Health Policy Check Up News

Arkansas PBM Law Ruled Preempted By ERISA

In 2015, Arkansas enacted Arkansas Act 900, titled “An Act to Amend the Laws Regarding Maximum Allowable Costs Lists, To Create Accountability in the Establishment of Prescription Drug Pricing; And for Other Purposes.” Arkansas Act 900 requires Pharmacy Benefit Managers (PBMs) to make adjustments to pharmacy reimbursement when it comes to Maximum Allowable Cost (MAC) pricing changes. The law is one of over 30 MAC laws enacted by states on this issue regarding a MAC appeals process or the process for how MAC reimbursement should be adjusted when there are changes to multisource generic pricing. MAC appeal laws are designed to ensure that PBMs are fairly paying pharmacies and to avoid unreasonable reimbursement to pharmacies.

While MAC statutes are steadily being enacted across the country, the PBM lobby, Pharmaceutical Care Management Association (PCMA), a national association representing PBM interests, has zeroed in to challenge how MAC statutes were drafted in only two states—Iowa and Arkansas. Since no uniform model legislation on MAC laws has been developed, each state has been left to its own device, as well as its own resources and pharmacy advocacy make-up, to determine the wording of such legislation. While the laws received much support, federal courts unfortunately ruled that both Arkansas and Iowa were too aggressive in how their laws were constructed. Fortunately, attentive drafting of MAC appeal laws that carefully navigates related laws, can avoid PCMA’s successful challenge to state MAC laws.

A federal judge in Arkansas recently ruled against Arkansas Act 900. PCMA used a variety of constitutional arguments against further implementation, including preemption, violations of the commerce clause, due process, and the contracts clauses of the state and federal constitutions. Pharmacy organizations must learn from the shortcomings of the Arkansas Act 900 exploited by PCMA.

Ultimately, it was the Employee Retirement Income Security Act of 1974 (ERISA) statute that doomed Arkansas Act 900. The court ruled that the law interfered with national uniform plan administration by regulating the conduct of PBMs administering or managing pharmacy benefits pertaining to ERISA plans.

Additionally, the court ruled that Medicare also preempted the law since with respect to the Negotiated Price Standard, because:

  • After an appeal, the resulting price could by the MAC Price, the Invoice Price, or the best price from the wholesaler higher than the MAC price
  • The “decline to dispense” provision violated the requirements of the Pharmacy Access Standard, which requires that a certain percentage of beneficiaries live within a certain distance to a network pharmacy

The good news is that vulnerabilities to state MAC laws are avoidable.

Frier Levitt Government Affairs, LLC, works with organizations in different states on bills regarding healthcare and life sciences issues, including issues with PBMs. Having a bill drafted correctly, taking into account the current political and business climate, is essential to avoiding delays and litigation, which could result in wasting political capital. The Frier Levitt Government Affairs bill check process confidentially examines an organization’s proposed language, verifying the correct statute, while having it reviewed by our numerous clinician attorneys. Contact us today for assistance with your organization’s bill.