Iowa business groups file lawsuit to stop state PBM law

A coalition of Iowa business interests are suing the state to stop a law restricting pharmacy benefit managers (PBMs).

Senate File 383 forces PBMs to reimburse pharmacies at least as much as it costs to purchase the drug, which many PBMs claim will drive up drug costs. PBMs are middlemen who work with insurance companies, drug companies, and pharmacies to negotiate drug costs.

The bipartisan bill, signed by Gov. Kim Reynolds, R-Iowa, on June 11, also prohibits PBMs from steering patients to preferred pharmacies or setting cost-sharing incentives.

A spokesman for Reynolds did not return a message seeking comment on the lawsuit.

The Iowa Association of Business and Industry and a coalition of four plaintiffs filed the lawsuit Monday in the U.S. District for the Southern District of Iowa.

Plaintiffs, which include, the Iowa Bankers Benefit Plan, Iowa Laborers District Council Health and Welfare Fund, Des Moines Orthopaedic Surgeons, and Iowa Spring Manufacturing & Sales Co., call the bill “heavy-handed state interference” in the free market. The law will cost Iowans “tens of millions of dollars” in increased healthcare costs, plaintiffs claim.

Plaintiffs seek an injunction barring enforcement of the law and a declaration that it is illegal.

A similar attempt to regulate PBMs in Arkansas is the subject of a pair of recent lawsuits filed by CVS and Express Scripts.

Controversial practice

PBMs continue to draw scrutiny for their business practices, which yield billions in earnings. Meanwhile, lawmakers at both the state and federal levels are seeking to lower drug prices.

The largest PBMs are affiliated with major health insurers. Express Scripts is a Cigna subsidiary, for example. Critics say PBMs operate in a shadowy middle ground, have conflict-of-interest issues and keep profit margins hidden.

A Federal Trade Commission report from earlier this year found that the ‘Big 3 PBMs’—Caremark Rx, Express Scripts, and OptumRx —marked up numerous specialty generic drugs dispensed at their affiliated pharmacies by thousands of percent, and many others by hundreds of percent.

Such significant markups allowed the Big 3 PBMs and their affiliated specialty pharmacies to generate more than $7.3 billion in revenue from dispensing drugs in excess of the drugs’ estimated acquisition costs from 2017-2022, the report said.

'Used a sledgehammer'

Despite the widespread criticism, many in the business community say the PBM structure is working.

ABI and the plaintiffs collectively argue that Iowa's law sets up a regulatory regime that is contrary to one already passed by Congress. As a result, the Iowa law is pre-empted, or overridden, by federal law.

Further, their lawsuit claims the Iowa law is unconstitutional, as it restricts commercial free speech related to pharmacy benefits and networks. For example, it is illegal for employers to tell their employees about ways to save money, such as avoiding a $10.68 fee by using certain pharmacies, plaintiffs claim.

“We’re challenging this new Iowa law because it’s going to raise health care costs for businesses of all sizes across the state by hundreds of millions of dollars,” said Nicole Crain, president of ABI. “It will also disrupt the prescription drug coverage that Iowans count on, and it even stops health plans from giving people simple, money-saving information, like which pharmacy has the better deal. That’s bad policy that goes against federal law and violates the First Amendment."

Supporters of state-based PBM regulation argue that it protects rural/small pharmacies and promotes transparency. Plaintiffs in Iowa say their legislation goes too far.

"[T]o accomplish their goals, Iowa lawmakers used a sledgehammer," the lawsuit reads. "Under the auspices of amending a part of the Iowa Code addressed to PBMs, the legislature inaugurated sweeping regulation ensnaring the universe of entities potentially interfacing with pharmacies generally and affecting prescription drug benefits across the state."

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.