Dive Brief:
- Express Scripts and the main pharmacy benefit manager lobby are suing to block a Tennessee law barring pharmacies affiliated with PBMs from operating in the state.
- In separate lawsuits filed in Tennessee federal court, Express Scripts, a subsidiary of insurer Cigna, and the Pharmaceutical Care Management Association argue that the law is unconstitutional and will impede access to prescription drugs for hundreds of thousands of patients by forcing PBM-owned pharmacies to close.
- Express Scripts, which filed its lawsuit Friday, is the second major PBM to sue over the law. CVS’ Caremark filed its own challenge in May.
Dive Insight:
Tennessee’s Freedom, Access and Integrity in Registered Pharmacy (FAIR Rx) Act prohibits PBMs, influential middlemen in the pharmaceutical supply chain, from owning pharmacies amid widespread worries that conglomerates that operate both businesses are leaning on that market power to drive independent pharmacies out of business.
The law was passed in May despite vociferous opposition from PBMs, given it’s set to shift billions of dollars away from out-of-state operators and to local pharmacies when it goes into effect in 2028. To prevent that, the industry and its allies spent more than $7 million and hired more than 60 lobbyists in an attempt to kill the legislation, according to the National Community Pharmacists Association.
CVS will be hit particularly hard. The Woonsocket, Rhode Island-based healthcare giant has said it will be forced to close 136 retail and specialty pharmacies and halt mail-order services in Tennessee if the law is allowed to go into effect. To prevent that, CVS sued a week after the law was passed.
However, the FAIR Rx Act also constrains conglomerates that offer mail-order pharmacy services, including Cigna. The law would force the company to stop shipping medications to Tennessee, affecting access for tens of thousands of state residents — many of whom need specialized, hard-to-find drugs, the company said.
Moreover, Express Scripts would be forced to close a dispensing facility in Memphis that manages a “significant portion” of the company’s operations nationwide, Cigna said in its suit.
The facility holds about $900 million in inventory on a given day and sends drugs to nearly half a million patients across the country, according to the company’s complaint.
The lawsuits filed by Express Scripts and the PCMA against Tennessee’s pharmacy board and the state’s attorney general make near-identical arguments as CVS’.
The complaints attack the legislation as a thinly veiled attempt to constrain legal competition against Tennessee’s independent pharmacies and argue it violates the Constitution’s Dormant Commerce Clause by discriminating against an out-of-state business.
The FAIR Rx Act is also preempted by multiple federal statutes, including ERISA, which oversees nationwide employee benefits plans, and TRICARE, which covers benefits for military members and their families, Express Scripts argued.
“We’re deeply troubled by this law’s blatant prioritization of special interests and political agendas over the health of patients and a competitive marketplace,” Andrea Nelson, Cigna’s general counsel, said in a statement. “We owe it to our patients and our colleagues across the state who are proud to call Tennessee home to do everything in our power to stop this unconstitutional law.”
“This law is both harmful and unconstitutional, and we are confident the Court will see it that way,” PCMA CEO and President David Marin said. The PCMA filed its lawsuit on Monday.
The legal arguments set forth by the PBM industry have been successful in the past. Arkansas signed a similar bill into law last year, but it was enjoined last summer following challenges from Express Scripts, Caremark and UnitedHealth’s OptumRx. The three companies jointly control 80% of all U.S. prescriptions.
At least nine other states are considering legislation that would restrict PBMs from owning pharmacies, according to the NCPA.
Independent pharmacies have complained for years that major PBMs are restricting their reimbursement, including by forcing them into unfavorable contracts, steering patients to in-house pharmacies and clawing back revenue through a bevy of fees. Federal regulators have found that the companies pay their own pharmacies preferential rates, contributing to pharmacy closures and limiting access to drugs.
With the legislation, states are stepping into a gap left by Congress, which has failed to pass comprehensive PBM reform despite bipartisan interest.
Federal legislation enacted to date doesn’t touch the main enabler of anticompetitive business practices: joint ownership of PBMs and pharmacies, according to experts. Major PBMs deny that joint ownership creates conflicts of interest and argue that they’re careful to treat independent pharmacies as well as — or better than — in-house operators.