Pharmacy Reimbursement Law Gets Supreme Court Backing

A customer waits for his medication behind a sheet of plastic installed to help curb the spread of the coronavirus at a CVS pharmacy store in Morton Grove, Ill., on April 7. (AP Photo/Nam Y. Huh)

WASHINGTON (CN) — The Supreme Court was mostly unanimous Thursday in upholding an Arkansas law stabilizing how pharmacies are reimbursed for prescriptions.

Reversing an Eighth Circuit decision, the ruling by Justice Sonia Sotomayor says ERISA, short for the Employee Retirement Income Security Act of 1974, does not preempt the state law Act 900.

Arkansas passed the measure in 2015, requiring that pharmacy benefit managers reimburse state pharmacies for prescription drugs at prices equal to or higher than whatever the pharmacy paid a wholesaler to buy the drug.

Pharmacy benefit managers, or PBMs, are essentially middlemen between pharmacies and consumers who reimburse the druggist based on a maximum allowable cost, or MAC, that otherwise vary in price and requirements throughout the country. Act 900 meant that the managers would have to continually update their MAC lists as drug wholesale prices increased.

After the law passed, a trade group for the 11 largest managers in the country argued in court that ERISA preempted Act 900.

But Sotomayor wrote that ERISA was chiefly concerned with structuring benefit plans in a specific manner — for example setting specific procedures to determine benefit eligibility. But not every state law that affects an ERISA plan “or causes some disinformation in plan administration” has an ERISA connection — especially if a law affects costs alone, Sotomayor wrote.

Justice Amy Coney Barrett did not participate in the case argued in October before her confirmation. Arkansas Solicitor General Nicholas Bronni did not immediately respond to a request for comment. Seth Waxman, a Wilmer Cutler attorney who represented the Pharmaceutical Care Management Association, also did not respond to a request for comment.

Benjamin Conley, one of several attorneys with the firm Seyfarth who helped pen an amicus brief for the Society for Human Resource Management, said in a statement Thursday the court’s ruling potentially creates a roadmap for state to influence ERISA plans without intersecting 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,” Conley said in a statement. “As such, the court opined that extending preemption would create a potentially limitless barrier to state regulations.”

Sotomayor leaned heavily on precedent from the 2009 case New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co.

Just like the New York surcharge in that case, she said, Act 900 was “merely a form of cost regulation.” 

“Indeed, Act 900 is less intrusive than the law at issue in Travelers, which created a compelling incentive for plans to buy insurance from the Blues instead of other insurers,” Sotomayor wrote. “Act 900, by contrast, applies equally to all PBMs and pharmacies in Arkansas. As a result, Act 900 does not have an impermissible connection with an ERISA plan.” 

It also did not matter, Sotomayor wrote, whether managers were servicing plans already covered by ERISA. Act 900 defines those managers broadly, as any entity administering or managing pharmacy benefits and is connected to any program that covers the cost of pharmaceutical services.

The PMCA trade group, short for the Pharmaceutical Care Management Association, argued that Act 900 interferes with nationally uniform plans of pharmaceutical management. But Sotomayor said those interconnected mechanisms don’t require a particular benefit structure, “nor do they lead to anything more than potential operational inefficiencies.”

“Requiring PMBs to reimburse pharmacies at or above their acquisition cost does not require plans to provide any particular benefit to any particular beneficiary in any particular way,” Sotomayor wrote. “It simply establishes a floor for the cost of the benefits that plans choose to provide. The plans in Travelers might likewise have preferred that their insurers reimburse hospital services without paying an additional surcharge, but that did not transform New York’s cost regulation into central plan administration.”

In a concurring opinion, Justice Clarence Thomas wrote about his continued doubts concerning ERISA jurisprudence. The broad nature of the court’s precedents had “veered from the text” of ERISA, which may allow the court to come to the correct conclusion but “offers little guidance or predictability.”

“Indeed, although we have generally arrived at the conclusions we would arrive at under a text-based approach, our capacious nontextual test encourages departure from the text,” Thomas wrote. “The decision below is testament to that problem. We unanimously reverse that decision today, but we can hardly fault judges when they apply the amorphous test that we gave them.”

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