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AG Nessel Asks Supreme Court to Rule on States’ Authority to Regulate Pharmacy Benefit Managers

LANSING — Michigan Attorney General Dana Nessel has joined a bipartisan coalition of 32 attorneys general in asking the U.S. Supreme Court to rule on states’ authority to regulate pharmacy benefit managers (PBMs). In an amicus brief to the Court (PDF), AG Nessel and the coalition ask the court to grant Oklahoma’s request that the Court review a decision from the U.S. Court of Appeals for the Tenth Circuit, which held that federal laws preempt Oklahoma laws that regulate PBMs.

The challenge to Oklahoma’s laws is the latest of a string of lawsuits by the PBM industry’s national lobbying association, Pharmaceutical Care Management Association (PCMA).

AG Nessel and the bipartisan coalition, led by Minnesota Attorney General Keith Ellison, seek to protect consumers by assuring that all states can regulate PBMs. As the coalition states write in their amicus brief to the Supreme Court (PDF), “states have a compelling interest in preserving their traditional authority to protect their residents’ access to healthcare and to regulate business practices in their states. To advance these interests, all states regulate [PBMs] to some degree.” The broad approach of PCMA and the Tenth Circuit to federal preemption, however, would “severely and unduly impede states’ abilities to protect their residents and regulate businesses.”

“In order to safeguard patients and provide equitable access to pharmaceuticals, states must have the power to regulate pharmacy benefit managers,” said Nessel. “I stand firmly with my colleagues in asking the Supreme Court to provide clarification on this crucial matter to protect the health and welfare of our citizens and maintain our authority to control economic activities inside our borders.”

Abusive PBM Practices

PBMs are intermediaries in the prescription pharmaceutical industry between prescription drug plans, pharmacies, and drug manufacturers. PBMs profit from fees charged to market participants and by reimbursing pharmacies less than the PBM is paid by plans for dispensing medications. PBMs have imposed self-serving protections that reduce competition, limit prescription medication access, and impose various confidentiality requirements that limit transparency. For example, PBMs have tried to force consumers to use PBM-affiliated pharmacies at the expense of independent, often more convenient, pharmacies; by giving consumers preferential rates if they use a PBM-affiliated pharmacy; or by denying coverage at non-affiliated pharmacies altogether.

PBMs have been largely unregulated for decades. In the absence of federal regulation, states have stepped up to protect consumers and pharmacies. But they have continued to face challenges from the PBM industry. Earlier this year, 39 attorneys general, including AG Nessel, urged Congress (PDF) to take further actions to regulate PBMs at the federal level.

History of PBMs’ Challenge to State Regulation

Like many states, Oklahoma regulates PBM/pharmacy interactions. The Oklahoma laws at issue aim to ensure adequate pharmacy networks and curtail self-dealing among PBMs. Oklahoma requires PBM pharmacy networks to have sufficient geographic coverage and allow all in-network pharmacies to receive preferred-participation status if they otherwise qualify for that status. PBMs further cannot exclude a pharmacy from a network solely because of a pharmacy employee’s probationary status. Nor can PBMs steer consumers to particular (typically PBM-affiliated) in-network pharmacies. In PCMA v. Mulready, PCMA sued Oklahoma officials, alleging that federal laws (ERISA and Medicare Part D) preempt Oklahoma’s laws. The district court rejected PCMA’s claims, but last summer the Tenth Circuit reversed (PDF), holding that ERISA and Medicare preempt Oklahoma’s laws. Oklahoma has now asked the U.S. Supreme Court to review the case. Supreme Court review is discretionary; at least four justices must vote to take the case.

Mulready marked the second case to reach a federal court of appeals since the U.S. Supreme Court addressed state regulation of PBMs in PCMA v. Rutledge in 2020. There, the Court held that PBMs cannot evade state consumer-protection regulations under the cloak of ERISA preemption. In Rutledge, the Court held that ERISA did not preempt an Arkansas law regulating pharmacy-reimbursement rates. In that case, AG Nessel was part of a bipartisan coalition of 46 attorneys general who submitted an amicus brief supporting Arkansas (PDF).

In the current brief, AG Nessel and the bipartisan coalition argue that the case presents important questions of federal law that need clarity from the Court, noting that the Tenth Circuit’s decision conflicts with the Rutledge decision and with decisions in similar cases from the Eighth Circuit. In 2021, a bipartisan coalition of 34 attorneys general, including AG Nessel, filed an amicus brief to the Eighth Circuit (PDF) to support North Dakota’s PBM regulations. In that case, the Eighth Circuit ultimately agreed with the states that ERISA did not prohibit states from generally regulating PBMs to protect consumers, and the court rejected PCMA’s sweeping approach to Medicare preemption.

Joining AG Nessel in this bipartisan brief (PDF) are the attorneys general of Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Hawaii, Illinois, Indiana, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Texas, Utah, Virginia, and Washington.


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