Oct. 5, 2020
High Court to Hear PBM Case Tomorrow That Will Shape Future of State Reforms
Tomorrow morning, the U.S. Supreme Court will hear arguments in a case that has far-reaching consequences for the future success of state efforts to regulate pharmacy benefit managers (PBMs). At issue before the High Court is the ability of states to pass laws curbing the many abusive practices of PBMs.

In the case, Arkansas Attorney General Leslie Rutledge is defending a MAC-reform law Arkansas passed in 2015 against the Pharmaceutical Care Management Association (PCMA, the PBMs' national trade association). American Pharmacies is following this case very closely, as we have for years been strong advocates of assertive state legislation to level the playing field in the pharmacy market and rein in the practices of PBMs. A High Court decision in favor of Arkansas would permit broader and more robust enforcement of current and future state PBM reform laws, making PBM-reform legislation more potent and effective.   

The power of pharmacy benefit managers (PBMs) has grown with industry consolidation in recent years and now just three PBMs control more than three-quarters of pharmacy benefits in the United States. With that growth in power and wealth, PBMs have used their position as shadowy middlemen to develop tactics that increase their own profits at the expense of health plans, patients and pharmacy providers.  While the amounts PBMs charge health plans and patients (in co-pays) has increased, the amounts PBMs pay pharmacy providers have steadily declined.  
State legislatures across the country -- like the Arkansas General Assembly -- have begun passing laws to crack down on PBM abuses. Nearly 10 years ago, Arkansas passed “Act 900,” a bill that included a provision reforming PBM maximum allowable cost (MAC) reimbursement methods. Almost immediately after the bill's passage, PCMA sued the State of Arkansas to stop the law from taking effect. Since then, the law has been in the courts and will finally be heard by the U.S. Supreme Court tomorrow.  

The challenged part of Arkansas’ Act 900 enacted MAC pricing protections that:
  1. Require PBMs to promptly update their MAC lists when a drug’s prevailing wholesale cost increases by 10% or more;
  2. Require PBMs to provide a process for a pharmacy to appeal a MAC reimbursement;
  3. Require PBMs to grant appeals and increase reimbursements if a pharmacy is reimbursed below its acquisition cost, and the pharmacy shows it could not have purchased the drug for less from its primary wholesaler; and
  4. Allow pharmacies to decline to dispense a drug if a PBM’s MAC price is less than what the pharmacy paid to purchase it.

PCMA’s major argument in the case is that Act 900 is not enforceable because it is pre-empted by the Employees Retirement Income & Security Act (ERISA), a 1974 federal law that regulates how employers can develop and administer health plans for their employees. ERISA forbids states from passing laws that tread on the same ground as ERISA. However, the High Court has ruled in many prior cases -- including three central cases known as the Travelers Trilogy -- that a state can enforce rate regulations even if those regulations impact ERISA plans. 

Even though Arkansas’ Act 900 does not interfere with how employers develop or administer their health plans, PCMA claims it does. This will be the prime area of discussion during tomorrow’s hearing. 

Both Arkansas and PCMA already have submitted extensive briefs outlining their respective positions and legal theories. So, the justices tomorrow will be prepared to hone in on very specific issues.  Although the United States is not a party to the lawsuit, the U.S. Solicitor General filed a brief in support of Arkansas’ position. The U.S. Solicitor General does not typically weigh in on disputes before the Supreme Court, so his brief will carry weight in favor of Arkansas. 

The nature and extent of the questions posed by the justices will be a good indicator of what they think is important and, perhaps, how they plan on ruling. Some justices will challenge both sides to explore areas of weakness. Also, look for justices to present hypothetical scenarios to the attorneys and ask them whether under various fact scenarios, a state could or could not pass legislation. The justices will want to know the broader impact of their ruling. Although the only law currently before the Court is parts of Arkansas’s ACT 900, the court's ruling will establish a new baseline to guide states in crafting PBM reform legislation. 

With the recent death of Justice Ruth Bader Ginsberg, only eight justices will decide this case. Since Arkansas lost the previous case when the 8th Circuit Court of Appeals ruled in favor of PCMA, Arkansas needs 5 of 8 justices to supports its case in order to win. It will take months for the Supreme Court to write its final decision, which is expected in mid- to late spring of 2021.  

How to Follow Tomorrow's Oral Arguments

Date & Time: October 6, 2020, at 10 a.m. EST/9 a.m. CST. Arguments will last about one hour.


Who Will Speak:
  • Arkansas Solicitor General
  • U.S. Solicitor General (siding with Arkansas)
  • PCMA Attorney

Order of Questioning: Each attorney will give a very brief presentation. Each attorney may then be questioned by the justices (in order of seniority):
  • Chief Justice John Roberts
  • Justice Clarence Thomas
  • Justice Stephen Breyer
  • Justice Samuel Alito
  • Justice Sonia Sotomayor
  • Justice Elena Kagan
  • Justice Neil Gorsuch
  • Justice Brett Kavanaugh 

Here is a guide on things to listen for during the oral arguments to see whether a justice is framing an issue in favor of or against Arkansas:
Watch for an update from American Pharmacies after tomorrow's oral argument to hear our perspective on how it went.