A federal appeals court unanimously ruled Friday in favor of a pharmacy trade association’s challenge to an Arkansas law governing how pharmacists are reimbursed for generic drugs.
At issue is Act 900 of 2015, a law that regulates pharmacy benefits managers, the entities that verify benefits and handle transactions among pharmacies, insurers and patients. CVS Caremark and Express Scripts are two of the largest benefits managers.
Pharmacies acquire drugs from wholesalers. Then, the patient buys the drug from the pharmacy, often at a lower cost because health plans cover part of the price.
Benefits managers, the intermediary group, are responsible for reimbursing the costs of those generic drugs. They create a “maximum allowable cost” list that sets those rates.
Act 900 prevents benefit managers from paying affiliated drugstores more than they pay other pharmacies for the same prescription. It also bans them from paying pharmacies a lower price than the wholesale cost of a drug, if the pharmacy takes measures to appeal that discrepancy.
Pharmacists said the law was necessary to stop benefits managers from shorting them on reimbursements.
But the Pharmaceutical Care Management Association, a Washington-based trade group that filed the federal suit, said Act 900 required employers and consumers to pony up higher rates to independent drugstores.
The case was first heard in Chief U.S. District Judge Brian Miller’s courtroom. In his ruling, Miller noted that independent community pharmacies in Arkansas have cut employees during the past 5 to 10 years due to financial hardships.
He did side with benefit managers on one of their arguments that Act 900 is invalid when applied to their administration and management of plans governed by the Employee Retirement Income Security Act of 1974.
The association appealed part of Miller’s order to the 8th U.S. Circuit Court of Appeals in St. Louis. Arkansas Attorney General Leslie Rutledge filed a cross-appeal. On Friday, a three-judge panel ruled in favor of the association.
Rutledge is “disappointed in today’s ruling and is considering options for further review,” a spokesman for the attorney general’s office said.
Pharmaceutical Care Management Association President and Chief Executive Officer Mark Merritt said in a statement that the decision “sends an important signal that states can’t impose costly mandates that raise costs on employers, unions, public programs as well as consumers.”
In the ruling, the panel agreed with a lower court that Act 900 is pre-empted by the Employee Retirement Income Security Act, meaning the federal law takes precedence over the state law.
The circuit court then reversed part of the lower court’s ruling that said Act 900 was not pre-empted by Medicare Part D, a federal program.
Information for this article was contributed by Linda Satter and Andy Davis of the Arkansas Democrat-Gazette.