A federal appeals court has upheld Arkansas' authority to enforce a rule mandating that pharmacy benefit managers (PBMs) include dispensing fees in payments to pharmacies for prescription drugs. The decision, issued by a three-judge panel of the 7th U.S. Circuit Court of Appeals on Wednesday, affirms a lower court’s dismissal of a lawsuit challenging the 2024 regulation.
Pharmacy benefit managers function as intermediaries between drug manufacturers, distributors, pharmacies, and health insurers, negotiating discounts and managing formularies. Critics say their practices have contributed to financial pressures on independent pharmacies, including some closures in rural areas.
The plaintiff in the case, a nonprofit labor health fund operating under the name TeamCare, argued that the Arkansas rule was preempted by the federal Employee Retirement Income Security Act (ERISA), which sets minimum standards for health plans. TeamCare also challenged the state's requirement that health plans disclose additional data, such as the total average percentage of pharmacy reimbursements relative to Medicaid pricing.
The appeals court found that Arkansas’ requirements did not conflict with federal law or improperly interfere with plan administration. The court’s decision allows the state to impose an additional fee if the insurance commissioner determines that current pharmacy reimbursements are not "fair and reasonable."
Republican Attorney General Tim Griffin welcomed the court’s ruling, emphasizing its importance to rural and independent pharmacies. "Insufficient compensation from pharmacy benefit managers has been one of the reasons many pharmacies, including rural and independent ones, have been forced to close," Griffin stated. "I am glad that Rule 128 can continue to be enforced to ensure that pharmacies receive fair and reasonable reimbursement for their dispensing services."
Arkansas is among several states that have introduced new regulations to address concerns over PBM practices. Last year, a federal judge blocked another Arkansas law that would have prohibited PBMs from holding permits to operate drug stores in the state. That case is set for appeal next month before the 8th U.S. Circuit Court of Appeals.