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Argument analysis: No clear consensus on states’ authority to regulate prescription-drug middlemen

Argument analysis: No clear consensus on states’ authority to regulate prescription-drug middlemen

Nicholas J. Bronni, solicitor general of Arkansas, argues remotely for petitioner (Art Lien)

The justices heard argument on Tuesday in Rutledge v. Pharmaceutical Care Management Association, which asks them once again to consider the extent of preemption under the Employee Retirement Income Security Act of 1974, commonly called ERISA. In this case, the court considers an Arkansas law that regulates the reimbursements that pharmacies receive when they sell prescription drugs.

The problem arises from the routine use by employee health-insurance plans of pharmacy benefit managers, or “PBMs,” to administer the prescription drug benefits that the plans provide (OptumRX, for example, is one major PBM). Typically, at least with respect to generic drugs, the PBM sets the price it will pay a pharmacy for each drug by reference to a document that establishes a maximum allowable cost, or “MAC,” for each particular medication. Local pharmacies argue that the prices set in the MAC lists are so low that they cannot profitably sell many of the medications on the lists. Responding to those complaints, more than 40 states have adopted rules regulating various activities of PBMs. The statute in this case obligates PBMs to pay retail pharmacies the invoice price stated by the pharmacies’ wholesaler (even if that “invoice price” is higher than the price at which the pharmacy actually purchased the drug from the wholesaler). It also imposes numerous procedural requirements related to the timing for appeals when pharmacies challenge MAC prices, the speed with which PBMs must update their MAC lists, and the like.

The propriety of the Arkansas law – and other similar state statutes – warrants the court’s attention because ERISA preempts state laws that “relate to any employee benefit plan” covered by ERISA. The wide-ranging argument on Tuesday reflected the difficulty the court has had in

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