Minnesota defends N.D. laws on drug-benefit companies

Minnesota Attorney General Keith Ellison said in a court filing Thursday that states have a fundamental right to regulate prescription-drug middlemen firms called "pharmacy benefit managers" (PBMs), which control a growing share of the $370 billion-plus retail U.S. prescription drug market.

"PBMs have exploited decades of lax or non-existent regulation to become a massive part of the prescription-medication industry," says a filing from Ellison's office in a case involving a regulatory dispute in North Dakota before the 8th U.S. Circuit Court of Appeals. "State regulation is necessary to curb PBM practices that harm pharmacies, consumers and states."

Washington-based industry trade group Pharmaceutical Care Management Association maintains in its court filings that two federal laws, including the Employee Retirement Income Security Act (ERISA), intentionally "preempt" state regulations so that national employers have legal clarity when offering insurance to workers in different states.

The association says states shouldn't be allowed to enact a confusing national patchwork of regulations on an industry that provides prescription-drug benefits to 90% of Americans who have insurance coverage.

"The complex interrelationships among drug manufacturers, wholesalers, and pharmacies make the negotiation and structuring of pharmacy benefits exceedingly complicated," the association wrote in a filing with the 8th Circuit in May. "Employers ... therefore typically hire pharmacy benefit managers to manage prescription-drug benefits at their direction."

Three companies control about 80% of the U.S. PBM market, including the PBM run by OptumRx, a division of UnitedHealth Group in Minnetonka, along with CVS Health and Express-Scripts. Prime Therapeutics in Eagan is in the top six nationally, according to Pembroke Consulting.

In 2018, the association sued the state health officer of North Dakota and won an appeals-court ruling blocking enforcement of two North Dakota statutes that were intended to regulate how PBMs did business in the state.

Among other things, the statutes would have limited PBMs' ability to impose accreditation rules on pharmacies, since the rules tend to steer business away from independent pharmacies. The statutes would also have stopped PBMs from prohibiting pharmacies from mailing drugs or dispensing those covered by a health plan, and would have prohibited PBMs from charging copayments that exceed a medication's actual cost.

It's not just a North Dakota issue. Forty-eight states, including Minnesota, have enacted a total of 166 laws regulating PBMs. As of January, 81 PBM-related bills were pending in 29 states, Ellison's filing Thursday says.

In 2019, the 8th Circuit agreed with the association's preemption argument and struck down the North Dakota statutes. But the U.S. Supreme Court invalidated the decision and sent it back to the 8th Circuit for further view earlier this year, after overturning another ruling known as Rutledge that the North Dakota decision relied upon.

That means a panel of 8th Circuit judges — who met in St. Paul for oral arguments the last time around — will again be charged with deciding whether ERISA and another federal law related to Medicare preempt North Dakota's PBM statutes.

North Dakota is defending its own law. But Ellison's office on Thursday filed a friend-of-the-court brief on behalf of Minnesota and 32 other states and the District of Columbia arguing that states ought to have the power to regulate PBMs, which he said have harmed consumers, states and pharmacies through opaque and self-serving business practices.

Ellison's brief cited an opinion column from Sarah Derr, executive director of the Minnesota Pharmacists Association, that said the effect of PBM's vast market power has been especially pronounced in Minnesota.

"Minnesota has seen more pharmacies close in the last decade than any other state, and the strain on the remaining businesses has only grown during the pandemic," her April 2021 column said. "It's particularly concerning when underserved and rural communities lose access to their closest, most reliable provider."

The North Dakota case, known as PCMA v. Wilke, has attracted national legal interest, with friend-of-the-court briefs filed or promised from the U.S. Chamber of Commerce and trade groups for drug companies, insurers, pharmacists, community pharmacies, chain drug stores and state legislators.