US Pharm. 2006;2:62-66.

Are escalating prescription drug prices anything like the weather--everybody talks about it but no one can do anything to change it? Are pharmacists as much to blame for soaring drug costs as weathermen are for the lousy weather? Can any one person, organization, or the government do anything really meaningful to change the economic policies that force some people to choose between buying food and purchasing their needed medications? And by the way, why are the prescription prices in the United States so high? The only part of this discussion that is clear is that no one answer will satisfy everyone. A recent case originating in Maine suggests that state governments may have found a way to control some of the runaway cost increases.1

If the facts of this case seem familiar, it is because many of the issues were the subject of an earlier column, albeit with the parties cast in different roles.2 The state of Maine has been at the forefront of government attempts to ensure that its uninsured but non–Medicaid-eligible citizens are treated fairly in making drug-purchasing decisions. In 2000, the Maine legislature passed a law, commonly referred to as the Maine Rx Program, that allows its qualified residents to buy prescription medications at the same rate that the state pays for its Medicaid-eligible individuals. The Pharmaceutical Research and Manufacturers of America (PhRMA) attempted to block implementation of the law. The district court initially issued an injunction to stop the plan on the grounds that it was unconstitutional; however, that ruling was reversed by the First Circuit Court of Appeals.3

This time around, the national trade association that represents pharmacy benefits managers (PBMs), the Pharmaceutical Care Management Association (PCMA), sued the state to try to block implementation of its Unfair Prescription Drug Practices Act (UPDPA). 4 After losing this battle in the federal trial court, PCMA appealed to the First Circuit Court of Appeals. The ruling issued by a unanimous three-judge panel affirmed dismissal of the appeal, thereby allowing Maine to pursue enforcement of the UPDPA. The opinion contains some very interesting and telling language about the role of PBMs in the drug delivery industry.

The court characterized PBMs as "major players in the delivery of health care in the United States " and described them as "middlemen in the lucrative business of providing prescription drugs." The court went on to state:

They serve as intermediaries between pharmaceutical manufacturers and pharmacies on the one hand (the "supply" side of the trade) and health benefit providers (e.g., insurers, self-insured entities, health maintenance organizations, and public and private health plans) on the other (the "demand" side). The services that PBMs extend are designed to facilitate the provision of prescription drug benefits to the people who utilize the services of the health benefit providers. For example, PBMs often provide health benefit providers with access to an established network of pharmacies, where customers of the health benefit providers can obtain drugs at certain set prices. PBMs negotiate volume discounts and rebates with drug manufacturers by pooling substantial numbers of health benefit providers. This pooling gives the PBMs tremendous market power to demand concessions from the manufacturers. PBMs also provide drug utilization review services and "therapeutic interchange programs" (in other words, substituting a drug for the one actually prescribed by a doctor).

The court then went into a detailed analysis of the problems that PBMs can cause in the absence of any regulation:

In this role as intermediary, however, PBMs have the opportunity to engage in activities that may benefit the drug manufacturers and PBMs financially to the detriment of the health benefit providers. For example, in cases of "therapeutic interchange," a PBM may substitute a more expensive brand name drug for an equally effective and cheaper generic drug. This is done so that the PBM can collect a fee from the manufacturer for helping to increase the manufacturer's market share within a certain drug category. Similarly, a PBM might receive a discount from a manufacturer on a particular drug but not pass any of it on to the health benefit provider, keeping the difference for itself. The health benefit provider, however, often has no idea that a PBM may not be working in its interest. This lack of awareness is the result of the fact that there is little transparency in a PBM's dealings with manufacturers and pharmacies.

The upshot of all this, as the trial court judge wisely observed, is: "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."5

To address the question of whether PBMs are actually helping the Maine health care benefit providers or are acting for their own profit, thereby creating a conflict of interest, the state passed the UPDPA in 2003. The goal of this legislation is to help control prescription drug prices and promote more access to prescription drugs. The UPDPA imposes a number of requirements on those PBMs that choose to enter into contracts in Maine with "covered entities," which means health benefit providers, including insurance companies, the state-run Medicaid program, and employer health plans.

Under this law, PBMs are required to act as fiduciaries for their clients and adhere to certain specific duties. For example, "they must disclose conflicts of interest, disgorge profits from self-dealing, and disclose to the covered entities certain of their financial arrangements with third parties."6 To secure the trade secrets of companies affected by this law, disclosures made by the PBMs to the covered entities are protected by confidentiality requirements. The law is specific in that none of the disclosures are to be made available to the public.

PCMA, on behalf of its member PBMs, sued Maine to prevent it from enforcing the UPDPA on several grounds. One of the primary arguments made by PCMA is that the Maine law was preempted by either the Employee Retirement Income Security Act of 1974 (ERISA) or the Federal Employee Health Benefits Act (FEHBA). The court determined that neither of these federal laws have any preemptive impact on the Maine law because that law operates completely independently of the federal program.

The other argument made by PCMA is perhaps the more interesting one. The association claimed that the UPDPA mandatory disclosure provision violates the First Amendment of the U.S. Constitution by compelling commercial speech in the context of a voluntary business relationship. Put in other words, PCMA argued that the law forces the PBMs to "speak," i.e., make disclosures, when it would not have to do so otherwise, as a condition of doing business in Maine . The Court of Appeals took note that the U.S. Supreme Court has recognized that compulsion to speak may be as violative of the First Amendment as prohibitions on speech.7 The court then acknowledged that a compelled disclosure does indeed implicate the First Amendment. However, the fact that the speech implicated here was commercial, as opposed to personal, means that the state has a smaller burden in order to justify these mandatory disclosures. The courts define "commercial speech" as "expression related solely to the economic interests of the speaker and its audience."

The court concluded that although it is a close question, the speech mandated by the UPDPA meets this definition. It reasoned that many of the UPDPA's provisions are overtly geared at the economic interests of the PBMs and the covered entities.8 The court also noted that the UPDPA provisions that are at face value less related to "economic interests," e.g., requiring PBMs to disclose conflicts of interest, are aimed at eliminating certain PBM practices that unnecessarily increase the cost of prescription medications. The court ruled:

The UPDPA disclosure provisions do not run afoul of the First Amendment. PCMA's member PBMs only have a minimal interest in withholding the information the UPDPA requires from them, especially given Maine's interest in ensuring that its citizens receive the best and most cost-effective health care possible. The information disclosed under the UPDPA will help the "covered entities" that are responsible for paying for medications in Maine ensure that they and their customers are not adversely affected by the abuses and self-dealing of certain PBMs. Furthermore, we think it obvious that the UPDPA's disclosure requirements are "reasonably related" to Maine 's interest in preventing deception of consumers and increasing public access to prescription drugs. These disclosure requirements are designed to create incentives within the market for the abandonment of certain practices that are likely to unnecessarily increase cost without providing any corresponding benefit to the individual whose prescription is being filled and that appear to be designed merely to improve a drug manufacturer's market share.

The Court of Appeals also dismissed the remainder of PCMA's other claims. Maine may now implement the UPDPA (unless it is enjoined from doing so if the case is heard by the Supreme Court). But this is hardly the end of the story.

While the drug companies and PBMs have now lost two cases in Maine , the battle for patients' dollars will move into other states. For example, the Universal Health Care Network, Ohio , has been making attempts to enact a Maine-style law since 2003.9 The group obtained the signatures of 100 Ohioans in an effort to get the measure on the ballot. The PhRMA lobbyists challenged every signature by calling each person into court to verify the validity of the signatures. The group withdrew the first petition and resubmitted another one with the signatures of lawyers, judges, and other high-profile people that the drug industry would likely be reluctant to challenge. That part worked, but when the group started collecting thousands of signatures, the industry began separate lawsuits in 41 of the state's 88 counties, again challenging the validity of signatories. They challenged signatures that weren't dated, weren't written entirely in cursive (as Ohio law requires), or looked similar to signatures above them. It has been estimated that the PhRMA companies spent $15 million on this one campaign. In the end, although the nonprofit group had enough signatures, they wound up at the bargaining table with industry representatives, which resulted in a drug-discount plan proposed by the industry, with discounts that would be offered voluntarily.

The fight then spread to West Virginia , Oregon , and Washington , where companies hired lobbyists, sent their own, and countered with smaller-scale plans. As in Ohio , the companies agreed to a voluntary and much smaller discount plan. That's what the industry tried to do in California . In January 2005, drug companies teamed up with the governor to propose CalRx, a plan like the one adopted in Ohio . The stakes are high in the state where 10% of the American population lives. Maine-style mandatory discounts could negatively impact the industry's bottom line if Proposition 79 is passed by the voters. The drug companies sued unsuccessfully to get the proposition off the ballot. But the effort to ensure unregulated prices did not stop. The drug industry put on the ballot what they had done successfully in other state legislatures: They proposed a smaller-scale competing plan: Proposition 78--essentially, the Ohio program. The industry raised $80 million in eight months--the most ever for any state initiative in the nation--and began launching television ads that told potential voters the union-supported initiative would limit their access to prescription drugs. Both measures were defeated. That leaves the uninsured and underinsured non–Medicaid-eligible residents without any program to gain access to discounted medications.

REFERENCES
1. Pharmaceutical Care Management Association v Rowe (Maine Attorney General), Slip Op No 05-1606 ( November 8, 2005), US Ct App (1st Cir), 2005 US App Lexis 24032.
2. Vivian JC. State prescription benefit programs. US Pharmacist 2001;26(7):46-55. Available at: www.uspharmacist.com/oldformat.asp?url=newlook/files/Phar/ACF234C.htm&pub_id=8&article_id=745.
3. PHRMA v. CONCANNON, Slip Op. No. 00-2446 (May 16, 2001US CT APP 1st Cir), 2001 U.S. App. LEXIS 9324.
4. Me. Rev. Stat. Ann. tit. 22, § 2699 (2005).
5. Pharm. Care Mgmt. Ass'n v. Rowe, No. 05-1606, 2005 U.S. Dist. LEXIS 2339, at *6 (D. Me. Feb. 2, 2005).
6. Me. Rev. Stat. Ann. tit. 22, §§ 2699(2)(A-G) (2005).
7. Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626, 105 S. Ct. 2265, 85 L. Ed. 2d 652, 17 Ohio B. 315 (1985); Wooley v. Maynard, 430 U.S. 705, 97 S. Ct. 1428, 51 L. Ed. 2d 752 (1977); Miami Herald Publ'g Co. v. Tornillo, 418 U.S. 241, 94 S. Ct. 2831, 41 L. Ed. 2d 730 (1974).
8. See, e.g., Me. Rev. Stat. Ann. tit. 22, § 2699(2)(F) (requiring PBMs to disclose and disgorge any payment or benefit based on volume of sales or classes or brands of prescription drugs).
9. Quach HK. The other drug war. The Orange County Register , November 27, 2005. Available at: www.ocregister.com/ocregister/news/abox/article_860358.php and The Detroit Free Press, December 2, 2005. Available at: www.freep.com/apps/pbcs.dll/article?AID=2005512020431&template=printart.

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