State legislatures over the past five years have focused heavily on the role of pharmacy benefit managers ("PBMs") in the context of health care benefits. While initial efforts were focused largely on PBM services offered to health insurers and Medicaid, these efforts have more recently had material impacts on self-insured group health plans. In particular, since the Supreme Court's 2020 Rutledge 1 decision, there has been a wave of new laws regulating PBMs with respect to all of their business, including self-insured group health plans. These post-Rutledge enactments increasingly involve fundamental aspects of plan costs, design, and administration.
These laws have also been subject to litigation arguing that the laws should be preempted under ERISA. Both of these trends are ongoing, and we expect that they will continue to alter the PBM regulatory landscape and the state of ERISA preemption, both of which have material implications for PBMs, health insurance issuers, and group health plans. As these litigation trends continue to develop, additional effects of weakening preemption may be felt more broadly by other plan service providers, like third-party administrators ("TPAs"), if states were to apply the same underlying theory to medical benefits. We note that both Houses of Congress are currently considering legislation that would create specific federal rules governing PBM disclosure to plans and the structure of PBM compensation.
State PBM Laws
More than half the states have enacted PBM laws in the last three years - some of which specifically impact group health plans, such as Colorado, Oregon, New Mexico, Florida, North Carolina, and Oklahoma. Below we outline the most common provisions in these laws that could impact plans, using laws in Oklahoma, North Carolina and Florida as examples of state laws that have been adopted or are being considered by state legislatures:
- Prohibitions on Spread Pricing - Prohibitions on the practice of "spread pricing" whereby a PBM charges a health plan an amount greater than the amount the PBM pays the pharmacy.
- Anti-Gag Clause Prohibitions - Contracts cannot restrict contracting pharmacies from telling participants what they would pay for a drug if they paid directly and did not engage their plan including any contractual penalties imposed on pharmacies by PBMs for this type of disclosure.
- Prohibition on Retroactive Reduction of Payment - Prohibitions on retroactive reduction of payments made to pharmacies...
