Pharmacy Benefit Managers (PBMs) are companies that contract with health plans and insurance companies to administer their prescription drug benefits, negotiate with drug companies, manage their lists of covered drugs (formularies), and the like. Unfortunately, PBMs have been accused of failing to protect the interests of their clients, and of instead protecting their own bottom lines. For instance, PBMs negotiate with drug companies for rebates based on the volume of drugs that the PBM’s client health plans purchase, but often fail to pass on these rebates to the health plans. PBMs have also been accused of switching patients’ prescriptions when the PBM has a financial incentive to do so (such as higher rebates from a drug company) but without the patient’s or physician’s permission.

In 2004, the District of Columbia City Council passed “AccessRx,” a law to provide low-income seniors and uninsured people in DC access to affordable prescription drugs through a discount program. The law also contained a provision that required Pharmacy Benefit Managers (PBMs) to be more transparent. PBMs are companies that contract with health plans and insurance companies to administer their prescription drug benefits, negotiate with drug companies, manage their lists of covered drugs (formularies), and the like.

The law said that PBMs owe a “fiduciary duty” to their health plan customers, and required them to disclose their contracts with pharmacies, and to pass on rebates they receive from drug companies to their health plan customers.

The PBM industry trade group, the Pharmaceutical Care Management Association (PCMA), sued DC in Federal Court to block the law. The PCMA initially succeeded in getting the Court to issue preliminary injunction preventing the law from going into effect. The Court of Appeals for the DC Circuit ordered the District Court to reconsider its ruling after the First Circuit Court of Appeals upheld a similar law passed by the state of Maine that the PCMA had also sued to block.

The District Court held that, since PCMA had lost its challenge to a very similar law in Maine, it was precluded from challenging the DC law, under the legal doctrine of “collateral estoppel.” Collateral estoppel basically blocks a party from re-litigating an issue that it has already argued – and lost – in another case. Since the PCMA had argued the same issues on a nearly identical law in the Maine case, the DC District Court held that it could not relitigate those issues on the DC law.

The PCMA, predictably, appealed, and on April 18, 2008 the Court of Appeals for the DC Circuit held that collateral estoppel does not apply. (We here at Prescription Access Litigation had joined an amicus curiae (friend of the Court) brief written by AARP, supporting DC’s law). This means that the PCMA gets a second bite at the apple to challenge laws that states pass to regulate the activities of PBMs.

To learn more about PBMs and what states can do to regulate their activities, visit the National Legislative Association on Prescription Drug Prices’s (NLARx) page on PBMs

To read the DC Circuit Court of Appeals Decision, go here.