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A federal judge in Arkansas has issued a preliminary injunction blocking implementation of a new Arkansas law that prohibits pharmacy benefit managers from owning pharmacies in the state.
Arkansas pharmacies and many Arkansas state legislators say implementing the PBM ownership ban would keep big PBMs from using their huge size and their own pharmacies to eliminate competition from local pharmacies.
Express Scripts — a PBM owned by Cigna — and the other plaintiffs that sued in the U.S. District Court for the Eastern District of Arkansas to block the Arkansas law.
The plaintiffs, which include PBM affiliates of CVS Health and UnitedHealth as well as Cigna, argue that the Arkansas law violates the interstate commerce clause of the U.S. Constitution, which is supposed to ensure free trade between states.
The plaintiffs say the Arkansas law also violates the provisions in the Employee Retirement Income Security Act that block state efforts to regulate large employers' benefit plans and federal rules that block state efforts to regulate Tricare military health plans.
Related: Express Scripts, CVS sue Arkansas over PBM pharmacy ownership ban
U.S. District Judge Brian Miller agreed with the plaintiffs that the Arkansas law bans the interstate commerce clause.
The Arkansas law "appears to overtly discriminate against plaintiffs as out-of-state companies, and the state has failed to show that it has no other means to advance its interests," the judge wrote in an order posted Monday.
One section of the Arkansas law "specifically states that its purpose is to eliminate plaintiffs' 'business tactics that have driven locally-operated pharmacies out of business,'" the judge wrote. "Although the state argues that it is merely targeting a form of business structure, this appears to only be a half-truth because the statute discloses that the state is also attempting to protect 'locally-operated pharmacies' as opposed to just consumers and non-PBM affiliated pharmacies, including out-of-state non-PBM affiliated pharmacies like Walgreens."
The impact: Both the Arkansas law and the litigation could have a big effect on state efforts to regulate health care services and product providers all around the United States.
Employer groups, health care provider groups, antitrust groups and other groups see the Arkansas PBM ownership law fight as a template for future fights over state efforts to regulate "vertical integration," or efforts by a large company at one level in a supply chain for a good or service to combine with a large company at another level in the same supply chain.
Interstate commerce: Miller, who was nominated by former President George W. Bush, suggested that looking at a law's legislative history is often a bad strategy because elected officials "can junk up the record with meaningless drivel," but he said a review of the Arkansas law's legislative history "indicates that it overtly discriminates against out-of-state companies."
The Arkansas law also imposes an excessive burden, because Arkansas already has other PBM laws, such as a law that requires a PBM to open its network to any pharmacy willing to meet its terms and conditions, that can protect local pharmacies and independent pharmacies from unfair competition, Miller ruled.
Miller also agreed with the plaintiffs that the Arkansas law would violate federal efforts to protect Tricare from state laws.
ERISA: Miller found that the plaintiffs are unlikely to prevail on their arguments about ERISA preemption.
The Arkansas law "does not have an impermissible connection with ERISA," the judge wrote.
The law "does not regulate PBMs in their capacity as employee benefit plan administrators," he added. "Rather, it merely regulates the requirements for obtaining a retail pharmacy license. And while the effect of this regulation would certainly be 'an influence that [would affect an ERISA] plan's shopping decisions,' it would merely be an 'indirect economic influence' that would 'not bind plan administrators to any particular choice and thus function as a regulation of an ERISA plan itself.'"
Reactions: CVS Health welcomed the new ruling.
"We're pleased with the court's decision to grant a preliminary injunction to stop the implementation," the company said. "We continue to be focused on serving people in Arkansas and are actively looking to work together with the state to reduce drug prices and ensure access to pharmacies."
A representative for Optum Rx, UnitedHealth's PBM arm, welcomed the preliminary injunction, saying it will let the PBM continue to serve patients in their homes and the clinics they choose.
The Arkansas law "would reduce access to mail-order, specialty, rare and orphan disease, mental health, and other medications for seniors, residents of rural communities, and people with severe mental health conditions or other complex medical conditions such as cancer and autoimmune disorders — all while increasing the costs of prescription drugs for Arkansans throughout the state," the Optum Rx representative said.
A representative for Cigna's Evernorth unit also welcomed the court ruling.
"Every day, our nurses, pharmacists and other dedicated team members provide care to Arkansas patients that can't be easily replaced, and we will continue doing everything we can to protect Arkansas patients' access to care and affordable medicines," the Evernorth rep said.
Representatives for Cigna could not immediately be reached for comment.
Arkansas Attorney General Tim Griffin indicated that more court action is coming.
"I respect the court's decision and plan to appeal," Griffin said.
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