Supreme Court Lets Stand Maine Law Regulating Pharmacy Benefit Managers

The U.S. Supreme Court has declined to review a First Circuit Court of Appeals decision that upheld a state law in Maine regulating the business practices of pharmacy benefit managers (PBMs) and requiring them to pass along discounts to consumers.

In 2005, the First Circuit ruled in PCMA v. Rowe that Maine has the authority to regulate PBMs, rejecting constitutional and federal retirement fund law claims made by the Pharmaceutical Care Management Association (PCMA), the lobbying group that represents the large PBMs.

The statute seeks to encourage transparency in PBM operations and requires them to disclose rebates, conflicts of interest and discounts from drug manufacturers that the PBMs are required to pass along to the employer, but are retaining as profit.

PCMA has expressed concerns that the law, and another like it in the District of Columbia, would result in higher prescription drug costs – as much as 10 percent, according to one estimate from PricewaterhouseCoopers – for consumers and employers.

The National Community Pharmacists Association hailed the
court’s decision as one affirming the state’s right to regulate PBMs and called it a “a major victory for consumers in Maine and many other states that have been watching the outcome so they can proceed with their efforts to regulate PBMs.”

However, PCMA called the court’s decision “an expected procedural move,” maintaining that the court could revisit the ruling in light of a potential conflict arising within the next year from separate litigation currently before the U.S. District Court for the District of Columbia.

PCMA says 17 states have rejected similar legislation.

The Business Roundtable, U.S. Chamber of Commerce, American Benefits Council and America’s Health Insurance Plans had filed an amicus brief asking the court to review the law as well.

The District of Columbia enacted a fiduciary-disclosure law similar to the Maine law in March 2004. D.C.’s law was subsequently challenged by PCMA and, in December 2004, the U.S. District Court issued an injunction blocking D.C. from enforcing the law. The injunction remains in effect while the merits of the law are being litigated.

PCMA said a ruling on its motion for summary judgment could be handed down perhaps in Fall 2006. If a ruling from the U.S. District Court for the District of Columbia conflicts with the First Circuit’s decision, this conflict would afford the U.S. Supreme Court a fresh opportunity to review both the Maine and D.C. statutes, according to the group.

But NCPA says PCMA has tried to downplay the significance of the Supreme Court’s decision not to grant PCMA’s writ of certiorari to review the case.

“This is a green light for more state legislatures to enact similar laws reforming the PBM industry,” said National Community Pharmacists Association Executive Vice President and CEO Bruce Roberts. “These sorts of ‘transparency’ statutes protect both employers that provide drug benefits for employees and retirees, as well as consumers themselves, who pay the premiums.”

Roberts says giant PBMs are facing public and private scrutiny of their financial and business practices. “These drug brokers are being investigated by state attorneys general, prosecuted by the U.S. Department of Justice, and a jury in Ohio found a PBM guilty of defrauding the State Teachers Retirement System of Ohio,” said Roberts.

“With the decision by the Supreme Court to reject PCMA’s effort to overturn the case, the decision by the First Circuit — the only circuit court to have considered state PBM reform laws – – becomes the law of the land,” said NCPA General Counsel John M. Rector. “The Maine law affirms that the PBMs have a fiduciary responsibility to consumers — not to their own profits and stockholders. Clearly the Supreme Court has no issue with this approach.”

Sources:

The National Community Pharmacists Association (NCPA) represents the nation’s community pharmacists, including owners of more than 24,000 pharmacies, more than 68,000 pharmacists and more than 280,000 full-time employees.

PCMA is the national association representing pharmacy benefit managers (PBMs), which administer prescription drug plans for more than 200 million Americans with health coverage provided through small businesses, Fortune 500 employers, health insurers, labor unions, and Medicare Part D.