Iowa judge grants partial injunction blocking parts of state’s PBM law

Image shows a gavel and an Iowa flag — An Iowa judge partially struck down the state's PBM law.

By John Hilton

An Iowa judge partially and temporarily blocked the state's controversial law regulating pharmacy benefit managers.

The law is blocked only for the Iowa businesses that signed onto a lawsuit, District Judge Stephanie Rose ruled on Monday. Her order temporarily blocks 11 provisions in the new state law while the case proceeds through the courts.

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.

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

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.

Rose heard arguments on Friday on the injunction request. Among the provisions that will be blocked are:

A $10.63 dispensing fee paid by PBMs to retail pharmacies;
A prohibition on PBMs or health benefit plans from favoring providers, including based on cost or convenience;
A requirement that PBMs accept any pharmacy to participate in a health benefit plan so long as the pharmacy agrees to the plan’s terms, requirements and reimbursements, also known as an “any willing provider” provision;
A prohibition on PBMs designated a prescription drug as a specialty drug to prevent an individual from accessing the drug;
And a prohibition on creating costs greater than the same services offered through a mail order pharmacy.

'Familiar tension'

"This case presents the familiar tension between state regulatory authority and federal preemption, complicated by the modern realities of employee benefit administration," Rose wrote. "Iowa’s comprehensive approach to PBM regulation reflects legitimate concerns about market concentration and rural healthcare access. Yet the Constitution’s allocation of regulatory authority between state and federal governments requires careful adherence to established boundaries."

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 health care costs, plaintiffs claim.

Due to a recent Supreme Court ruling blocking nationwide injunctions, Rose's ruling applies only to these plaintiffs.

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.

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.