Seyfarth Synopsis: As expected, the lawsuits have commenced following the enactment of the Arkansas legislation prohibiting pharmacy benefit managers (PBM’s) from owning or operating actual pharmacies within the state. Michigan has filed its own lawsuit against PBMs. Further, a similar bill targeting PBMs is winding its way through the Illinois legislature.
Arkansas Law
As we discussed in our blog post here, Arkansas recently became the first state in the nation to prohibit licenses for retail, mail order or specialty pharmacies that are owned (directly or indirectly) by a PBM. The law does contain a limited exception that allows the issuance of licenses to PBM-affiliated pharmacies for certain rare, orphan, or limited distribution drugs, but this window for exceptions closes in September 2027 (presumably intended to provide a transition period to source these drugs through pharmacies not affiliated with PBMs).
PBM Reaction
Two lawsuits have now been filed by PBMs challenging Arkansas’ authority to pass this legislation. The lawsuits allege harm to residents of Arkansas by causing the closure of many brick and mortar pharmacies across the state and the inability to access mail-order pharmacies. Express Scripts, in its suit, argues that the Arkansas state law violates several provisions of the United States Constitution, claiming that:
- the intended purpose of the state statute — to protect local pharmacies — violates the Commerce Clause.
- the protectionist purpose of burdening out-of-state citizens violates the Privileges and Immunities Clause
- the singling out of PBMs and their affiliated pharmacies for punishment violates the Attainder Clause, which bars legislative punishment (including banishment) of specific groups.
Because Express Scripts and its affiliates provide services to the US Defense Department’s TRICARE program, the suit also claims that the state statute is preempted by the federal law and regulations surrounding that program.
Arkansas has not yet filed its response to the suits.
Other State Activity
The push against PBM pricing and steerage is one area that seems to unite red and blue states alike. Many states are looking at legislation while others are pursuing the litigation path.
The Illinois legislature has advanced a bill that seeks to address the increasingly high cost of pharmaceuticals for its residents, and targets PBMs for their perceived role. The bill prohibits PBMs from steering insured patients to their own affiliated pharmacies through either a network requirement or through price differentiation. It also prohibits the practice of “spread pricing.” (Spread pricing is a practice where a PBM charges the insurance plan a certain price for a drug fill, but reimburses the pharmacy who filled the prescription a lower price. The PBM then compensates itself by keeping the difference. Other states such as Colorado and Florida already ban spread pricing, and California’s legislature is considering it.) The bill would require PBMs to pass through 100% of any rebate they receive from drug manufacturers to the insurance plans who contract with the PBM to manage the drug in question. Finally, the bill will impose a $15 per enrollee fee on PBMs to pay for the cost of the bill itself and to fund grants for community pharmacies in rural and underserved communities. Governor Pritzker had called for this legislation in his State of the State address and intends to sign it when it reaches his desk.
Michigan recently filed a lawsuit against Express Scripts and Prime Therapeutics, alleging that the companies illegally entered into agreements that fixed the prices they would pay to the underlying pharmacies, and used market power to steer pharmacy fills to its mail-order pharmacies. Michigan claims that this activity has resulted in artificially low pharmacy compensation rates, reduction in pharmacy services and the quality of such services, and a reduction in consumer choice. In sum, the states claims the conduct violates state and federal anti-trust laws, and created a public nuisance under Michigan law.
Conclusion
This remains a rapidly evolving area, and we will continue to monitor developments and report out significant developments.
