SCOTUS: States Can Regulate Insurance Plan Contractors
While briefly discussing (accessible link below for addition information) this decision, keep in mind this is a big deal in lowering the costs of pharmaceuticals as it goes right to the source of some of the excess takings involved in the distribution of drugs from manufacturer to drug stores.
December 10, 2020: the Supreme Court handed a win to states and broadened the path for state health care cost control efforts. In Rutledge v. Pharmaceutical Care Management Association, the Court ruled 8-0 that the Employee Retirement Income Security Act (ERISA) did not preempt Arkansas’s law regulating pharmacy benefit managers (PBMs), the intermediaries that administer prescription drug benefits for health plans.
Speaking for an unanimous Court, Justice Sonia Sotomayor, held that “state laws requiring PBMs to pay pharmacies no less than their acquisition costs for prescription drugs was not preempted by ERISA (the federal statute governing employee benefits). ERISA does not pre-empt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.”
Rutledge puts PBM regulations passed by more than 45 states on much firmer footing. These laws do different things, but they are all aimed at reigning in prescription drug costs.
Previously, PBM gag clauses prevented pharmacies from telling consumers about lower-cost options. These are now eliminated. Others laws limit patient cost-sharing, require PBMs to disclose their price lists, manufacturer rebates to improve transparency, and can prohibit so-called “spread pricing” where PBMs charge plans more than they reimburse pharmacies.
Justice Sotomayor’s opinion sweeps broadly enough that its reasoning is not limited to the particulars of the Arkansas law. Applying the logic of Rutledge, PBM laws are a form of health care cost regulation, and PBMs are not health plans but rather their administrative contractors, so ERISA should not preempt states’ PBM regulations.
States may regulate insurance plan contractors which PBMs and Third Party Administrators are and defines the cost-control regulation as being beyond ERISA’s scope. Health Affairs Blog reports: “The Implications Of Rutledge v. PCMA For State Health Care Cost Regulation,” Health Affairs Blog, December 17, 2020.