High Court rules that states can regulate PBMs

December 11, 2020

Decision a win for independent pharmacies in claim of PBM abuse of power

The US Supreme Court today issued its ruling in Rutledge v. Pharmaceutical Care Management Association (PCMA)deciding if community pharmacies  are protected  from abusive payment practices.

The unanimous (8-0) decision ruled in favor of the interests of community pharmacies, who have been fighting for several years to regulate pharmacy benefit managers (PBMs)—the middlemen that manage prescription drug benefits for health insurers, Medicare Part D drug plans and large employers.

Specifically, the Court investigated the degree to which the federal Employee Retirement Income Security Act of 1974 (ERISA), which controls private employee benefit plans, prevents states from regulating the amount that PBM pay pharmacies to distribute Rx drugs that are covered by an employer-sponsored health plan.

The ruling is a win for 45 states, led by Arkansas, who now have more authority to protect local businesses and their patients from PBM overreach. Scott J. Knoer, executive vice president and CEO of the American Pharmacists Association, said the Supreme Court decision restores a proper distribution of power that both independent pharmacies and customers were looking for.

“For years," he stated, "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.”

During oral argument, a published report by USA Today noted that several justices expressed concern that state interference in the Rx marketplace might subject PBMs to dozens of state laws—something the Employee Retirement Income Security Act of 1974 (ERISA) was meant to preclude.

In shared comments provided to Pharmaceutical Commerce, attorney Benjamin Conley, a partner with the employment law firm Seyfarth, said he believes the ruling “creates a potential roadmap for states to influence ERISA plans without running afoul of ERISA’s preemption provisions.”

"The Court found that while the Arkansas law at issue could certainly influence plan costs and create plan operational inefficiencies, it did not mandate any particular structure, nor did it impact central plan administrative operations," he added. "As such, the Court opined that extending preemption would create a potentially limitless barrier to state regulations.”