Employers looking ahead to a continued push by state and local governments to more closely regulate pharmacy benefit managers in 2024 are set to back stricter federal law preemption of these measures.
PBMs, which manage prescription drug plans of behalf of health insurers, have been criticized over lack of transparency and inflated costs to health plans, but the federal government has not yet enacted legislation to rein in these middlemen.
Groups representing companies with self-insured health plans say the states’ attempts to fill the void on PBM legislation threaten preemption protections under the federal Employee Retirement Income Security Act. What’s more, maintaining a nationally uniform regulatory system under ERISA, which turns 50 in 2024, is necessary to avoid a problematic patchwork of state laws, the employer groups say.
“The timing couldn’t be better to take a good look at ERISA and health care and determine where there could be areas that could be strengthened and modernized to ensure that ERISA self-funded plans can continue to offer the benefits they offer,” said Melissa Bartlett, senior vice president for health policy with the ERISA Industry Committee (ERIC), which represents the employee benefits interests of large employers.
Call for PBM Reforms
Employers are advocating for reforms to PBMs similar to what some states are doing, but they say change needs to happen instead at the federal level to ensure uniform standards.
“We’re very supportive of efforts at the federal level to reform and increase transparency and oversight of PBMs,” said Ilyse Schuman, senior vice president for health policy at the American Benefits Council, which advocates for large employers.
“That in no way means ERISA preemption should be undermined in the process of doing so,” she said.
“We are all working for federal PBM reform,” said Alan Gilbert, vice president of policy for the Purchaser Business Group on Health, which represents nearly 40 private employers and public entities that spend $350 billion annually covering more than 21 million Americans.
But “we can not be subjected to a patchwork of benefit design, or recordkeeping, or reporting,” he said.
Some state laws could result in higher prices, such as by curtailing cheaper mail-order pharmacy plans, Gilbert said. “Mail order is a way to effectively manage benefits for employees,” and helps people in rural areas who may not have easy access to retail pharmacies, he said.
Employer groups support the Pharmacy Benefit Manager Reform Act (S. 1339), which has been approved by the Senate Committee on Health, Education, Labor and Pensions. The legislation would require PBMs to pass on all rebates they get from drug manufacturers to health plans, and would ban spread pricing, PBMs’ practice of charging health plans more than they reimburse to pharmacies and pocketing the difference.
Erosion of ERISA
But some employer groups are wary of attempts to erode ERISA preemption protections as Congress considers PBM-related bills. The National Coalition on Benefits, a group of businesses and associations representing employers, sent a letter to HELP Chair
Undermining ERISA preemption “would be catastrophic for ERISA-governed self-insured health plans and could potentially have destructive impacts on ERISA-governed retirement plans as well,” according to the letter signed by 15 groups.
“It’s fair to have conversations about what the next 50 years looks like,” said Garrett Hohimer, vice president of the Business Group on Health, one of the signatories. But advocating for changes in ERISA could result in new judicial interpretations that could undermine the law, he said.
Following a 2020 US Supreme Court decision, Rutledge v. Pharmaceutical Care Management Association, that held that an Arkansas law requiring PBMs to reimburse the state’s pharmacies at least as much as wholesale costs wasn’t preempted by ERISA, a number of states have enacted laws that employer groups say infringe on ERISA protections.
Over the past year, more than 250 bills involving PBM regulation have been introduced in 48 states, said Joel Kurzman, director of state government affairs for the National Community Pharmacists Association, which represents independent pharmacists that support the legislation.
“The NCPA is looking to address the egregious business practices of PBMs, not the fundamentals of health plans,” Kurzman said. PBMs are “hiding behind the shield of ERISA” so they can withhold savings like drug manufacturer rebates from employer-sponsored health plans.
Far-Reaching Laws
One of the most far-reaching state crackdowns is Florida’s Prescription Drug Reform Act (SB 1550), signed into law by Gov. Ron DeSantis in May. Rules implementing the law were approved in September. Under the law, self-insured employers are subject to “numerous potential mandates and requirements,” Dillon Clair, director of state advocacy and litigation for ERIC, said.
The law places conditions on the ability of PBMs to require the use of mail-order prescription services, which employer plans say saves money. It also imposes network adequacy requirements on PBMs and the plans they administer, which ERISA-regulated plans are generally exempt from under federal law, Clair said.
In addition, the Florida law requires PBMs to meet an “any-willing-provider” standard by including in their network any pharmacy that meets standards under state and federal law. PBMs are usually able to set standards for pharmacies that participate in the PBM networks.
Parts of Oklahoma’s 2019 PBM law, the Patient’s Right to Pharmacy Choice Act, were invalidated by the US Court of Appeals for the Tenth Circuit in Pharmaceutical Care Management Association v. Mulready. The appeals court held that ERISA preempts the state law eliminating one method of structuring health benefits. The law requires PBMs to open their networks and abide by any-willing-provider standards.
“Without strong preemption protections, inconsistent and often conflicting state policies would raise costs and administrative burdens for employers and health plans,” the PCMA said in a statement. “In turn, workers and their families would be exposed to increased premiums and cost sharing, decreased benefits, and stagnant wages.”
The Tenth Circuit on Dec. 12 denied a petition by Oklahoma insurance commissioner Glen Mulready for a rehearing of the case.
The state is preparing to appeal the decision to the US Supreme Court, Mulready said in an interview. A petition for a stay while the case is appealed was filed Dec. 18 in the circuit.
While the process plays out, states are on a “little bit of a stand down” when it comes to passing their own legislation or pushing legal challenges, according to Mulready.
“There are so many stakeholders that are watching this case,” he said.