Supreme Court to Hear Case on PBM Drug-Pricing Agreements

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

Stephen Miller, CEBS By Stephen Miller, CEBS January 13, 2020
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Supreme Court to Hear Case on PBM Drug-Pricing Agreements

On Jan. 10, the U.S. Supreme Court agreed to review during its upcoming term a controversial decision by the 8th Circuit Court of Appeals, which had held that the federal Employee Retirement Income Security Act (ERISA) restricts states' ability to regulate how pharmacy benefit managers (PBMs) set drug prices paid by pharmacies and, ultimately, by consumers. The case, Rutledge v. Pharmaceutical Care Management Association, pits Arkansas Attorney General Leslie Rutledge against the PBM industry over a state law regulating PBMs prescription drug pricing agreements with pharmaceutical makers. At least 38 states have passed similar laws, giving the Supreme Court's eventual ruling national scope. We've rounded up articles related to PBMs and drug pricing from SHRM Online and other trusted media outlets.

States Move to Regulate PBMs' Price-Setting

PBMs act as middlemen between health insurance companies and pharmacies. Their reimbursement rates are supposed to incentivize pharmacies to find lower wholesale drug prices. But pharmacies have complained that PBMs have been reimbursing them below their cost to acquire a drug.

The legal battle began with Act 900, passed by the Arkansas legislature in 2015, which sought to require 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.
(Talk Business & Politics)

Role of ERISA Is Disputed

Central to the case is whether ERISA preempts state laws regulating how companies like Express Scripts and CVS Health make money off prescription drugs. 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, nor does it have an impermissible connection with them, 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 ever-increasing prescription drug costs by making the relationships between pharmacies, PBMs and consumers more transparent.
(Bloomberg Law)

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

Employers' Tactics to Control Rx Spending

The cost of prescription drug benefits per organization (among those with 500 or more employees) was expected to reach 6.9 percent of the price of employee health insurance plans in 2019, up from 6.5 percent in 2018, according to HR consultancy Mercer. Meanwhile, retail pharmacy drugs amounted to 19 percent of employee insurance benefits, even when factoring in rebates from drug manufacturers, according to the Kaiser Family Foundation.

The most popular coping mechanism among employers has been to use a multi-tiered formulary, an approach devised by PBMs to shift some pharmaceutical costs to employees. Also common are techniques such as requiring prior authorization for some medications and step therapy—seeing if less-expensive drugs work before allowing payment for more-expensive drugs.

A newer cost-saving tactic is a co-pay accumulator program. Simply put, these programs don't count toward patient deductibles the value of co-pay assistance cards or coupons that drug makers offer consumers to induce them to purchase brand name drugs even though cheaper or generic options are available.
(HR Magazine)

2020 Drug Coupon Rule Dropped Due to Implementation Concerns

Employer plans will still be able to exclude the value of drug manufacturer coupons from annual out-of-pocket (OOP) maximums under guidance from federal agencies issued in August 2019. These exclusions are built into many employer plans, but regulators believe they can make expensive brand name drugs more appealing to consumers.

The agencies indicated that a rule that had been set to take effect on Jan. 1, 2020, could potentially have put high-deductible health plans in conflict with earlier guidance from the IRS on health savings accounts. The agencies plan to revisit excluding the value of drug coupons from OOP maximums in future guidance.
(SHRM Online)

Specialty Drugs Dominate Costs

Specialty drugs accounted for less than 1 percent of prescriptions last year yet totaled 40 percent of total drug costs, according to data from Willis Towers Watson's Rx Collaborative, a group purchasing coalition of more than 400 employers. In addition, the top 10 drugs by gross cost accounted for 20 percent of employers' pharmacy spending in 2018.

The top three drugs ranked by gross spending last year by collaborative members were specialty injectable immunotherapy drugs for conditions that include psoriatic arthritis, rheumatoid arthritis and Crohn's disease.
(SHRM Online)


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