PCMA sues to exempt PBMs from Illinois drug law

Dive Brief:

Pharmacy benefit managers want to make sure that an Illinois law creating drug pricing transparency and reforming health benefits administration doesn’t apply to them.
On Tuesday, powerful PBM lobby the Pharmaceutical Care Management Association filed a complaint in federal court against the Illinois Department of Insurance, arguing that the Prescription Drug Affordability Act signed into law last summer clashes with federal oversight of employee benefit plans and that PBMs should be carved out from its provisions.
It’s been a busy week for PCMA lawyers. On Monday, the lobby sued Tennessee’s insurance department to block a PBM reform law in that state.

Dive Insight:

The PCMA is alleging that the PDAA will cause substantial harm to the association’s members, which include the so-called “Big Three” PBMs — Express Scripts, Caremark and Optum Rx, all of which are owned by massive healthcare conglomerates and jointly control 80% of all U.S. prescriptions.

The PDAA was crafted to rein in the influential middlemen, which sit at the epicenter of the U.S. pharmaceutical supply chain and control the flow of drugs between pharmaceutical companies, insurers, pharmacies and patients. Illinois Gov. J.B Pritzker signed the law in July, part of a larger wave of state legislatures across the country passing PBM reform legislation to the annoyance of market giants in the industry.

The PCMA is particularly rankled about two provisions of the PDAA.

First, the law requires PBMs to submit annual reports to the Illinois Department of Insurers and its payer customers that include granular data on its drug pricing and dispensing practices.

For example, PBMs will have to share — for a single transaction — how much the plan paid the PBM, how much the PBM paid the pharmacy and the size of any rebate the PBM received from the drugmaker.

PBMs will also have to disclose copies of each contract it holds with a plan sponsor or insurer.

Though the industry has said it’s open to more transparency, PBMs guard such data covetously and argue sharing it would put them on the back foot with competitors. Complying with the PDAA’s reporting requirements would also be expensive, the PCMA argued in its complaint. And, the law overlaps with PBM transparency rules enacted by Congress earlier this year.

“Many of the PDAA’s disclosure requirements seek information on matters pertaining to highly confidential plan and sponsor decisions, such as manufacturer rebates, and highly confidential personal health information relating to plan participants,” the lobby wrote.

Secondly, the PDAA prohibits PBMs from designing their networks in a way that benefits certain pharmacies, in a bid to stop PBMs from nudging patients towards their own in-house facilities. Such “patient steering” on the part of the “Big Three” PBMs, which all own retail, specialty or mail-order pharmacy assets, is a major problem, according to the Federal Trade Commission.

But the provision will also restrict PBMs’ ability to lower costs and improve outcomes, because they won’t be able to incentivize patients to go to certain pharmacies that might be cheaper or higher quality, the PCMA said.

The lobby is arguing that both segments of the law conflict with the Employee Retirement Income Security Act, or ERISA, a federal law passed in 1974 that regulates employee benefit plans. States are not allowed to tweak how employee benefit plans are administered in their state alone, because that would conflict with ERISA. And the PDAA definitely tweaks how employee benefit plans are administered, the PCMA argued.

“Going forward, PBMs will have to develop burdensome administrative processes and state-specific plan designs applicable to ERISA plans in Illinois but not to ERISA plans in other states,” the lobby wrote in its complaint. “The inefficiencies inherent in these kinds of state-by-state compliance efforts are precisely those that ERISA’s express preemption clause was designed to prevent.”

The PCMA asked the court to declare that the PDAA’s reporting requirements and network design restrictions are preempted by ERISA and don’t apply to PBMs serving employer-sponsored plans.

The lobby also asked that Illinois cover its attorney fees.