States desire reduced drug costs. A federal law impedes their progress

Indianapolis, Indiana – Oliver Lackey wanted to “provide the best patient care,” so he started a pharmacy in Fairview, Oklahoma, his birthplace. Ten years ago, armed with “zero prescriptions,” he opened up shop at the neighborhood grocery store. His business soon took off, but he was still having difficulties.

According to Lackey, “I was filling more prescriptions and I was getting more patients,” Stateline reported. “However, as my income increased, the insurance companies and PBMs were paying me less each year.”

Pharmacy benefit managers, or PBMs, are the middlemen in the pharmaceutical supply chain who oversee prescription medications for health plans. PBMs set copayments, specify which medications are covered by insurance, and calculate the amount pharmacies must spend to obtain medications.

PBMs contend that they use their negotiating position to get pharmacists and customers better drug pricing. However, some of the biggest health care companies in the country control PBMs, which are accused of engaging in anticompetitive behavior that raises prices and forces independent pharmacies like Lackey’s out of business.

Recent legislation in all 50 states has aimed to reduce prescription medication costs by limiting PBM control. This information comes from the neutral National Academy for State Health Policy. However, for the 65% of Americans who work for large firms that provide health care coverage to their employees through so-called self-funded health care plans, virtually none of those measures are applicable because of a 50-year-old federal legislation known as the Employee Retirement Income Security Act, or ERISA.

That might alter if a PBM law passed by Lackey’s home state of Oklahoma is upheld by the US Supreme Court.

In 1974, the Employee Retirement Income Security Act, or ERISA, was ratified. Its goal is to safeguard employees by establishing consistent guidelines for employer-sponsored health and retirement schemes.

Video captures a passenger airliner from Brazil plummeting out of the sky CNN
Five years prior, Oklahoma attempted to control PBMs by passing legislation prohibiting them from imposing fees on pharmacies or compelling patients to use PBM-owned or affiliated pharmacies. Additionally, the rule forbade PBMs from arbitrarily removing pharmacies from their preferred networks or providing their own pharmacies with more favorable reimbursements.
Republican Oklahoma Insurance Commissioner Glen Mulready told Stateline that it was “the most aggressive, broadest PBM enforcement legislation in the country.” “And it was contested right away.”

PBM trade group Pharmaceutical Care Management Association filed a lawsuit to overturn the statute. The 10th U.S. Circuit Court of Appeals decided in August of last year that Oklahoma was not allowed to apply a large portion of its laws to self-funded health care plans because of the federal legislation ERISA.

Vice President of Public Affairs for the trade association Greg Lopes stated that the Oklahoma law “would raise costs for health plans and consumers in the state.”

“The legislation in Oklahoma would have disastrous effects on Medicare plan sponsors, unions, and employers. It would also negatively impact hundreds of thousands of their beneficiaries by increasing costs and decreasing benefits,” Lopes stated via email.

However, the state retreated in May when Oklahoma filed an appeal with the US Supreme Court to overturn the ruling. 32 state attorneys general and five trade associations representing pharmacists joined the case in June.

The matter is still pending before the Supreme Court. Legal experts predict that if the high court ultimately rules in Oklahoma’s favor, it will set a significant precedent that will free states from being restricted to regulating Medicaid programs and individual and group health plans, and instead allow them to regulate health plans that cover the majority of Americans.

States will still find it difficult to apply any state requirements to self-funded plans, though, if the high court decides not to hear the case or rules against Oklahoma.

Oliver Lackey will find out too late, regardless of the outcome. After six years of operation, he said he had to close his pharmacy in 2020 because PBMs were underpaying him for the medications he was selling. He currently works for the charity Great Salt Plains Health Center, which provides patient care in five locations around Oklahoma, as the pharmacy director.

“Many of my patients came in crying when I told them I was closing,” he remarked. “Going through that was a really difficult time because you’re basically telling your patients or family that you can’t afford to care for them anymore.”

President Gerald Ford signed ERISA into law in 1974 with the intention of protecting employees enrolled in employer-sponsored health and retirement plans by establishing consistent guidelines for the programs’ operation. The purpose of the guidelines is to guarantee that the administrators of the plans act only in the best interests of the participants and beneficiaries, paying for benefits and covering costs.

Elizabeth McCuskey is a professor of health law policy and management at the Boston University School of Public Health and School of Law. She stated that Congress enacted ERISA in response to high-profile incidents of underfunding and fraud in pension schemes.

“A lot of safeguards were put in place for workers to ensure that the benefits their employers had promised them weren’t being dishonestly withheld or diminished,” McCuskey said.

Large firms with thousands of workers across several states are required by ERISA to adhere to a single set of federal criteria for their health and retirement plans, as opposed to several state regulations.

“Businesses want to provide their employees with excellent health plans and benefits,” stated James Gelfand, head of the ERISA Industry Committee, a trade association that advocates on behalf of major businesses subject to the legislation. But if they had to abide by separate laws in each state, city, or municipality, that would not be feasible.

According to Gelfand, it would probably be more expensive for major firms to offer health insurance to their staff if they had to adhere to state-specific rules, like those found in the Oklahoma statute. He said that in reaction, companies can decide to discontinue providing specific advantages.

He said, “We’ve also told states that if they pass laws that are in violation of federal law, we will take legal action into consideration because our companies won’t be able to provide benefits if they have to have different plans in California, Texas, Maryland, and Massachusetts.”

McCuskey clarified that the primary concern at the time ERISA was created was pensions rather than health care programs. She continued, “But there is a trade-off because over the past 50 years, states have needed and wanted to regulate their health care markets.”

Joanne Roskey, an attorney with Miller & Chevalier who specializes in ERISA disputes, says states should exercise caution when attempting to regulate their health care markets since ERISA can be triggered rather simply. Therefore, the roughly two-thirds of participants in self-funded plans are usually left out of the scope of their legislative efforts.

The U.S. Supreme Court upheld a more restrictive Arkansas statute in 2020, opening the way to at least some state regulation of PBMs in self-funded plans. However, experts stated that lawmakers find it difficult to take further action to reduce prescription drug costs, a matter that is highly valued by voters, because of the ongoing danger of lawsuits related to ERISA.

According to McCuskey of Boston University, “it’s so broad, and it’s so muddled, and there’s billions of dollars at stake.”

A decision in the Oklahoma case, according to McCuskey and other legal experts, may pave the way for additional action. The commissioner of insurance for the state, Mulready, hopes they are.
“All we need is clarification on the matter,” he stated. “Many people across the country are in need of that as they watch or have watched this unfold.”