State’s Bid to Skirt Drug-Pricing Preemption Put to High Court Test

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

WASHINGTON (CN) — A lawyer for Arkansas faced stiff questioning from the Supreme Court on Tuesday as to how the state can regulate drug prices where federal law already applies.

“Counsel, your basic point it seems to me, is that the law regulates drug prices, that’s certainly the purpose of it, but it doesn’t say anything about drug prices,” said Chief Justice John Roberts. “Instead, it talks about what plans have to pay for benefits, the methodology of determining the amount to be paid, the timing and procedures for updating payment schedules. … I mean, at the end of the day all this might have an impact on drug prices, but it seems to me that it’s very different, and those differences really do go to what ERISA is trying to regulate.”

Arkansas passed the law at issue, Act 900, in 2015, to stabilize how pharmacies are reimbursed for prescriptions by pharmacy benefit managers — essentially, middlemen between an individual and pharmacy. The benefit manager reimburses the pharmacy based on a maximum allowable cost, or MAC, which have varying prices and requirements throughout the country.

Every so often, however, benefit managers reimburse pharmacies for less money than a druggist spent acquiring the medication. Arkansas took its case to the high court after the Eighth Circuit found its law federally preempted.

Making his case in a teleconference this morning, Arkansas Solicitor General Nicholas Bronni denied that Arkansas is discriminating against entities covered by ERISA, short for the Employee Retirement Income Security Act of 1974. Emphasizing that Arkansas is regulating a benefit — the way an individual health care plan is administered — he said the state’s law regulated the price of drugs a benefit plan already had decided to cover.

The same was true in 2009 when the high court decided New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., Bronni said. In that case, the court acknowledged that when New York state regulated what insurers were paying hospitals as a surcharge, that cost could be passed to the plans and effect benefit packages.

“But what the court emphasized is at the end of the day, that that’s just cost, and it might influence shopping decisions but ultimately what’s important is it’s not dictating substantive plan decision making and the same is true here,” Bronni said. “We haven’t dictated how plans resolve anything. We haven’t dictated plan decision making about what to provide, how to provide it or anything like that.”

Seth Waxman, a WilmerHale attorney arguing for the Pharmaceutical Care Management Association, said law put forward by Arkansas “directly compels” ERISA plan administers to comply with states when administering health care benefit programs, adding to a “thicket of varying state laws that make uniform plan administration impossible.”

“Now Arkansas says it can dictate how plans should be administered as a means of so-called rate regulation, but state regulation of ERISA plans as a means to some other end — whether it’s rate regulation or otherwise — has never been permitted,” Waxman said. “None of the cases Arkansas or the SG cite, involve laws directing plan administrators to do anything.”

Another requirement Arkansas imposed on pharmacy benefit managers was updating MAC lists. Waxman called this a massive feat, considering 40 other states have varying laws and update schedules with differing maximum cost parameters. The law additionally included varying appeal procedures for prices, and varying remedies that plan administrators had to provide.

Frederick Liu, assistant to the U.S. solicitor general, also argued before the court Tuesday as an amicus in support of the state. He said Travelers made clear that cost was not a central matter of plan administration.

“The state law here, which regulates the method for reimbursing pharmacies, can’t be distinguished,” Liu said, drawing a comparison between the Arkansas law and the New York law in Travelers.

At a press briefing following arguments, Arkansas Attorney General Leslie Rutledge said the state shed 16% of its pharmacies because druggists could not make up the difference in cost from prescription drug reimbursements.

“I know that when my daughter Julianna might get sick on a Sunday night, that I want to be able to call my local pharmacist to deliver the necessary drugs to my house to take care of my daughter,” she said. “You can’t do that through a mail-order pharmacy. Arkansans and Americans deserve access to affordable health care and our local pharmacists, our local pharmacists, are on the frontlines of providing affordable healthcare. Unfortunately, pharmacy benefit managers are blocking the way.”

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