Late Wednesday afternoon, a federal judge in Little Rock threw out a 2015 lawsuit in which a national group of pharmacy benefits managers challenged the constitutionality of an Arkansas law that governs how pharmacists are reimbursed for dispensing generic drugs.
Chief U.S. District Judge Brian Miller's written order was in keeping with an earlier order he issued on Nov. 25, 2015, refusing to grant a preliminary injunction halting the law's enforcement. He said then that the benefits managers hadn't shown that they would suffer irreparable harm without an injunction.
The lawsuit concerned Act 900 of 2015, which took effect on July 22, 2015. It requires benefits managers for insurers and health plans to reimburse pharmacies at or above the cost the pharmacy paid for any generic drugs from a wholesale supplier. It was supported by pharmacists who said it was long overdue as a way to stop the benefits managers from shorting them on reimbursements by using Maximum Allowable Cost lists with outdated prices.
But the Pharmaceutical Care Management Association, a Washington, D.C.-based national trade group that filed the lawsuit, maintained that Act 900 was simply a way for pharmacists to make more money at the expense of benefits plans, and argued that it would result in higher costs for the plans and patients. The association said the Arkansas law disrupted the uniformity that the cost lists provide for pharmacy networks across the country.
Greg Lopes, a spokesman for the Pharmaceutical Care Management Association, said Act 900 also allows pharmacists to refuse to fill prescriptions if a profitable reimbursement isn't offered on a generic drug. He said the Arkansas law was unique in that respect, disagreeing with the National Community Pharmacists Association that Act 900 is similar to laws passed in 24 states to ensure pharmacists are properly reimbursed for the rapidly escalating drug prices that the Maximum Allowable Cost lists can't keep up with.
On Feb. 17, both sides asked Miller to extend the trial date of the case from March 27 until the week of May 30, a request that Miller denied Wednesday as moot.
The Pharmaceutical Care Management Association had also recently alerted the court that the 8th U.S. Circuit Court of Appeals in St. Louis, which oversees federal courts in Arkansas and six other states, had refused to reconsider its Jan. 12 reversal of an Iowa district court's order. The reversal favored the association in agreeing that a similar law in Iowa illegally pre-empted federal law -- specifically, the Employment Retirement Income Security Act of 1974.
Miller's 23-page order began by noting that "independent community pharmacies have had to eliminate employees during the last five to 10 years due to the financial hardships they have faced. The Arkansas legislature passed and amended Arkansas Code Annotated section 17-92-507 in an attempt to address this issue."
Miller noted that the 2015 law amended a 2013 law -- Act 1994 -- in several ways, such as by defining the term "pharmacy acquisition cost," requiring benefits managers to update cost lists on a timely basis, providing a procedure for pharmacies to challenge cost-list restrictions, requiring benefits managers to allow pharmacies to re-bill claims, and allowing pharmacists to decline to provide a drug unless they will be reimbursed at or above the cost they paid to acquire the drug.
On the question of whether Act 900 is pre-empted, or superseded, by Employment Retirement Income Security Act of 1974, Miller said that he and the Iowa district judge had independently "reached the same conclusions" that it didn't interfere with the federal law, but since the 8th Circuit reversed the Iowa judge's ruling, "this ruling has been revised to conform to that opinion."
In that respect, he said, he would agree with the benefits managers that Act 900 is invalid as applied to the benefits managers' "administration and management of ERISA plans."
The impact of that statement wasn't clear on Wednesday.
"While Attorney General [Leslie] Rutledge is pleased that the state prevailed on four of the five claims at issue, she continues to review today's decision to determine if an appeal is warranted," Rutledge's spokesman, Judd Deere, said Wednesday evening." He added, "In her view, Act 900, which was passed by the General Assembly to protect pharmacists across Arkansas from negative reimbursements, is fully constitutional in all applications."
Miller agreed with the state of Arkansas that Act 900 isn't pre-empted by Medicare Part D, saying the Arkansas law "does not act with respect to a standard established under Medicare Part D."
Under the federal Medicare statute, "the standards established under this part shall supersede any state law or regulation ... with respect to Part D plans," Miller noted. But he said the Part D standard excludes from its scope any effect that Act 900 would have on drug prices.
Miller also sided with the state in saying Act 900 doesn't discriminate against out-of-state economic interests in favor of in-state economic interests, and doesn't "overtly discriminate against interstate commerce."
He wrote that under federal case law, "it is not for the courts to second-guess legislative judgment regarding the importance of legitimate safety justifications" unless a statute provides little or no local benefit. In this case, he said, Act 900's local benefit is "legitimate," in that independent community pharmacies in Arkansas are in economic distress, and the purpose of the law is to protect pharmacies.
Contrary to the pharmacy benefits managers' claims that Act 900 will ultimately harm the public by causing the cost of prescription drugs to increase and make prescriptions less accessible, Miller said, "Act 900 does not require PBMs to pass costs on to consumers."
The judge also found that the law "does not substantially impair preexisting contractual relations," as the benefits managers had claimed.
He chided the benefits managers by noting that, "Past industry regulation also suggests that PBMs could not have reasonably expected that their reimbursement practices would escape regulation forever."
Metro on 03/02/2017