As the spotlight intensifies on the largest pharmacy benefit management (PBM) companies, one fact stands out: they are prepared to resist change vigorously. This reality is underscored by a recent significant legal victory for the PBMs. Just last week, U.S. District Judge Brian Miller issued a ruling that blocked an Arkansas law (Act 624), which aimed to prohibit PBMs from owning and operating pharmacies within the state.
Arkansas Governor Sarah Huckabee Sanders signed Act 624 into legislation in April, asserting that PBMs have increasingly acquired pharmacies, which has led to inflated drug prices and the elimination of competition in the marketplace. This law was intended to counteract those practices and protect local pharmacies.
In a rapid response, CVS Caremark, Express Scripts, and the lobbying organization Pharmaceutical Care Management Association filed lawsuits to contest the legality of the law. Their legal challenge was based on concerns that the law would negatively impact their ability to operate effectively.
Judge Miller granted a preliminary injunction against Act 624, citing its violation of the Commerce Clause, which prohibits states from enacting laws that unjustly harm or discriminate against out-of-state businesses. This ruling highlights the ongoing legal complexities surrounding the operations of PBMs in Arkansas and beyond.
In reaction to the ruling, Governor Sanders expressed her disappointment, stating that “Arkansas was the first state to compel large drug middlemen known as PBMs to cease inflating drug prices and manipulating the market. The PBMs sued Arkansas, and a judge allowed them to evade accountability. However, we will appeal this decision, succeed in a higher court, and establish a pioneering precedent for the nation.”
While the state is gearing up for an appeal, at least one healthcare expert remains skeptical about the future viability of this law. Chris Deacon, principal and founder of VerSan Consulting, commented, “I could be mistaken, but I don’t believe that, in its current form, this law can overcome the constitutional challenges that it faces.” His analysis suggests that the legal path forward for the Arkansas law is fraught with difficulties.
Despite the challenges ahead, Arkansas’ initiative has sent a strong message to lawmakers. Deacon remarked, “If anything, this signals to Congress that states are actively attempting to address this issue. They cannot tackle this alone; they need Congressional support because it is clear that Congress possesses the authority to regulate interstate commerce, while states do not.” This emphasizes the need for a coordinated national response to the challenges posed by PBMs.
Understanding the Judge’s Rationale Behind the Decision
The judge supported the plaintiffs’ motions for a preliminary injunction for several compelling reasons. He concluded that they are likely to succeed on their claims related to both the Commerce Clause and the preemption by TRICARE, the federal health program for military personnel.
The Commerce Clause grants Congress the authority to regulate interstate commerce, while the dormant aspect of this clause restricts states from imposing laws that discriminate against out-of-state commerce. Judge Miller noted that “Act 624 appears to overtly discriminate against plaintiffs as out-of-state companies, and the state has not demonstrated that it has no alternative means to further its interests.” This statement underscores the legal vulnerabilities faced by the Arkansas law.
Furthermore, the judge highlighted that Act 624 conflicts with the federal TRICARE program, which is designed to provide healthcare for active-duty military members. TRICARE includes a preemption clause that supersedes state laws that are inconsistent with its provisions.
“Act 624 is explicitly preempted by TRICARE’s ‘health care delivery’ provision because it prohibits PBM-owned pharmacies from providing healthcare services to patients in Arkansas. This restriction is at odds with the TRICARE program, which has existing contracts with some of the involved plaintiffs,” Miller explained, emphasizing the legal entanglements surrounding the case.
The judge also asserted that the plaintiffs would experience “irreparable harm” due to the Arkansas law, including significant financial repercussions. CVS previously indicated to MedCity News that enforcing this law would compel them to close 23 community pharmacies in Arkansas and eliminate over 500 local healthcare jobs. Although Express Scripts does not operate physical pharmacies in Arkansas, the law would affect their 25 non-resident pharmacy licenses in the state.
The ruling was met with relief from the plaintiffs, who framed their response in terms of patient care rather than focusing on the impact on their business operations. David Whitrap, vice president of external affairs at CVS Health, stated that the company is “satisfied with the Court’s decision to issue a preliminary injunction against the implementation of Act 624. Our primary focus remains on serving the community in Arkansas, and we are eager to collaborate with the state to lower drug prices and enhance access to pharmacies.”
A representative from Express Scripts echoed these sentiments, emphasizing the importance of maintaining patient access to care. “We are grateful for the Court’s decision to safeguard Arkansans’ access to their pharmacies,” stated Andrea Nelson, chief legal officer of The Cigna Group, which owns Express Scripts. “Every day, our dedicated team of nurses, pharmacists, and other healthcare professionals provide essential care to Arkansas patients, and we are committed to ensuring that these patients maintain access to necessary medications.”
What Are the Future Implications of This Legal Battle?
As the situation unfolds, it will be fascinating to observe how the conflict between the Republican governor of a conservative state and the PBMs develops, especially if Sanders proceeds with an official appeal. Chris Deacon from VerSan Consulting is doubtful about the potential for the Arkansas PBM law to succeed, given that this decision from the lower court was anticipated due to its clear violation of the Commerce Clause. She speculated that those involved in reviewing the legality of the law were likely aware of its contentious nature.
Nevertheless, the passage of the law has effectively raised awareness about the PBM issue. Deacon noted, “When the law was enacted, it stood out as one of the most radical state bills concerning PBMs. It sparked significant discussion and demonstrated that Arkansas was willing to confront the corporate interests of these large industries, which is a notable statement.”
However, not everyone shares this pessimistic outlook regarding the law’s future. The National Community Pharmacists Association (NCPA) maintains that Arkansas’ law will ultimately prevail in court.
“I believe the ruling was incorrect because, if you examine the law’s wording, it avoids the extraneous information that the PBMs introduced to obscure its overall intent and purpose. Reasonable interpretations should conclude that this law does not violate the Commerce Clause, as it does not regulate out-of-state entities, as claimed by the PBMs,” declared Matthew Seiler, general counsel at the NCPA, during an interview. He emphasized that the law regulates the corporate structure of PBMs, regardless of their location.
Regardless of the Arkansas law’s legal future, it is clear that substantial PBM reform must occur at the national level, rather than a fragmented approach through individual states. Currently, PBM reform is receiving significant attention from lawmakers. Numerous bills are being introduced that target PBMs, including initiatives to separate PBM compensation from list prices and to ban spread pricing, where PBMs charge payers more than they pay pharmacies for medications and retain the difference.
Deacon is particularly supportive of the Patients Deserve Price Tags Act, which extends beyond PBM reform by mandating that healthcare providers disclose service costs, allowing Americans to compare prices effectively. This act also ensures that employers have access to claims data and PBM information.
Additionally, Seiler highlighted the PBM Reform Act, which aims to eliminate spread pricing in Medicaid and unlink PBM compensation from the costs of medications under Medicare Part D, indicating a growing momentum for reform.
In December, a bill with similarities to the Arkansas law was introduced in Congress, known as the Patients Before Monopolies Act, which seeks to prohibit the joint ownership of PBMs and pharmacies. However, some experts view this bill as potentially too ambitious for the federal government to achieve at this time. Still, it reflects lawmakers’ aspirations for future reforms in this area.
In the absence of decisive Congressional action, states will likely continue to attempt to regulate PBMs. For instance, California has recently proposed legislation aimed at decoupling PBM compensation from drug list prices, as noted by Paul Markovich, CEO of Ascendiun, in a recent episode of MedCity Debunked. He argued that the role of PBMs should not influence the drug’s price.
“It’s similar to how Amazon doesn’t charge you based on the cost of the contents of a box,” he remarked.
However, Deacon expressed hope that states’ proactive measures will not deter Congress from taking action. She stated, “What I would truly dislike to see is Congress losing its momentum and motivation to enact federal reforms while states are addressing these issues.” This highlights the critical balance between state and federal approaches to regulating PBMs.
Moreover, she emphasized that states are not merely acting against PBMs out of desire but rather due to the pressing challenges they pose. Most states would likely support federal initiatives aimed at regulating PBMs.
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