SHRM Asks Supreme Court to Uphold ERISA’s Uniform Standard for Drug Plans

Does ERISA stop states from regulating drug prices set by pharmacy benefit managers?

Stephen Miller, CEBS By Stephen Miller, CEBS April 7, 2020

The Society for Human Resource Management (SHRM) asked the U.S. Supreme Court to uphold an 8th Circuit Court of Appeals ruling that the federal Employee Retirement Income Security Act (ERISA) restricts states' ability to regulate how pharmacy benefit managers (PBMs)—such as Express Scripts, OptumRX and CVS Health—set drug prices.

The Supreme Court had been scheduled to review the appellate decision on April 27, but due to the coronavirus pandemic will now likely hear oral arguments later in the term, which ends in June. [Update: Rutledge v. Pharmaceutical Care Management Association was argued virtually before the court on Oct. 6.]

The case focuses on a 2015 Arkansas statute that requires PBMs to reimburse pharmacies at or above their wholesale costs paid for generic drugs and prevents them from paying their own drugstores more than they pay others. At least 38 states have passed laws regulating PBM pricing that are similar to the Arkansas statute. The Trump administration joined with these states in opposing the 8th Circuit ruling that the Arkansas statute was overridden or "preempted" by ERISA.

SHRM's amicus brief takes the other side and calls for the Supreme Court to protect federal ERISA preemption, arguing that ERISA offers employers and plan administrators the certainty of applying one uniform standard across state lines. "Regulation of ERISA-governed, self-funded employee pharmacy benefit plans should take place at the federal level," the brief states.

We've rounded up articles from SHRM Online and other trusted media outlets related to PBMs and drug pricing.

Preserving Multistate PBM Plans

ERISA's preemption of state laws allows employers to engage a single nationwide PBM that can negotiate better rates with drug manufacturers nationwide, SHRM argued.

"SHRM members will want to offer the same benefit plan to employees in Arkansas that they offer to employees in Alabama. But the [Arkansas statute] interferes with employers' ability to do so," the brief explains. "The orderly development and preservation of ERISA's preemptive authority [is] crucial to preserving self-funded employer pharmacy benefit plans for tens of millions of Americans," the brief states.
(SHRM's Amicus Brief)

Disputing ERISA's Preemption of State Laws

The Supreme Court's decision to hear the case came at the urging of U.S. Solicitor General Noel Francisco, who argued that the Arkansas law doesn't reference employer-sponsored drug plans that are regulated under ERISA, so ERISA should not preempt states from regulating PBM agreements.

California, New York and 30 other states also urged the Supreme Court to take this case. The states say the laws in question seek to tamp down prescription drug costs by making the relationships between pharmacies, PBMs and consumers more transparent.
(Bloomberg Law)

Negotiating Price Transparency with PBMs

SHRM generally supports "prescription drug price transparency and other efforts to reduce associated health care costs to SHRM members and the employees they serve," SHRM's brief states"But the administrative burden on SHRM members, and the financial impact to American workers by state regulation of PBM administration of self-funded plans, must be avoided because of ERISA preemption."

The brief cites a SHRM Online article that recommends employers negotiate with PBM administrators for pharmacy plans, insist on a contract that has enough transparency so that they can have access to the PBM's data, and receive comprehensive audit rights over claims and fees. The article also recommends that coverage programs include a fair appeal process.
(SHRM Online)

[SHRM members-only toolkit: Managing Health Care Costs]

Improving Federal Regulation of PBMs

SHRM's brief cites another SHRM Online article the reports how, at the federal level, both Congress and the executive branch are examining potential policy changes for regulating PBMs. For example, last year the administration published a proposed rule to lower prescription drug prices by encouraging drug manufacturers to pass their rebates directly to consumers instead of to PBMs.

This article noted that President Trump had recently signed into law the Patient Right to Know Drug Prices Act, which forbids PBMs from trying to keep pharmacists from discussing cheaper price options with consumers.
(SHRM Online)

Controlling Prescription Drug Costs

The SHRM brief also cites an HR Magazine article that discusses steps employers can take to manage the cost of prescription programs. Many larger employers opt to separate these programs from the overall health plan to enable PBMs or other consultants to closely monitor and manage expenses, and a growing number of companies are further carving out their specialty drug programs so that they can be handled under the aegis of specialty pharmacies, specialized PBMs and other vendors.

HR professionals from smaller organizations can gain more leverage in the pharmaceutical marketplace by joining a regional health care purchasing coalition—possibly leading to opportunities to carve out those benefits for closer management.
(HR Magazine)


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