Big PBM decision undergoes its first test

By: - July 9, 2021 12:40 am

The U.S. Supreme Court. Photo from Supreme Court website.

The stakes appear to be pretty high.

After a unanimous ruling in a related case in December, the U.S. Supreme Court has reopened a case regarding sweeping regulations of powerful middlemen known as pharmacy benefit managers — and 30 state attorneys general and many others are joining the fray.

Pharmacy benefit managers, or PBMs, are powerful, secretive companies that contract with insurance companies and government entities such as Medicaid to manage prescription-drug benefits.

The biggest PBMs — CVS Caremark, OptumRx and ExpressScripts — say they use their size and sophistication to save money for the plans with which they contract. But their critics say they use a lack of transparency to reap huge profits and drive community pharmacies out of business.

As have many other states, including Ohio, North Dakota passed a number of laws intended to get a handle on the matter. Among the PBM actions the laws would prohibit:

  • “Gag” rules prohibiting pharmacists from telling patients that if they pay the cash price for a drug, it would be cheaper than the insurance copayment
  • Clawbacks PBMs use when they reimburse pharmacies for drugs at one rate and then come back later and force partial repayment of the reimbursement
  • The PBM practice of requiring some patients to get the most expensive class of drugs from mail-order pharmacies owned by the PBM, described as “self dealing” in the North Dakota litigation

What happened next was a journey all the way through the federal court system, which perhaps also indicates how high the stakes are.

In July 2017, a PBM industry group, the Pharmaceutical Care Management Association, sued the state, claiming the North Dakota restrictions violated the jurisdiction of two federal laws regulating insurance benefits: the Employee Retirement Income Security Act of 1974, or ERISA, and Part D, the law that created prescription drug benefits under Medicare.

The state and numerous outside groups argued that the PBMs were vastly overstating the reach of the federal laws in an attempt to keep state legislatures from regulating some of the largest corporations in the United States.

Sitting in Bismarck, Chief U.S. District Judge Daniel L. Hovland in 2018 issued a ruling that mostly sided with North Dakota and against the PBMs. Then last August, the 8th U.S. Court of Appeals in St. Louis reversed Hovland, affirming the PBM argument that federal — and not state — laws hold sway over PBMs in many respects.

But in October, the Supreme Court heard a similar case, also emanating from the Eighth Circuit. That opinion also said that federal law preempted an Arkansas law intended to regulate PBMs.

In December, the high court unanimously ruled that the Arkansas law didn’t preempt ERISA. As a result, and without much ceremony, it vacated the appellate court’s decision in the North Dakota case and sent it back to be reconsidered.

Now the Eighth Circuit will have to take another crack at defining the boundaries of state and federal regulations when it comes to PBMs, which do hundreds of billions of dollars of business each year.

In a sign that many important players see the reconsideration of the case as a chance to shape the future, 53 outside groups have filed friend-of-the-court briefs. 

Supporting the PBMs are the U.S. Chamber of Commerce and America’s Health Insurance Plans. It’s probably not a coincidence that the corporations that own the three largest PBMs also own major insurers.

It’s also probably not a coincidence that the National Association of Chain Drug Stores and the National Community Pharmacists Association briefed the court in support of state PBM regulations.

Then there are the 30 states, including Georgia, Minnesota, Arizona, Colorado, Michigan and North Carolina, that also briefed the court in support of them.

“These business practices have harmed consumers, pharmacies, and states. Rural and independent pharmacies have especially struggled to survive when PBMs impose financially unsustainable conditions,” Maryland Attorney General Brian E. Frosh said in a July 1 statement, also in support of the North Dakota regulations. “PBMs have been largely unregulated for decades and are still largely unregulated at the federal level.” 

Ohio Attorney General Dave Yost has been a leader in scrutinizing PBMs, having sued three of them. But for some reason, his office hasn’t signed on to the states’ brief.

His office didn’t respond to a request for comment.



Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.

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. He's won state and national journalism awards for investigations into utility regulation, public corruption, the environment, prescription drug spending and other matters.