Amicus Curiae Brief — Glen Mulready, in His Official Capacity as Insurance Commissioner of Oklahoma, et al., Petitioners v. Pharmaceutical Care Management Association

Supreme Court briefJun 14, 2024

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No. 23-1213

IN THE

Supreme Court of the United States

GLEN MULREADY, IN HIS OFFICIAL CAPACITY AS

INSURANCE COMMISSIONER OF OKLAHOMA, ET AL.,

Petitioners,

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

BRIEF OF AMICUS CURIAE

PATIENTRIGHTSADVOCATE.ORG, INC.

IN SUPPORT OF PETITIONERS

JEFFREY HARRIS

Counsel of Record

STEVEN C. BEGAKIS

CONSOVOY MCCARTHY PLLC

1600 Wilson Blvd, Suite 700

Arlington, VA 22209

(703) 243-9423

jeff@consovoymccarthy.com

June 14, 2024

Counsel for Amicus Curiae

TABLE OF CONTENTS

Table of Authorities .................................................... ii

Interest of Amicus Curiae ...........................................1

Summary of the Argument .........................................2

Argument .....................................................................4

The high price of drugs is a serious problem

that requires innovative public policy

solutions ...............................................................4

II.

PBMs now play a central role in providing

patients with pharmaceuticals ...........................6

III. PBMs increase the cost of drugs by taking a

percentage of manufacturer rebates ...................8

IV. PBMs increase the cost of drugs and cause

retail pharmacy closures by taking a cut of

insurance reimbursements ...............................12

Oklahoma and other States have passed laws

to address PBM abuses, but those laws are

now endangered by the ruling below ................18

Conclusion..................................................................21

TABLE OF AUTHORITIES

Cases

Am. Hosp. Ass’n v. Azar,

468 F. Supp. 3d 372 (D.D.C. 2020) ......................... 2

Am. Hosp. Ass’n v. Azar,

983 F.3d 528 (D.C. Cir. 2020) ................................. 2

Mass. Laborers’ Health & Welfare Fund v.

Blue Cross Blue Shield of Mass.,

66 F.4th 307 (1st Cir. 2023) .................................... 2

Rutledge v. Pharm. Care Mgmt. Ass’n,

592 U.S. 80 (2020) ......................................... 3, 4, 19

Su v. BCBSM, Inc.,

No. 24-cv-99 (D. Minn.) ........................................... 2

Statutes

42 U.S.C. §300gg-19b ................................................ 15

Ark. Code §17-92-507(c)(4)(A)(i)(b) ........................... 20

Cal. Bus. & Prof. Code §4441(e) ................................ 21

Colo. Rev. Stat. §10-16-122.7(2)(a) ........................... 20

Colo. Rev. Stat. §25-37-103.5(3) ................................ 20

Fla. Stat. §641.314(2)(a) ............................................ 20

Ga. Code §33-64-11(a)(7) ........................................... 21

Kan. Stat. §40-3830(a)............................................... 20

La. Stat. §22:1860.3(A) .............................................. 21

Mont. Code Ann. §33-22-172(2)(c)............................. 20

Nev. Rev. Stat. §683A.178(1) .................................... 21

36 Okla. Stat. §6959 .................................................. 19

iii

36 Okla. Stat. §6961(A)-(B) ....................................... 19

36 Okla. Stat. §6962(B)(4)-(5) ................................... 19

36 Okla. Stat. §6963(E) ............................................. 19

Other Authorities

ACMP, Prior Authorization (July 18, 2019),

bit.ly/3Kvqfeu ........................................................10

Alex Azar, How Team Trump Is Bringing Drug

Prices Down, New York Post (Feb. 7, 2019),

bit.ly/3RjiXya ...........................................................6

Arielle Bosworth et al., Changes In The List Prices

Of Prescription Drugs, 2017-2023, HHS (Oct. 6,

2023), bit.ly/3VzzVd9 ............................................12

Brief for 45 States as Amici Curiae in Support of

Petitioner, Rutledge v. Pharm. Care Mgmt. Ass’n,

No. 18-540 (U.S. Mar. 2, 2020) ............. 18, 19, 20, 21

Rep. Buddy Carter, Pulling Back The Curtain On

PBMs: A Path Towards Affordable Prescription

Drugs (June 13, 2023), bit.ly/3X9Gx4c .................14

Alex Chan, MPH, MS & Kevin Schulman, MD,

Examining Pharmaceutical Benefits In The

United States—A Framework, JAMA Health

Forum (Mar. 13, 2020), bit.ly/4cc8e0o ..............8, 18

Compl., Ohio v. Ascent Health Servs. LLC, Dkt.

1-3, No. 2:23-cv-01450 (S.D. Ohio) ..........................9

CVS, Why PBMs? Lower Drug Costs, Better Health

Outcomes (Nov. 28, 2023), bit.ly/4bQ64Uy .............2

Matan C. Dabora, MD, MBA, et al., Financing And

Distribution Of Pharmaceuticals In The United

States, JAMA (July 4, 2017) .................................15

Adam J. Fein, PhD, Mapping the Vertical

Integration of Insurers, PBMs, Specialty

Pharmacies, and Providers: A May 2023

Update, Drug Channels (May 10, 2023),

bit.ly/3X7Jqm6 ........................................................7

Adam J. Fein, Ph.D., The Top Pharmacy Benefit

Managers Of 2022: Market Share And Trends

For The Biggest Companies, Drug Channels

(May 23, 2023), bit.ly/4c5AgeF .......................15, 16

Joseph L. Fink III, JD, DSC (Hon.), BSPHARM,

FAPhA & Josephine M. Gresko, PharmD

candidate, Pharmacy Closures Spark Need For

PBM Reform, Pharmacy Times (May 24, 2024),

bit.ly/3VvsAfK .................................................14, 16

Paulina Firozi, The Health 202: Here’s Why Rural

Independent Pharmacies Are Closing Their

Doors, The Washington Post (Aug. 23, 2018),

bit.ly/3VceFK9 .......................................................18

Michael Gabay, RxLegal: Pharmacist Gag

Clauses, Hospital Pharmacy (Sept. 22, 2018),

bit.ly/4ch1zSV ........................................................15

Arthur Gale, MD, If Pharmacy Benefit Managers

Raise Drug Prices, Then Why Are They Needed?,

Missouri Medicine (2023),

bit.ly/4ecEzWG .................................... 11, 12, 13, 16

Sen. Chuck Grassley, The Pharmacy Benefit

Manager

Transparency

Act

2022,

bit.ly/3x7IbIW ........................................................14

Healthcare Value Hub, Pharmacy Benefit

Managers: Can They Return To Their ClientCentered Origins? (Jan. 2018), bit.ly/4caku1t ......14

Zoe Kemp, Health Insurance 101: What Is A

PBM?, Sana (Sept. 15, 2022), bit.ly/4aSlHcW........7

Ashley Kirzinger et al., Public Opinion On

Prescription Drugs And Their Prices, KFF

(Aug. 21, 2023), bit.ly/4bcJiVX ...........................4, 5

Nisha Kurani et al., How Do Prescription Drug

Costs In The United States Compare To Other

Countries?, Health System Tracker (Feb. 8,

2022), bit.ly/4bP7m27 .........................................4, 5

Robert Langreth et al., The Secret Drug Pricing

System Middlemen Use To Rake In Millions,

Bloomberg (Sept. 11, 2018), bit.ly/4bQ9lmQ ........13

T. Joseph Mattingly II, PharmD, MBA, Ph.D., et

al., Pharmacy Benefit Managers History,

Business Practices, Economics, And Policy,

JAMA Health Forum (Nov. 3, 2023),

bit.ly/4aNrj88 ................................................7, 9, 16

Susan Morse, PBMs Are Driving Up Drug Prices

Through Fees, PhRMA Report Claims,

Healthcare

Finance

(Sept.

18,

2023),

bit.ly/3xccgXP ......................................................5, 6

Sonal Parasrampuria & Stephen Murphy, Trends

In Prescription Drug Spending, 2016-2021,

HHS Office of Science & Data Policy (Sept. 30,

2022), bit.ly/3RhII20 .......................................11, 12

Nicole Rapfogel, 5 Things To Know About

Pharmacy Benefit Managers, Center for

American

Progress

(Mar.

13,

2024),

bit.ly/3RgODEm ............................ 6, 7, 8, 10, 12, 13

Report, HHS OIG (Mar. 16, 2023), bit.ly/3RdUCtK

................................................................................13

Matthew B. Roberts & Benjamin BosmansVerdonk, Pharmacy Benefit Managers: The

Market Demands Transparency And Perhaps A

Whole Lot More, Maynard Nexsen (June 16,

2023), bit.ly/3RoR0F9............................................11

RxSafe, Components That Determine Pharmacy

Reimbursement In 2020 (Sept. 22, 2020),

bit.ly/4bTwmFu .....................................................13

Abiodun Salako, MPH, et al., Update:

Independently Owned Pharmacy Closures In

Rural America, 2003-2018, RUPRI Center for

Rural Health Policy Analysis (July 2018),

bit.ly/3VxDWzT ...............................................17, 18

Kevin A. Schulman, MD & Barak D. Richman, JD,

Ph.D., The Evolving Pharmaceutical Benefits

Market, JAMA (June 12, 2018), bit.ly/45hnGX6 ....6

Skyrocketing Growth In PBM Formulary

Exclusions Continues To Raise Concerns About

Patient

Access,

Xcenda

(May

2022),

bit.ly/4eovgTU .......................................................10

Testimony of Prof. Robin Feldman, Hearing On

Pharmacy Benefit Managers And The

Prescription Drug Supply Chain: Impact On

Patients And Taxpayers, U.S. Senate

Committee on Finance (Mar. 30, 2022),

bit.ly/3RfmRIk .........................................................8

Testimony of Lori M. Reilly, Esq., The Role Of

Pharmacy Benefit Managers In Prescription

Drug Markets Part II: Not What The Doctor

Ordered, House Committee on Oversight and

Accountability (Sept. 19, 2023), bit.ly/3VhZuz0...16

vii

Paige Twenter, Top PBMs By 2022 Market Share,

Becker’s Hospital Review (May 23, 2023),

bit.ly/3RiAIxB ........................................................15

U.S. GAO, Selected States’ Regulation Of

Pharmacy Benefit Managers (Mar. 2024),

bit.ly/3Rh6VFs.......................................................18

U.S. House Committee on Oversight and Reform,

A View From Congress: Role Of Pharmacy

Benefit Mangers In Pharmaceutical Markets

(Dec. 10, 2021), bit.ly/4eb7x9z ..............................13

Megan Van Etten, It’s PBMs, Not Patents,

Blocking Competition, PhRMA (Sept. 14, 2023),

bit.ly/45etdxm ........................................................10

Dan Wagener, MA, What’s The Difference Between

A Brand-Name Drug And A Generic Name

Drug?, GoodRx Health. (Dec. 23, 2021),

bit.ly/3RjsmWy ......................................................10

INTEREST OF AMICUS CURIAE 1

PatientRightsAdvocate.org, Inc. (PRA) is a

501(c)(3) nonprofit, non-partisan organization that

provides a voice for consumers—patients, employees,

employers, and taxpayers—to have competition,

transparency, and meaningful choices in healthcare.

PRA advocates for patients to have easy, real-time

access to complete health information and real price

transparency. PRA further aims to support patients

and employers in ensuring that health plan assets are

spent prudently, transparently, and in the best

interests of health plan participants.

PRA believes, and research has shown, that

transparency and accountability will usher in price,

quality, and outcome differentiation and allow for

competition and innovation. Empowered with such

information, patients and employers will shop for the

best quality of care at the lowest possible price.

Consumers will then be in control through choice to

reduce their costs of care and coverage, and eliminate

the large disparities charged to different patients for

the same care. With price certainty, patients can

protect their health and wealth for themselves, their

families, and the generations to come.

Under this Court’s Rule 37.6, counsel for amicus curiae

certifies that this brief was not authored in whole or in part by

counsel for any party and that no person or entity other than

amicus or its counsel has made a monetary contribution to the

preparation or submission of this brief. Pursuant to Rule 37.2,

counsel of record received notice of amicus’ intent to file this brief.

PRA embraces free market principles. PRA

believes that price transparency will foster a

competitive, functional marketplace and restore trust

and accountability to the healthcare system. PRA’s

website, PatientRightsAdvocate.org, shines a light on

both the problem and the free-market solution, and

features patients and innovative employers who are

already saving substantially by using price

transparent providers.

PRA has participated as amicus curiae in several

prior cases to promote price transparency and ensure

that health plan assets are being spent prudently and

in the best interests of patients. See Mass. Laborers’

Health & Welfare Fund v. Blue Cross Blue Shield of

Mass., 66 F.4th 307 (1st Cir. 2023); Am. Hosp. Ass’n v.

Azar, 983 F.3d 528 (D.C. Cir. 2020); Am. Hosp. Ass’n

v. Azar, 468 F. Supp. 3d 372 (D.D.C. 2020); Su v.

BCBSM, Inc., No. 24-cv-99 (D. Minn.).

SUMMARY OF THE ARGUMENT

For years PBMs have claimed that they support

patients by providing health plans with a vast

network of pharmacies that sell a wide array of drugs

that are discounted through PBM-negotiated rebates.

See, e.g., CVS, Why PBMs? Lower Drug Costs, Better

Health Outcomes (Nov. 28, 2023), bit.ly/4bQ64Uy.

That is the theory of how PBMs work, but the State of

Oklahoma began to realize that the facts were quite

different. PBMs were driving up drug prices, limiting

drug selection, and steering patients away from retail

pharmacies to mail-order pharmacies that maximized

PBM profit.

Oklahoma passed the Patient’s Right to Pharmacy

Choice Act to address these issues. The Act required

PBMs to expand their pharmacy networks to include

willing and able pharmacies and to give covered

patients access to a minimum percentage of local,

brick-and-mortar pharmacies. The Act also prohibited

PBMs from penalizing covered patients for choosing

one pharmacy over another. These new rules

promoted patient choice and expanded pharmacy

competition.

The PBMs, knowing that increased patient access

and choice would hurt their bottom-line, sued to stop

Oklahoma’s law through their trade association,

PCMA. In an ironic twist, PCMA asserted preemption

under ERISA and Medicare Part D—laws designed to

help patients—to ensure that its PBMs could continue

to profit at the expense of patients. Yet PBMs typically

take the view that they are not fiduciaries under

ERISA. In other words, PCMA wants to have its cake

and eat it too—no state regulation because it is

preempted by ERISA, and no federal regulation

because ERISA regulates only plans. Despite the

Court’s clear rebuke of this litigation strategy in

Rutledge v. Pharm. Care Mgmt. Ass’n, 592 U.S. 80

(2020), the Tenth Circuit sided with PCMA and

invalidated four provisions of Oklahoma’s law.

The Tenth Circuit’s decision is a green light for

PBMs to continue their abuses without fear of legal

oversight in Oklahoma and beyond. The threat that

this decision poses to patients underscores the

importance of granting certiorari here. This Court

should declare that laws like Oklahoma’s are not

preempted so that states remain free to curb PBM

abuses. While PBMs were once minor players in the

pharmaceutical market, they have now become the

gatekeepers of access to life-saving drugs, and PBMs

have sought profit and monopolistic power at the

expense of patient access and choice. States like

Oklahoma thus have good reason to regulate PBMs to

“[de]crease costs or alter incentives for ERISA plans

without forcing plans to adopt any particular scheme

of substantive coverage,” and States should not be

preempted when they do so. Id. at 88. This important

federal question at the heart of the circuit split below

warrants this Court’s review.

ARGUMENT

The high price of drugs is a serious problem

that requires innovative public policy

solutions.

The status quo of sky-high pharmaceutical prices

in the United States is unacceptable. “More than three

in four adults in the United States think the costs of

prescription drugs are unaffordable and nearly one in

three adults say they haven’t taken their medications

as prescribed due to costs.” Nisha Kurani et al., How

Do Prescription Drug Costs In The United States

Compare To Other Countries?, Health System Tracker

(Feb. 8, 2022), bit.ly/4bP7m27. “Individuals with

annual household income of less than $40,000 are also

more likely than adults with higher incomes to report

difficulty affording their prescription medications.”

Ashley Kirzinger et al., Public Opinion On

Prescription Drugs And Their Prices, KFF (Aug. 21,

2023), bit.ly/4bcJiVX. A staggering 40% of those

patients say it is hard to afford the cost of their

prescription medicine, compared to only 11% of

patients making $90,000 or more. Id.

And this is a uniquely American problem. Simply

put, drugs are more expensive in America. “In 2019 …

the U.S. spent $1,126 per capita on prescribed

medicines, while comparable countries spent $552 on

average.” Kurani, supra. “In the U.S., per capita

insurer payments and out-of-pocket spending on

prescribed medicines ($963 and $164, respectively in

2019) are both higher than in any other comparable

country.” Id. Moreover, “[t]he prices of many brandname prescription drugs used to treat conditions

including diabetes, cystic fibrosis, and cardiovascular

disease are more expensive in the U.S. than in” other

similar countries, such as “Germany, the Netherlands,

Switzerland or the U.K.” Id. “For instance, the price of

Humira in the U.S. is 423% more expensive that the

price in the U.K. and 186% more than that in

Germany.” Id.

There are many reasons for this disparity.

“Countries’ prescription drug policies can vary based

on a number of factors, including the regulation or

benchmarking of prescription drug prices, the

numbers of and types of payers, the role of

pharmaceutical benefit managers, patent protections

of drugs, and the availability and prices of generic or

biosimilar alternatives.” Id. But there is now little

doubt that PBMs play a significant role in the high

price of drugs in the United States. See, e.g., Susan

Morse, PBMs Are Driving Up Drug Prices Through

Fees, PhRMA Report Claims, Healthcare Finance

(Sept. 18, 2023), bit.ly/3xccgXP. “[T]he dirty secret of

drug pricing” in America is that “[t]here is a shadowy

third player in the transaction between patients and

their pharmacists”—PBMs that profit from driving up

drug prices. Alex Azar, How Team Trump Is Bringing

Drug Prices Down, New York Post (Feb. 7, 2019),

bit.ly/3RjiXya.

II.

PBMs now play a central role in providing

patients with pharmaceuticals.

PBMs were “a once obscure segment of the health

care financing landscape.” Kevin A. Schulman, MD &

Barak D. Richman, JD, Ph.D., The Evolving

Pharmaceutical Benefits Market, JAMA (June 12,

2018), bit.ly/45hnGX6. Their role was minor because

the prescription drug market was relatively small and

“prescription drug coverage was … administered

separately from medical and hospital benefits of

health insurance.” Id. In 1960, “the outpatient

prescription drug market was only $2.7 billion, and

96% of the retail US prescription drug market was

financed out of pocket by individuals.” Id. But that

changed as “medications became more effective and

expensive” and “employers began to offer prescription

drug coverage, often administered by PBMs.” Id. In

1990, the prescription drug market increased to $38

billion, with only 57% financed out of pocket. Id. By

2017, the market increased to $360 billion, with only

13% financed out of pocket. Id.

PBMs now play a central role in the healthcare

market by serving as middlemen between health

plans, pharmaceutical manufacturers, insurers, and

pharmacies. See, e.g., Nicole Rapfogel, 5 Things To

Know About Pharmacy Benefit Managers, Center for

American Progress (Mar. 13, 2024), bit.ly/3RgODEm.

And PBMs are closely affiliated with health insurers,

as all the major PBMs are owned by a company that

also owns one of the major insurers. See Adam J. Fein,

PhD, Mapping the Vertical Integration of Insurers,

PBMs, Specialty Pharmacies, and Providers: A May

2023 Update, Drug Channels (May 10, 2023),

bit.ly/3X7Jqm6

PBMs amass a network of pharmacies and offer

this network to manufacturers in exchange for rebates

to insurers to reduce the cost of the manufacturer’s

drugs. See, e.g., T. Joseph Mattingly II, PharmD,

MBA, Ph.D., et al., Pharmacy Benefit Managers

History, Business Practices, Economics, And Policy,

JAMA Health Forum (Nov. 3, 2023), bit.ly/4aNrj88.

PBMs then develop drug formularies (lists of covered

prescription drugs developed and maintained within

the PBM network) that they offer to health plans. See

id. And PBMs reduce red tape for plans by processing

insurance claims from drug sales to covered patients.

See Zoe Kemp, Health Insurance 101: What Is A PBM?,

Sana (Sept. 15, 2022), bit.ly/4aSlHcW. In theory, then,

PBMs lower the price of drugs through rebates,

expand access to drugs through their formularies, and

reduce costs for plans by managing reimbursements.

That’s the theory. But this enormously complicated

system comes with a catch. PBMs make their money

by siphoning off a portion of the rebates that they

negotiate with drug makers and by taking a cut of the

insurance reimbursements that are paid out to

pharmacies for drug purchases. See Rapfogel, supra.

In practice this creates perverse incentives that harm

patients.

III. PBMs increase the cost of drugs by taking a

percentage of manufacturer rebates.

First, PBMs “[c]aptur[e] some of the savings from

the rebates they negotiate” with manufacturers and

“retain a portion of the rebates for their own profit

instead of passing the full value of the rebates on to

the insurer.” Rapfogel, supra. Knowing this,

manufacturers are incentivized to artificially inflate

the list price of a drug, so that the negotiated “rebate”

creates the illusion of a discounted price (a common

sales tactic in other markets). See, e.g., Testimony of

Prof. Robin Feldman, Hearing On Pharmacy Benefit

Managers And The Prescription Drug Supply Chain:

Impact On Patients And Taxpayers, U.S. Senate

Committee

Finance

(Mar.

30,

2022),

bit.ly/3RfmRIk. Meanwhile, patients with highdeductible plans are forced to pay the full inflated list

price toward their deductible. See id. And PBMs are

incentivized to ignore this tactic, because the higher

the list price, the higher the rebate, and the more

profit the PBM makes. See, e.g., Alex Chan, MPH, MS

& Kevin Schulman, MD, Examining Pharmaceutical

Benefits In The United States—A Framework, JAMA

Health Forum (Mar. 13, 2020), bit.ly/4cc8e0o. PBM

profit growth is thus driven mainly by “the growth of

rebate dollars” and not by “[plan] fees.” Id.

This problem of divided loyalties has at times led

to outright collusion among PBMs to negotiate with

drug makers in way that increases prices to maximize

rebates. According to the Ohio Attorney General, in

2019, “Express Scripts formed Ascent, a group

purchasing organization … [to] allo[w] Express

Scripts to coordinate pricing and other activities with

its competitors.” Compl. ¶6, Ohio v. Ascent Health

Servs. LLC, Dkt. 1-3, No. 2:23-cv-01450 (S.D. Ohio).

Express Scripts then “invited its putative competitor,

Prime Therapeutics LLC … into Ascent’s ownership,”

which enabled the companies to “share drug pricing

and rebate information … [and] to fix rebate prices

among them.” Id. ¶7. “Ascent, Express Scripts, and

Prime” then “negotiate[d] with manufacturers with

the intent of increasing the price of pharmaceuticals,

including insulins, biologics, and cancer-fighting

drugs.” Id. (emphasis added).

Coordination between PBMs and manufacturers is

not always this overt. Drug manufacturers already

know that PBMs “prefer products with high list prices

for which it can negotiate high rebates, rather than

comparable drugs with lower list prices and smaller

rebates.” Mattingly, supra. “These pricing incentives

have led multiple manufacturers, such as Amgen and

Viatris, to launch the same drug products at different

list prices—a low-price product with no rebate and a

higher-price version with rebates—to appeal to

different purchasers.” Id. “Although it seems

counterintuitive that any purchaser would prefer a

higher price, both companies expect the high-listprice/high-rebate option to be more attractive to PBMs

that retain some of the rebates.” Id.

That PBMs profit from rebates also creates “an

incentive to further maximize profits by steering

patients to higher-priced drugs with higher rebates.”

Rapfogel, supra. “This is done by placing drugs at

more favorable formulary positions (on a tier with

lower cost-sharing levels), which encourages

beneficiaries to opt for those drug products.” Id. Even

though patients that purchase brand-name drugs

could obtain generic equivalents that cost 80% to 85%

less, see Dan Wagener, MA, What’s The Difference

Between A Brand-Name Drug And A Generic Name

Drug?,

GoodRx

Health.

(Dec.

23,

2021),

bit.ly/3RjsmWy, those generics and biosimilars are

often excluded from prescription drug plans because of

PBM formularies, see Megan Van Etten, It’s PBMs,

Not Patents, Blocking Competition, PhRMA (Sept. 14,

2023), bit.ly/45etdxm.

PBM manipulation of formularies to exclude lowprice alternatives has ratcheted up in recent years. “In

2022, 1,156 unique prescription medicines were

excluded from the standard formularies of at least 1 of

the 3 PBMs, a 961% increase from 2014, when 109

medicines were excluded.” Skyrocketing Growth In

PBM Formulary Exclusions Continues To Raise

Concerns About Patient Access, Xcenda (May 2022),

bit.ly/4eovgTU. And these exclusions have not only led

to higher prices but have also impacted the “quality of

care” by leaving patients with limited drug options “to

treat complex conditions such as cancer, HIV, and

autoimmune disorders, for which variation in patient

response to treatment is well documented.” Id. This

could mean life or death for some patients. If a PBM

uses a “closed formulary,” prescribers and patients of

a drug that is not included in the formulary must

request “prior authorization” from the PBM. ACMP,

Prior Authorization (July 18, 2019), bit.ly/3Kvqfeu.

“This causes lengthy delays for approval of

prescriptions,” and “[p]atients suffer, and even die,

while they wait for ‘authorization.’” Arthur Gale, MD,

If Pharmacy Benefit Managers Raise Drug Prices,

Then Why Are They Needed?, Missouri Medicine

(2023), bit.ly/4ecEzWG.

Insurers and plan sponsors have struggled to stop

collusive rebates and manipulated formularies

because PBMs contend that they have no legal

obligation to disclose the details of these practices.

PBMs claim that they don’t have to tell insurers “how

[they] determin[e] formulary placements, why some

drugs in the formulary are more costly than others,

[or] what proportion of the rebates and negotiated

drug payments [they] keep.” Rapfogel, supra. To

address this problem, States have begun to “pas[s]

laws that require PBMs to disclose pricing and cost

information such as data on rebates, payments, and

fees collected from manufacturers, insurers, and

pharmacies.” Matthew B. Roberts & Benjamin

Bosmans-Verdonk, Pharmacy Benefit Managers: The

Market Demands Transparency And Perhaps A Whole

Lot More, Maynard Nexsen (June 16, 2023),

bit.ly/3RoR0F9.

PBMs’ convoluted rebate system has thus done

little, if anything, to control the skyrocketing price of

drugs. “Total inflation-adjusted expenditures on

prescription drugs grew from $520 billion in 2016 to

$603 billion in 2021, a 16 percent increase,” with

“[d]rug spending … heavily driven by a relatively

small number of high-cost products.” Sonal

Parasrampuria & Stephen Murphy, Trends In

Prescription Drug Spending, 2016-2021, HHS Office of

Science & Data Policy (Sept. 30, 2022), bit.ly/3RhII20.

And drug prices continue to rise year-by-year at a

staggering rate. Between 2017 and 2023, each year

thousands of drugs have increased in price, with many

or most of those prices rising beyond the rate of

inflation. See Arielle Bosworth et al., Changes In The

List Prices Of Prescription Drugs, 2017-2023, HHS

(Oct. 6, 2023), bit.ly/3VzzVd9. Between January 2022

and January 2023, “more than 4,200 drug products

had price increases, of which 46 percent were larger

than the rate of inflation,” resulting in an average

price increase of 15.2% or $590. Id. That drug prices

continue to rise even as PBMs expand has led to the

“growing belief … that PBMs increase drug costs,”

despite their boasts of lowering costs through rebates.

Gale, supra.

IV. PBMs increase the cost of drugs and cause

retail pharmacy closures by taking a cut of

insurance reimbursements.

PBMs also make money by engaging in “[s]pread

pricing”—the practice of taking a portion of insurance

reimbursements for covered drug purchases. When a

patient purchases a drug from a pharmacy in the

plan’s PBM network, the insurer does not reimburse

the pharmacy directly. Instead, it reimburses the PBM

with “a higher payment” than the cost of the drug to

the pharmacy. Rapfogel, supra. The PBM then

reimburses the pharmacy for a reduced amount and

pockets the difference. Id. Of course, this encourages

PBMs to try pay pharmacies as little as possible in

reimbursements. “[T]he profit margin on prescription

drug sales is [already] slim, and it continues to narrow

due to low reimbursement rates.” RxSafe, Components

That Determine Pharmacy Reimbursement In 2020

(Sept. 22, 2020), bit.ly/4bTwmFu. Spread pricing also

directly harms patients because the added spread

payments made by insurers to PBMs are “passed on to

patients as higher premiums and cost sharing.”

Rapfogel, supra.

The exact size of the PBM “spread” is often kept

secret and hard to determine, but researchers and

governments are slowly discovering that it is

substantial. For example, a recent audit by the HHS

Office of Inspector General of contracts between the

DC government’s managed care organizations and

PBMs over a three-year period from 2016 to 2019

found that “PBMs kept $23.3 million in spread pricing

during [the] audit period.” Report, HHS OIG (Mar. 16,

2023), bit.ly/3RdUCtK. “Using spread pricing, PBMs

… overcharged state Medicaid programs in Ohio,

Kentucky, Illinois, and Arkansas more than $415

million.” Gale, supra; see U.S. House Committee on

Oversight and Reform, A View From Congress: Role Of

Pharmacy Benefit Mangers In Pharmaceutical

Markets at 4 (Dec. 10, 2021), bit.ly/4eb7x9z.

In one notorious case, a PBM billed an Iowa county

$198.22 for a drug but reimbursed the dispensing

pharmacy for just $5.73—a spread of more than 3,400

percent. See Robert Langreth et al., The Secret Drug

Pricing System Middlemen Use To Rake In Millions,

Bloomberg (Sept. 11, 2018), bit.ly/4bQ9lmQ. “Audits

and industry analysts have found some PBMs

pocketing 50 percent or more of the price difference

between what the PBM actually pays a pharmacy for

prescriptions and what they charge … the

employer/consumer.”

Healthcare

Value

Hub,

Pharmacy Benefit Managers: Can They Return To

Their

Client-Centered

Origins?

(Jan.

2018),

bit.ly/4caku1t.

Sometimes this spread is so large that the PBM

ends up reimbursing the pharmacy for less than the

pharmacy’s total costs in providing the drug. See, e.g.,

Sen. Chuck Grassley, The Pharmacy Benefit Manager

Transparency Act Of 2022, bit.ly/3x7IbIW. These “low

reimbursement rates continue to be a driving force for

pharmacy closures.” Joseph L. Fink III, JD, DSC

(Hon.), BSPHARM, FAPhA & Josephine M. Gresko,

PharmD candidate, Pharmacy Closures Spark Need

For PBM Reform, Pharmacy Times (May 24, 2024),

bit.ly/3VvsAfK. “[B]etween 2009 and 2015, 1 in 8

pharmacies operating had closed, disproportionately

affecting independent pharmacies and low-income

communities.” Id. But even when pharmacies are

losing money from low PBM reimbursements, they

have “little choice but to agree to these contracts,

otherwise the PBM will not include them as an innetwork pharmacy,” which would also “likely pu[t] the

pharmacy out of business.” Rep. Buddy Carter,

Pulling Back The Curtain On PBMs: A Path Towards

Affordable Prescription Drugs (June 13, 2023),

bit.ly/3X9Gx4c.

Making matters worse, PBMs have even tried to

force pharmacies in their network to sign “gag clauses”

that “prohibit pharmacists from voluntarily informing

patients that their prescription medication may cost

less if paid for directly by them instead of through

their

insurance.”

Michael

Gabay,

RxLegal:

Pharmacist Gag Clauses, Hospital Pharmacy

(Sept. 22, 2018), bit.ly/4ch1zSV. “By concealing the

least expensive way to purchase a medication, … gag

clauses reduce transparency and medication

affordability for patients and appear to be

counterintuitive to one of the major activities of a

PBM—negotiation of drug pricing.” Id. The discovery

of this self-serving tactic led to an uproar and

eventually a bipartisan federal ban on the practice.

See 42 U.S.C. §300gg-19b.

In theory a competitive PBM market would curb

these abuses, because plans and pharmacies could

“shop around” for a PBM that negotiated better

rebates and had lower spread pricing. But the market

is not competitive. “By 2015, industry consolidation

had resulted in 3 PBMs—CVS Caremark, Express

Scripts, and UnitedHealth’s Optum—controlling a

73% share of the PBM market.” Matan C. Dabora, MD,

MBA, et al., Financing And Distribution Of

Pharmaceuticals In The United States, JAMA (July 4,

2017). In 2022, “[s]ix PBMs accounted for 96 percent

of the market share, and the top three made up 79

percent.” Paige Twenter, Top PBMs By 2022 Market

Share, Becker’s Hospital Review (May 23, 2023),

bit.ly/3RiAIxB.

And PBMs are not just consolidating with each

other. They have vertically integrated with insurance

companies that pay their enormous “spread.” “Five of

the six largest PBMs are now jointly owned by

organizations that also own a health insurer.” Adam

J. Fein, Ph.D., The Top Pharmacy Benefit Managers

Of 2022: Market Share And Trends For The Biggest

Companies, Drug Channels (May 23, 2023),

bit.ly/4c5AgeF.

PBMs have also purchased their own pharmacies

to reduce costs and increase the size of their “spread.”

See, e.g., Mattingly, supra. PBMs “require patients to

use a PBM-owned retail, mail order, or specialty

pharmacy or disincentivize the use of non-affiliated

pharmacies by requiring patients to pay higher cost

sharing.” Testimony of Lori M. Reilly, Esq., The Role

Of Pharmacy Benefit Managers In Prescription Drug

Markets Part II: Not What The Doctor Ordered, House

Committee on Oversight and Accountability (Sept. 19,

2023), bit.ly/3VhZuz0. “By steering patients towards

their affiliated specialty and mail order pharmacies,

PBMs capture greater margins on each transaction

and reduce dispensing fees and other costs associated

with patients filling prescriptions at non-affiliated

pharmacies.” Id. “Vertically integrated pharmacies

now account for more than half of PBM profits.” Id.

Thus, integration between PBMs and pharmacies

creates an obvious “conflict[t] of interest,” as the PBMs

prefer that patients use their own pharmacies rather

than the pharmacies that best serve the patient. Gale,

supra.

The combined use of “spread pricing,” which

tightens the margin of in-network pharmacies, with

steering incentives that push patients away from

independent, local, or brick-and-mortar pharmacies to

mail-order or other PBM-preferred options—has led to

pharmacy closures and thus more consolidation. See,

e.g., Fink, supra. This trend has disproportionately

impacted rural communities because those areas are

more likely to use independent pharmacies (those not

affiliated with a chain or franchise) as “the sole source

of pharmaceutical services,” and independent

pharmacies are the most likely to close from PBM

pressure. Abiodun Salako, MPH, et al., Update:

Independently Owned Pharmacy Closures In Rural

America, 2003-2018, RUPRI Center for Rural Health

Policy Analysis (July 18), bit.ly/3VxDWzT.

Independent

pharmacies

are

“especially

susceptible to closure” because more than other

pharmacies they receive “low reimbursements

stemming from a limited negotiating power and a

greater reliance on drug sales as a primary source of

revenue.” Id. Between 2003 and 2018, “1,231

independently owned rural pharmacies (16.1 percent)”

closed, and “630 rural communities that had at least

one retail (independent, chain, or franchise) pharmacy

in March 2003 had no retail pharmacy in March 2018.”

Id.

“Closure of pharmacies in rural communities can

have grave implications for the population’s access to

health services, requiring them to travel to another

community for pharmacy services or to rely on mail

order services that cannot provide clinical services.”

Id. This is devastating for rural communities, because

“rural pharmacies play an important role in

alleviating … poor access to health services” by “not

only provid[ing] access to medications but also

deliver[ing] clinical services such as medication

counseling, blood pressure and glucose monitoring,

immunizations, patient consultation, treatment of

mild illnesses amenable to over-the-counter

medications, and other counselling and educational

services (including chronic disease and medication

therapy management).” Id. Thus, in rural areas, the

closure of a retail pharmacy means that “‘the people

living there … no longer have health care in a

convenient manner.’” Paulina Firozi, The Health 202:

Here’s Why Rural Independent Pharmacies Are

Closing Their Doors, The Washington Post (Aug. 23,

2018), bit.ly/3VceFK9.

The modern PBM business model has thus raised

a “lingering question” for policymakers: is there any

“underlying value of PBMs for payers and for

patients”? Chan & Schulman, supra.

Oklahoma and other States have passed

laws to address PBM abuses, but those laws

are now endangered by the ruling below.

In view of these well-documented harms, every

State has enacted laws regulating PBMs. See Pet.34.

Those laws include regulations of pharmacy networks

(like Oklahoma’s here), of reimbursement rates, rules

for price transparency, and laws against self-dealing.

See, e.g., Brief for 45 States as Amici Curiae in

Support of Petitioner, Rutledge v. Pharm. Care Mgmt.

Ass’n, No. 18-540 (U.S. Mar. 2, 2020); U.S. GAO,

Selected States’ Regulation Of Pharmacy Benefit

Managers (Mar. 2024), bit.ly/3Rh6VFs. But most of

these laws are now in danger of ERISA or Medicare

Part D preemption if the Tenth Circuit’s decision and

the circuit split below is allowed to stand.

As explained in the petition (at 11), Oklahoma’s

Patient’s Right to Pharmacy Choice Act establishes

several important regulations of PBMs. It requires,

among other things, that PBMs maintain in their

pharmacy network a certain percentage of local retail

pharmacies in urban, suburban, and rural areas; to

open their networks to any pharmacy that wishes to

join that can satisfy the network terms and conditions;

to not terminate a contract with any pharmacy based

on the pharmacy’s probation status; and to not steer

patients by penalizing them for using disfavored

pharmacies. See 36 Okla. Stat. §§6961(A)-(B),

6962(B)(4)-(5), 6963(E). Oklahoma established these

and other reasonable standards to guarantee patients

“minimum and uniform access to a provider” and the

“right to choose a pharmacy provider.” Id. §6959.

The Tenth Circuit struck down these provisions as

preempted by ERISA for having a “‘connection with’”

an ERISA plan, Rutledge, 592 U.S. at 86, and

preempted under Medicare Part D for superseding

federal Medicare standards, see App.14-51—even

though Oklahoma’s law regulated PBMs, not plans,

and did not supersede any Medicare rule. If the Court

allows this decision to stand, it will not only harm

patients in Oklahoma but also jeopardize other

important state laws that address PBM abuses.

For example, many other States have passed laws

to protect patient access to pharmacies by regulating

spread pricing. Brief for 45 States, Rutledge, No. 18540 at 14-19 (citing statutes). Some of these laws

require PBMs to reimburse pharmacies for a drug at a

rate that is at least equal to the pharmacy’s cost in

acquiring that drug. See, e.g., Ark. Code §17-92507(c)(4)(A)(i)(b). And most States have a law that

provides pharmacies with some minimum procedural

protections—such as a right to challenge or appeal

PBM underpayments or a right to decline to dispense

a drug if the pharmacy would be reimbursed at a rate

below the acquisition cost. See, e.g., Colo. Rev. Stat.

§25-37-103.5(3). Many States also regulate PBM

“maximum allowable cost” (MAC) lists, which are

reimbursement caps that PBMs place on certain

covered drugs. Kansas, for example, prohibits PBMs

from placing a drug on a MAC list if alternative

generic drugs are not “generally available for purchase

by network pharmacies from national or regional

wholesalers.” Kan. Stat. §40-3830(a). Most States also

require PBMs to regularly update their MAC lists to

prevent inadvertent under-reimbursements. See, e.g.,

Fla. Stat. §641.314(2)(a). Some States require PBMs

to disclose their MAC lists to pharmacies. See, e.g.,

Mont. Code Ann. §33-22-172(2)(c).

State laws also address the lack of transparency

into PBM practices. Although gag clauses are now

prohibited by federal law, many States have enacted

laws aimed at increasing PBM transparency. See Brief

for 45 States, Rutledge, No. 18-540 at 19-20 (citing

statutes). For example, Colorado gives consumers a

“right to know about options to reduce the amount of

money they pay at a pharmacy for prescription drugs.”

Colo. Rev. Stat. §10-16-122.7(2)(a). California requires

PBMs to disclose, among other things, the rebates and

fees they receive from manufacturers, the contracts

they have with manufacturers to exclusively dispense

certain drugs, and the payments they make to

pharmacies. See Cal. Bus. & Prof. Code §4441(e).

States have also attempted to regulate conflicts of

interest and self-dealing. See Brief for 45 States,

Rutledge, No. 18-540 at 20-21 (citing statutes). For

example, some States prohibit PBMs from steering

patients to PBM-owned pharmacies or reimbursing

PBM-affiliated pharmacies for higher amounts than

independent pharmacies. See, e.g., Ga. Code §33-6411(a)(7); La. Stat. §22:1860.3(A). And other States

require PBMs to exercise good faith and fair dealing

in their contracts with plans or pharmacies. See, e.g.,

Nev. Rev. Stat. §683A.178(1).

These and other reasonable state laws are now

endangered by the Tenth Circuit’s overly expansive

application of ERISA and Medicare preemption. This

Court should thus grant certiorari to ensure that these

important state policy judgments are not jeopardized

by an erroneous and atextual interpretation of ERISA

and Medicare.

CONCLUSION

The Court should grant certiorari.

Respectfully submitted,