PBMs to Face Greater Regulation
Buoyed by the Supreme Court’s 2020 decision in Rutledge v. Pharmaceutical Care Management Association (PCMA), there has been a wave of new laws regulating pharmacy benefit managers (PBMs), including with respect to self-insured group health plans. (In Rutledge, the Supreme Court unanimously ruled that ERISA did not preempt Arkansas’ law regulating PBMs.)
Employer Action Items
Coupled with the recent wave of litigation and the onset of new PBM regulation at the state level potentially encroaching on areas historically preempted by ERISA, plan sponsors, particularly those sponsoring self-insured arrangements, should continue to closely monitor developments in this area.
Background
Drug price transparency laws enable states to identify specific high-cost drugs that create affordability challenges for consumers and payers. All 50 states have passed at least one piece of legislation related to the regulation of PBMs, specifically with the objective of regulating prescription drug costs. This increased oversight includes 15 states with transparency (reporting) requirements for PBMs, including seven with oversight as part of a broader prescription drug pricing oversight program.
According to the National Academy for State Health Policy (NASHP), at least 150 laws have been enacted in total, and as of June 2023, 43 states have introduced a total of 137 bills on PBMs during the 2023 legislative session. Not surprisingly, this increased legislative activity has been accompanied by an increase in litigation, arguing that such state regulation, especially with respect to self-insured plans, is preempted by ERISA.
The ERISA Preemption Argument
In contrast to the Rutlege decision, on August 15, 2023, the 10th Circuit Court of Appeals ruled that portions of Oklahoma’s law was indeed preempted by ERISA.
Thomas Reuters’ summary of PCMA v. Mulready, noted that the Oklahoma state law was intended to curtail the power of PBMs and support independent pharmacies via:
- The imposition of certain “network restrictions” that establish geographic parameters for PBM networks;
- Prohibiting PBMs from promoting in-network pharmacies by offering cost-sharing discounts; and
- Requiring that every pharmacy willing to accept the PBM’s terms be allowed into its preferred network.
The law also would prevent PBMs from terminating a pharmacy’s contract to the extent any of its pharmacists is on probation with a state pharmacy board. Examining the network restrictions, the court determined that the restrictions would “effectively abolish the two-tiered network structure, eliminate any reason for plans to employ mail-order or specialty pharmacies, and oblige PBMs to embrace every pharmacy into the fold.”
In contrast with state PBM laws that have not been preempted, this law did not merely increase costs or alter incentives for ERISA plans without forcing them to adopt any particular coverage. Rather, the network restrictions governed central matters of plan administration and thus had an impermissible connection with ERISA plans. Similarly, the probation provision effectively dictated which pharmacies must be included in a plan’s PBM network since PBMs could not oppose those employing pharmacists on probation. Thus, the court held that the network restrictions and the probation provision were preempted as applied to ERISA plans. Certain provisions were preempted by Medicare Part D, as well.
Federal Legislation
Not coincidentally, we are also seeing legislation at the federal level. Both the Senate and House of Representatives are currently considering legislation that would create specific federal rules governing PBM disclosure to plans and the structure of PBM compensation.
More Information
For further information, a NASHP PBM Toolkit is available here that includes a bill tracker for current bills in all 50 state legislatures, and an overview of common provisions in state PBM legislation.
For questions regarding this Legislative Update or any other related compliance issues, please contact your Burnham Benefits Consultant or Burnham Benefits at 949‐833‐2983 or inquiries@burnhambenefits.com.