Attorney General Ellison leads effort asking Supreme Court to rule on states’ authority to regulate pharmacy benefit managers

Leads another bipartisan coalition of 32 AGs in requesting high court review Oklahoma’s authority to regulate abusive behavior of PBMs

Latest in AG’s Ellison fight to lower pharmaceutical drugs prices; regulating PBM abuses a key recommendation of AG’s 2020 task force on drug prices

June 10, 2024 (SAINT PAUL) — Minnesota Attorney General Keith Ellison today led a bipartisan coalition of 32 attorneys general from across the country asking the U.S. Supreme Court to rule on states’ authority to regulate pharmacy benefit managers (PBMs). In an amicus brief to the Court, Attorney General Ellison 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 pharmacy benefit managers (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).

Attorney General Ellison and the bipartisan coalition he led seek to protect consumers by assuring that all states can regulate PBMs. As Attorney General Ellison and the coalition write in their amicus brief to the Supreme Court, “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.” PCMA and the Tenth Circuit’s broad approach to federal preemption, however, would “severely and unduly impede states’ abilities to protect their residents and regulate businesses.”

“No one should have to choose between affording their lives and affording to live, but the high cost of pharmaceutical drugs forces too many people to do just that — and the abusive practices of PBMs are one of the main reasons people are having to make that terrible choice,” Attorney General Ellison said. “High drug prices hurt Americans of all political beliefs and lowering them is a bipartisan issue, which is why I’m proud to lead another bipartisan coalition of states from around the country in defending states’ power to regulate PBMs. I will use the power of my office to fight back on PBMs’ attempts to keep drug prices high every chance I get.”

Today marks the third time Attorney General Ellison has led bipartisan, multistate coalitions of attorneys general in defense of states’ ability to regulate PBMs: he led a coalition of 34 attorneys general in October 2022 in an amicus brief to the Tenth Circuit in this same case in defense of Oklahoma’s laws; and he led a similar bipartisan coalition in July 2021 in an amicus brief to the Eighth Circuit to defend North Dakota’s laws regulating PBMs.

Abusive practices of PBMs

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, Attorney General Ellison joined a bipartisan coalition of 39 attorneys general in urging Congress 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, Medicare Part D and the Employee Retirement Income Security Act (ERISA), preempt Oklahoma’s laws. The federal district court rejected PCMA’s claims, and in October 2022, Attorney General Ellison led another bipartisan coalition in asking the Tenth Circuit to uphold that decision; but in August 2023, the Tenth Circuit reversed, holding that ERISA and Medicare preempt Oklahoma’s laws.

Oklahoma has now asked the U.S. Supreme Court to review the case. Attorney General Ellison and the bipartisan coalition support that request in the amicus brief they filed today.

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, Attorney General Ellison was part of a bipartisan coalition of 46 attorneys general who submitted an amicus brief supporting Arkansas.

In their current brief to the Supreme Court, the states 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 July 2021, Attorney General Ellison led a bipartisan coalition of 34 attorneys general in an amicus brief to the Eighth Circuit 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.

Regulating PBMs in Minnesota

In 2019, the Minnesota Legislature passed the Minnesota Pharmacy Benefit Manager Licensure and Regulation Act. Since the law’s passage in 2019, the Minnesota Department of Commerce has reached settlements or issued cease and desist orders in 12 cases enforcing the state’s PBM laws. In one case, with the assistance of the Attorney General’s Office, the Department obtained a  settlement in which CVS Caremark agreed to in which CVS Caremark agreed to open its preferred network to all willing pharmacies. The company had previously required consumers in one program to use a CVS-owned retail or mail-order pharmacy to refill medications.

Regulating the abusive practices of pharmacy benefit managers was a key recommendation of Attorney General Ellison’s 2019-20 Advisory Task Force on Lowering Pharmaceutical Drug Prices. The task force’s February 2020 report identified the opacity of, and conflicts of interest present in, PBMs’ business models of PBMs as one of the top factors driving the high cost of pharmaceutical drugs. The report recommended building on the 2019 legislation to robustly regulate PBMs and their business practices.

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