized that ERISA tolerates state law “that only increases costs … even if plans decide that Limit benefits or charge higher rates to 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.
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 / .