240 F. Supp. 3d 951
E.D. Ark.2017Background
- Arkansas enacted Act 1194 (2013) and amended it with Act 900 (2015) to regulate PBM maximum allowable cost (MAC) lists, require timely MAC updates, create an administrative appeals process for pharmacies, allow reverse-and-rebill remedies, and permit pharmacies to decline to dispense when reimbursement is below acquisition cost.
- PCMA (trade association of major PBMs) sued Arkansas, challenging Act 900 on multiple grounds and sought summary judgment; the State cross-moved for summary judgment.
- Key regulatory mechanics at issue: definition of “pharmacy acquisition cost,” a 7‑day update rule triggered by a 10%+ price increase among 60% of wholesalers, required appeals procedures, disclosure obligations, and a decline‑to‑dispense provision.
- PBMs use confidential, national MAC methodologies to set generic reimbursement; pharmacies claim under‑reimbursement has harmed independent pharmacists in Arkansas.
- The court considered ERISA preemption, Medicare Part D preemption, Dormant Commerce Clause, Contract Clause (federal and state), and vagueness (due process).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| ERISA preemption: does Act 900 interfere with ERISA plan administration? | Act 900 is a valid state regulation of PBMs and not preempted. | Act 900 is a valid exercise of state power; alternatively, any preemption is limited. | Court: Act 900 is preempted by ERISA as applied to PBM administration/management of ERISA plans (PCMA SJ granted on ERISA claim). |
| Medicare Part D preemption: does Act 900 act with respect to Part D standards? | Act 900 affects Part D negotiated price and access standards and is therefore preempted. | Act 900 does not regulate Part D standards because contingent, post‑sale adjustments and pharmacy declinations fall outside Part D definitions. | Court: Act 900 is not preempted by Medicare Part D (State SJ granted on this claim). |
| Dormant Commerce Clause: does Act 900 discriminate against or unduly burden interstate commerce? | Act 900 burdens interstate commerce and favors in‑state pharmacies, forcing PBMs to adopt state‑specific practices. | Act 900 is facially nondiscriminatory, serves legitimate local interests, and any incidental burden is not clearly excessive. | Court: Act 900 does not violate the Dormant Commerce Clause (State SJ granted). |
| Contract Clause and vagueness: does Act 900 substantially impair contracts or is it unconstitutionally vague? | Act 900 disrupts PBM‑pharmacy and PBM‑plan contracts and is vague (e.g., triggers and wholesale pricing). | Act 900 does not substantially impair contracts (appeals already in contracts; acquisition cost rarely exceeds MAC) and statutory language gives fair notice. | Court: Act 900 does not violate Contract Clause or due process vagueness (State SJ granted on these issues). |
Key Cases Cited
- Pharm. Care Mgmt. Ass’n v. Gerhart, 852 F.3d 722 (8th Cir. 2017) (state MAC regulation held preempted by ERISA for interfering with uniform plan administration)
- Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936 (2016) (ERISA preemption applied to state reporting regimes as‑applied to ERISA plans)
- Pharm. Care Mgmt. Ass’n v. Rowe, 429 F.3d 294 (1st Cir. 2005) (upholding state regulation of PBMs as legitimate local effort to protect pharmacies and access)
- Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) (balancing test for incidental burdens on interstate commerce)
- Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398 (1934) (police‑power limitations on Contract Clause challenges)
- U.S. Trust Co. of N.Y. v. New Jersey, 431 U.S. 1 (1977) (Contract Clause analysis and deference to legislative judgments in economic regulation)