AARP has asked a federal court to uphold a District of Columbia law that would increase the accountability and transparency of pharmacy drug benefit management companies (PBMs).  These companies effective determine availability and price of drugs for most Americans with prescription drug benefits.

As a result of skyrocketing prescription drug costs, a decade ago many HMOs began to subcontract with private firms to provide centralized prescription claims processing as well as outlets such as mail-service pharmacies. These PBMs contract with health plans to pay claims, negotiate price discounts with manufacturers, run and contract with pharmacy networks, establish “formularies” (lists of approved drugs), and consult with health plans to advise them how to most effectively manage prescription benefits. PBMs do not manufacture, distribute, prescribe or ultimately even pay for prescription drugs – yet because of their other functions they often determine which drug a patient will receive and at what price. 

PBMs have experienced explosive growth. Today, PBMs administer drug plans for about 200 million Americans – nearly 85% of all people whose health insurance provides drug benefits. The three major for-profit PBMs have become some of the most profitable companies in the country, notwithstanding economic slowdown and stock market downturns in other industries.

PBMs negotiate price discounts through bulk purchasing. However, questions have been raised about whether they pass enough of the discounts on to consumers or whether they keep too much as profit. Despite the control PBMs exercise over the pharmaceutical market and their influence on cost and availability of drugs, they escape much government regulation. 

States have begun stepping into this void, seeking to require transparency in PBM operations. For instance, DC enacted the Access RX, a law that requires each PBM to inform those who contract with it about rebates, discounts, financial terms with suppliers, and any possible conflicts of interest in its deals.  PBMs have sued to overturn Access RX.  Ironically, they claim that federal benefits law preempts the state law – even though they claim exemption from that federal law (ERISA) as well. 

DC’s law was challenged by a trade association representing PBMs, which asked for a ruling invalidating the law on the grounds that the law was automatically preempted by federal law.  A court disagreed, and the PBMs filed an appeal to the U.S. Court of Appeals for the DC Circuit, where AARP has filed a “friend of the court” brief in PCMA v. DC, urging that the lower court’s ruling be upheld.

Attorneys for AARP Foundation Litigation filed AARP’s brief in conjunction with the Prescription Access Litigation Project (PAL) and Legal Counsel for the Elderly (LCE). The brief points out that ERISA was carefully written to allow states to continue to regulate areas – such as health care – over which they traditionally had oversight, and details numerous decisions reaffirming this principle of non-preemption. 

DC was one of the first legislatures to require PBM transparency when it passed Access RX. States’ interest in PBM transparency has not only resulted in legislation to regulate PBMs, and lawsuits by states against PBMs alleged to conduct shady business operations, but has resulted in a market for new, non-traditional PBMs – a competitive marketplace that benefits consumers.