Federal Judge Backs Maine Law Requiring Compensation Disclosure by Benefit Managers

February 7, 2005

A federal judge has sided with the state of Maine in an industry challenge to the constitutionality of a state law that requires pharmacy benefit managers to disclose side payments from drug companies and other financial information.

U.S. Magistrate Judge Margaret Kravchuk’s recommended decision found in the state’s favor on all issues raised in a 2003 lawsuit by the Pharmaceutical Care Management Association, a trade group representing benefit managers, or PBMs.

The law, which has been put on hold pending the outcome of the court case, was viewed by supporters as a means to promote transparency by giving health plan clients access to information about discounts, drug switching programs and any conflicts of interest involving benefit managers.

The industry argued that the law was unconstitutional and could end up harming consumers because PBMs make use of confidential information to get drug companies to compete with each other by lowering their prices.

The lawsuit claimed that Maine’s Unfair Prescription Drug Practices Act is preempted by federal law, would effect a regulatory taking of trade secrets and revenues, and violates due process, freedom of speech and the Commerce Clause of the Constitution.

Finding in Maine’s favor on all issues, Kravchuk granted Maine’s motion for a summary judgment while denying a similar motion by the industry group.

The recommendation now goes before a U.S. District judge, who can affirm, partially affirm or deny it. The recommendations of magistrate judges are in most cases accepted.

In her 50-page recommended decision, Kravchuk echoed the state’s concerns about lack of transparency by PBMs as they act as intermediaries between drug manufacturers and providers.

“Whether and how a PBM actually saves an individual benefits provider customer money with respect to the purchase of a particular prescription drug is largely a mystery to the benefits provider,” Kravchuk wrote.

The lack of transparency, she said, makes it difficult for providers to choose the best proposal from among competing PBMs. For example, she said, secret deals that promote the use of the most expensive drugs could mean that the PBM proposal offering the highest dollar rebate for each prescription filled is the costliest of all.

“In other words, although PBMs afford a valuable bundle of services to benefits providers, they also introduce a layer of fog to the market that prevents benefits providers from fully understanding how best to minimize their net prescription drug costs,” Kravchuk wrote.

Maine’s law was the first of its kind. The PCMA has obtained a preliminary injunction barring enforcement of a similar statute in the District of Columbia.

States that rejected PBM disclosure laws last year include California, Florida, Iowa, Kansas Maryland, Minnesota, Mississippi, New York, Vermont and Washington, the association said.

The association said it will seek “a complete review” of Kravchuk’s nonbinding decision in the U.S. District Court. If that proves unsuccessful, the decision will be appealed to the U.S. Circuit Court, said Barbara Levy, the association’s general counsel.

Attorney General Steven Rowe noted that Kravchuk’s recommendation comes on the heels of the U.S. District Court ruling a week earlier in Providence, R.I., that upheld the landmark Maine Rx law, which aims at providing discounts to the uninsured by having the state negotiate with drug companies for lower prices.

“The persistence and patience of Maine people have been rewarded for the second time in a week,” Rowe said. “Maine leads the nation in these efforts.

“Maine people know that the first person down a trail has to expect to clear a few trees. I’m thrilled to report that we are clearing the trees laid in the trail by the drug industry and that the trail does lead to lower prices for prescription drugs,” hesaid.

The PCMA took issue, however, with claims that the PBM disclosure law would reap the intended benefits.

The association said a study by the consulting firm PricewaterhouseCoopers has shown that Maine consumers and employers would pay 10.2 percent more over the next decade, or $1.7 billion, if the law takes effect.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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