Judge blocks Arkansas law barring PBMs from owning pharmacies

A federal judge has struck down a new law in Arkansas that would have banned pharmacy benefit managers from owning or operating pharmacies in the state.

In the decision, U.S. District Judge Brian Miller granted a preliminary injunction preventing the law from taking effect, saying that it may violate the U.S. Constitution's Commerce Clause. He said the law is also likely preempted by TRICARE, a healthcare program serving military members and their families.

Specifically, Miller found that the law emphasized protecting locally operated pharmacies over those affiliated with PBMs, thereby undermining its constitutionality, and said it interferes with national contracts for prescription drug services.

WHAT’S THE IMPACT

The Arkansas law would have barred companies that own PBMs from also holding a pharmacy license. It had been set to take effect Aug. 5, but CVS and Express Scripts sued over the law's implementation. The Associated Press reported that Republican Attorney General Tim Griffin planned to appeal the court's decision.

PBMs act as third-party administrators of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans and state government employee plans. They ostensibly are tasked with maintaining the formulary, contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims.

But the nation's three largest PBMs – CVS Caremark, Express Scripts and OptumRx – are owned by companies that operate their own pharmacy chains, which prompted Arkansas Governor Sarah Huckabee Sanders to sign the PBM bill into law. Independent pharmacies have complained that PBMs operated by larger conglomerates abuse their leverage to benefit their own pharmacy businesses.

Miller shot down several arguments from the PBM plaintiffs but said they were likely to succeed on their claims related to the Commercial Clause, which limits the power of states to interfere with interstate commerce.

THE LARGER TREND

The "Big 3" pharmacy benefit managers – CVS Caremark, Express Scripts and OptumRx – mark up specialty drugs at their affiliated pharmacies by hundreds or even thousands of percent, according to a January staff report from the Federal Trade Commission.

Such significant markups allowed the largest three 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 to 2022, the report found.

These PBMs netted significant revenue at a time when patient, employer and other healthcare plans sponsor payments for drugs steadily increased on an annual basis, the FTC said.

The findings build on a report issued by FTC staff in July 2024 that found that pharmacies affiliated with the Big 3 PBMs received 68% of the dispensing revenue generated by specialty drugs in 2023, up from 54% in 2016.

The American Medical Association released data last September showing that the four largest pharmacy benefit managers in the country control roughly 70% of the national market.

The analysis, based on 2022 data on commercial and Medicare Part D prescription drug plan (PDP) enrollees, also found a high prevalence of vertical integration of PBMs with health insurance companies.

CVS Health is the largest PBM (with a 21.3% market share), followed by OptumRx (20.8%), Express Scripts (17.1%) and Prime Therapeutics (10.3%).