CVS and Cigna have filed two separate lawsuits seeking to overturn Arkansas’ new law, which bans pharmacy benefit managers from owning or operating pharmacies in the state, from going into effect
CVS and Cigna’s PBM subsidiary Express Scripts filed two separate suits Thursday in an Arkansas district court asking a judge to find the law unconstitutional and ban it from being implemented.
Gov. Sarah Huckabee Sanders signed Arkansas’ legislation, called Act 624, into law in April. The law — the first of its kind — is meant to protect local community pharmacies from larger, more diversified chains by requiring companies that own both PBMs and pharmacies to shutter their operations in the state.
Its passage followed a groundswell of support for tackling PBM reform from lawmakers and regulators at the state and federal level, amid growing concern about rampant consolidation in the PBM industry and anticompetitive practices pursued by the largest players — CVS’ Caremark, Cigna’s Express Scripts and UnitedHealth’s Optum Rx, which jointly control 80% of U.S. prescriptions.
However, Arkansas’ legislation was decried by PBMs, which say it’s based on cherrypicked data and is a thinly veiled attempt to increase market share for Arkansas-owned pharmacies at the expense of out-of-state operators.
They also say that PBMs affiliated with pharmacies drive down costs for patients, an argument supported by some market experts who say Arkansas’ policy would decrease the revenue and market power of the biggest PBMs to help independent pharmacies, with unclear downstream impacts on patients.
CVS, for example, operates a major network of retail pharmacies along with its PBM Caremark. If Arkansas’ law stands, the company would have to close its 23 pharmacies in the state, disrupting services for hundreds of thousands of customers and costing hundreds of Arkansans their jobs, according to a spokesperson.
Similarly, UnitedHealth would have to close its 11 brick-and-mortar pharmacies in Arkansas, and halt its specialty prescription business in the state. Other PBM companies that don’t own retail stores but operate mail-order or specialty pharmacies, like Cigna, Elevance and Humana, would also be significantly affected.
When the law was passed, PBMs said they were considering their options to ameliorate the legislation’s affect on their businesses.
Now, CVS and Cigna are hoping to find recourse from the courts — filing two lawsuits against the director and members of Arkansas’ pharmacy regulator, the Arkansas State Board of Pharmacy.
The lawsuits take multiple lines of attack against Act 624.
Arkansas’ law violates the Constitution’s Dormant Commerce Clause by discriminating against an out-of-state business, and interferes with equal protection rights, according to CVS’ suit. The law is also preempted by multiple federal statutes, because it hinders the administration of nationwide employee benefit plans under a law called ERISA, by preventing them from relying on PBM-affiliated pharmacies in a single state, the lawsuit alleges.
Arkansas’ law also seeks to regulate Medicare Advantage and Medicare prescription drug plans, which only the federal government can oversee, CVS argues.
Cigna’s suit takes similar arguments and pursues a few additional legal avenues.
Along with citing the Dormant Commerce Clause, Act 624 also violates the Constitution’s Privileges and Immunities Clause by burdening out-of-state entities by preventing them from providing services in the state; and its Bill of Attainder Clause by singling out specific groups — PBMs and PBM-affiliated pharmacies — for punishment, according to Cigna’s complaint.
Arkansas’ law also steps on federal statute by reforming operations of the TRICARE program, which delivers military benefits through private companies, without Washington’s say-so, the payer argues.
There’s a lot riding on the outcome of the suits for the PBM industry. Along with their future pharmacy operations in Arkansas, other states considering similar legislation could be dissuaded or spurred on by the court’s eventual decision.
Bills with similar provisions were recently introduced in Vermont, Texas and New York, according to the National Community Pharmacists Association.
States are stepping into a gap left by Congress as lawmakers scramble to make prescription drugs more affordable for U.S. patients. Despite numerous proposals to rein in controversial PBM business practices over the past few years, meaningful federal reform has yet to make it across the finish line.
However, there still appears to be appetite in Congress to move on the issue, with lawmakers on both sides of the aisle expressing anger with PBMs’ business practices in recent hearings.
Similarly, the GOP megabill currently being considered by the Senate includes some PBM provisions, including banning spread pricing in Medicaid, preventing PBMs from being paid based on a drug’s list price and requiring more transparency about PBMs’ business practices.
