Federal Court Rules Against Independent Pharmacies

The Pharmaceutical Care Management Association (PCMA) got a huge win against state governments and independent pharmacies, June 8, 2018, when the United States Court of Appeals for the Eighth Circuit decided an Arkansas law is preempted by both the Employee Retirement and Income Security Act (ERISA) and Medicare Part D.   The PBM industry brought suit against the State of Arkansas which passed legislation (Act 900 in 2015) intended to create accountability in establishing prescription drug pricing, including relief for independent pharmacies in that state.

The Eighth Circuit Court of Appeals described Act 900 as follows:

(1)  Act 900 mandated pharmacies be reimbursed for generic drugs at a price equal to or higher than the pharmacies’ cost for the drug based on an invoice from the wholesaler.  Act 900 defines “pharmacy acquisition cost” as the amount charged by the wholesaler as evidenced by the invoice.

(2)  Act 900 further imposed requirement on PBMs in their use of the MAC lists by making them update the lists within at least seven days from the time there has been a certain increase in acquisition costs.

(3)  Act 900 also contained administrative appeal procedures and allowed pharmacies to reverse and rebill each claim affected by the pharmacies’ inability to procure the drug at a cost that is equal to or less than the cost on the relevant MAC list where the drug is not available “below the pharmacy acquisition cost from the pharmaceutical wholesaler from whom the pharmacy or pharmacist purchases the majority of prescription drugs for resale.”

(4)  Act 900 allowed a pharmacist to “decline to dispense” if a pharmacy would lose money on a transaction.

The PBMs won this case completely, and the State of Arkansas — an all its independent pharmacies — lost.  The Court’s ruling is a complete victory for Optum,  CVS/Caremark and Express Scripts.   Other federal appellate courts can be expected to shoot down other state laws that attempt to protect pharmacies against negative reimbursements on the same grounds.

According to Mark Cuker, an attorney that represents hundreds of independent pharmacies against OptumRx, “The ruling show that PCMA (the PBMs) is determined to attack state MAC laws in the federal courts and when they succeed it means that those laws only retain their force for non-ERISA and non-Medicare plans.  Absent federal legislation, litigation may be the only answer for independent pharmacies.”

The Eighth Circuit relied on the Supremacy Clause of the U. S. Constitution to decide this case.  The Supremacy Clause dictates that federal law is the “supreme law of the land.”  The Eighth Circuit concluded that Act 900, which attempted to provide pharmacies with adequate protections from negative reimbursements, was “preempted” by ERISA and Medicare Part D.  Under the preemption doctrine, a federal court may void state legislation it believes interferes with, or is in conflict with, federal law.

In a nutshell, the Eighth Circuit stated that Act 900 interfered with ERISA and Medicare Part D.  Therefore, Act 900 is null and void with respect to ERISA and Medicare Part D plans.   According to PCMA’s attorney during oral arguments, more than 50% of the residents in Arkansas are covered by ERISA and Medicare Part D plans.

Agreeing with Cuker, other attorneys contend that absent any federal legislation, litigation is the only near term option for pharmacies that are victims of PBM abuse.  There is zero faith in any state-level legislation seriously impacting PBMs.

“The ERISA law has been in effect since the early 1970’s,” said Richard Stevens, WVPA Executive Director.  “In part, ERISA allows employers to provide the same health benefits to employees in various states without having to comply with various state laws.  Several attempts have been made to amend this law over the years, but to no avail.”