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Supreme Court rules that states can regulate pharmacy benefit managers

Richard Wolf, USA TODAY

WASHINGTON – The Supreme Court ruled unanimously Thursday that states can regulate pharmacy benefit managers, the prescription drug "middlemen" whose actions affect 250 million Americans.

The ruling is a victory for 45 states, led by Arkansas, and independent pharmacies that sought to stop so-called PBMs, which process prescription drug claims and then reimburse pharmacies, from keeping reimbursement rates low for generic drugs. That has caused thousands of independent pharmacies to close, particularly in rural areas.

The case, which was argued in October, garnered little attention compared to the major health care dispute over the Affordable Care Act that the high court heard in November. That case – in which a coalition of states led by Texas seeks to have the law declared unconstitutional because Congress eliminated the tax penalty intended to enforce insurance coverage – isn't likely to be decided until the spring.

Like three other cases decided Thursday, the pharmacy ruling did not include new Associate Justice Amy Coney Barrett, who was not yet confirmed in October. The court's opinion was written by Associate Justice Sonia Sotomayor.

During oral argument, several justices expressed concern that state interference in the prescription drug marketplace might subject pharmacy benefit managers to dozens of state laws – something a 1974 federal law was meant to preclude.

The Pharmaceutical Care Management Association – the trade group for benefit managers such as CVS/Caremark, OptumRX and Express Scripts – argued that the Employee Retirement Income Security Act of 1974 preempts state laws such as the one Arkansas passed in 2015. The U.S. Court of Appeals for the 8th Circuit agreed with the trade group two years ago.

But during oral argument, held by telephone during the COVID-19 pandemic, Chief Justice John Roberts acknowledged that Arkansas seeks to regulate drug prices, not the insurance plans themselves.

The Trump administration sided with Arkansas in the case. It argued that states should be able to regulate the rates that pharmacy benefits managers reimburse pharmacies.

The case came to the court at a time when drug prices were an issue in the presidential and congressional elections. Over the past 20 years, spending on drugs has risen by 330%, compared with a 208% increase in health care costs.

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