Tennessee’s PBM Law Signals a Broader Challenge to Healthcare Vertical Integration

For years, vertical integration was treated as the natural direction of the U.S. healthcare market.

Insurers acquired pharmacy benefit managers. PBMs acquired or affiliated with specialty, mail-order, and retail pharmacies. Health systems expanded into physician practices, outpatient facilities, pharmacies, technology platforms, and other services.

The business case was familiar: common ownership could reduce fragmentation, improve coordination, create efficiencies, and lower costs. That argument is now receiving much greater scrutiny.

Tennessee’s recently enacted Freedom, Access, and Integrity in Registered Pharmacy Act, commonly called the FAIR Rx Act, is one of the clearest examples. Rather than limiting itself to PBM transparency, reimbursement practices, or patient-steering rules, Tennessee is challenging whether pharmacy benefit managers and health insurers should be permitted to own or control pharmacies at all.

The larger message for healthcare companies is not that vertical integration is that integrated ownership structures can no longer be seen as inherently efficient or politically secure.

When a business model depends on directing prescriptions, referrals, reimbursement, data, or revenue toward affiliated entities, ownership itself can become a regulatory risk.

What Tennessee Changed

Governor Bill Lee signed the FAIR Rx Act on May 22, 2026. The law restricts certain common ownership and control relationships involving pharmacies, PBMs, and health insurance issuers. Subject to limited exceptions and transition provisions, affected organizations must separate prohibited ownership interests by July 1, 2028.

The law reaches pharmacies licensed in Tennessee as well as nonresident pharmacies dispensing or shipping prescriptions to Tennessee residents. This can include mail-order, specialty, central-fill, telepharmacy, and automated dispensing operations.

It also requires disclosures involving direct and indirect ownership, affiliates, contractors, and other arrangements that may provide a PBM with influence over pharmacy operations.

That makes Tennessee’s approach different from many traditional PBM laws.

Most PBM legislation regulates conduct. It may prohibit patient steering, require rebate disclosure, establish reimbursement standards, or impose reporting and fiduciary obligations.

Tennessee is taking a different approach. The law reflects a judgment that certain conflicts may be too embedded in the ownership model to be corrected through disclosure or contract regulation alone.

CVS Health and Cigna’s Express Scripts have challenged the law in federal court. They argue that the restrictions could interfere with pharmacy access and improperly target integrated companies. Tennessee lawmakers have defended the measure as a response to concerns about competition, drug costs, and the ability of PBMs to direct prescriptions toward affiliated pharmacies.

The litigation will determine how far Tennessee can go. The strategic significance of the law, however, is already clear.

State policymakers are becoming more willing to examine whether the structure of a healthcare company creates incentives that cannot be adequately controlled through ordinary compliance requirements.

Why Vertical Integration Is Under Pressure

Tennessee’s law did not just happen overnight. 

The three largest PBMs manage most prescription drug claims in the United States. Each operates within a larger healthcare organization that owns or affiliates with other parts of the healthcare financing, pharmacy, provider, or distribution system.

That concentration has caused regulators and lawmakers to focus less on size by itself and more on how integrated companies use contracting authority, reimbursement decisions, network design, patient data, and ownership relationships.

Federal Trade Commission staff have reported that large PBMs sometimes reimbursed affiliated pharmacies more than unaffiliated pharmacies for certain specialty generic drugs. The FTC also raised concerns that PBM-affiliated pharmacies may benefit from prescription steering and other advantages unavailable to independent competitors.

Congress has pursued PBM transparency and compensation reforms involving rebates, reporting, and the relationship between PBM compensation and drug prices. Federal proposals have also considered restrictions on common ownership involving PBMs, insurers, and pharmacies.

States too are developing their own approaches to this problem. Arkansas enacted a law directed at PBM ownership of pharmacies, while California has pursued restrictions involving steering, formulary practices, and affiliated pharmacies. Several of these measures are now being litigated.

These developments do not establish that all vertical integration is unlawful or undesirable. They simply show that the burden of persuasion is changing.

With times changing they way they are, an integrated company may no longer be able to defend its structure simply by citing efficiency. Policymakers, regulators, customers, and courts are examining whether the company directs business toward its own affiliates, treats affiliated and independent organizations differently, restricts customer choice, or retains value in ways that are difficult for plan sponsors and patients to evaluate.

It's less about whether entities share common ownership and more about how that ownership affects commercial behavior.

How Independent Companies Can Use the Shift

Regulatory pressure on vertical integration creates opportunities for independent healthcare companies.

Independent pharmacies, specialty pharmacies, physician groups, technology vendors, and healthcare service organizations can position their lack of ownership conflicts as a commercial advantage.

Their strongest message is that an independent organization can offer clearer economics, broader choice, greater flexibility, and fewer incentives to favor an affiliated channel.

An independent pharmacy may be able to show that its dispensing and clinical decisions are not influenced by a parent PBM. A technology company may emphasize that its platform supports multiple payers, pharmacies, and providers without favoring a related business. A physician group may use its independence to negotiate across several networks instead of relying on one vertically integrated partner.

As customers become more sensitive to steering and self-preferencing, independence can become part of the company’s value proposition.

That advantage should be supported by contracts, operating practices, and evidence. 

What Buyers and Investors Should Reevaluate

Healthcare buyers and investors should reconsider how they evaluate vertically integrated growth strategies.

A transaction involving a pharmacy, provider group, health platform, or distribution business may appear attractive because of projected referrals, cross-selling opportunities, preferred network access, or administrative synergies.

Those assumptions may be vulnerable if the expected value depends on steering, reimbursement advantages, exclusive contracting, or preferential treatment among affiliates.

Due diligence should examine whether the target’s revenue depends heavily on an affiliated payer, PBM, provider, pharmacy, distributor, or management company. Buyers should also determine whether key contracts would remain economically viable if anti-steering rules, ownership restrictions, equal-treatment requirements, or stronger disclosure obligations were imposed.

Ownership and management agreements should accurately reflect who exercises operational control. Affiliate arrangements should be evaluated for fair-market terms, conflict-management procedures, and regulatory exposure.

The most important question for investors is whether the economics of the transaction remain defensible under the regulatory environment that may exist several years from now.

A business model that depends on regulatory tolerance for affiliate preference may warrant a lower valuation, stronger contractual protections, or a different transaction structure.

What Integrated Companies Should Do Now

Existing integrated companies should not assume that divestiture is inevitable.

They should assume that greater justification will be required.

Executive teams need a clear explanation of how the integrated structure benefits patients, customers, employers, and the healthcare system. That explanation should be supported by data and operating evidence rather than corporate messaging alone.

Companies should review whether affiliated and unaffiliated organizations receive comparable access and treatment. They should examine whether customers have meaningful choices, how reimbursement methodologies are established, and whether contracts could be viewed as coercive or exclusionary.

Boards should understand where earnings are generated across related entities. A business line that appears modest on a standalone basis may direct substantial volume or margin to another affiliate. Regulators may focus on that relationship even when each individual agreement appears commercially reasonable.

Governance practices should reflect this risk. Contracts and transactions among affiliates may require stronger documentation, independent review, conflict-management procedures, and clearer evidence of commercial reasonableness.

Companies that can establish a defensible record now will be in a stronger position when facing legislative scrutiny, contract renegotiation, litigation, or regulatory review.

The Executive Decision

The Tennessee FAIR Rx Act reflects a broader shift in how policymakers evaluate healthcare consolidation.

Attention is moving from the existence of common ownership to the ways integrated companies control patient flow, reimbursement, distribution, information, and market access.

Executive teams should map their ownership, referral, reimbursement, data, and contracting relationships. They should identify where one affiliate has the ability to influence business flowing to another and determine whether that relationship could be characterized as steering, self-preferencing, discriminatory treatment, or hidden compensation.

They should also be able to show measurable value for patients or customers and demonstrate that the business model would remain viable if affiliates and independent companies were required to compete on more equal terms.

Organizations that cannot support those conclusions may have a structural vulnerability.

Organizations that can may have a meaningful competitive advantage.

The Larger Business Lesson

Tennessee’s law may survive, be narrowed, or be struck down. Its importance does not depend entirely on the result of the current litigation.

The law reflects a broader change in the political and regulatory treatment of healthcare consolidation. Vertical integration is no longer automatically viewed as an efficient response to a fragmented system. It is increasingly evaluated through the conflicts, incentives, and commercial power that ownership may create.

That shift will affect acquisitions, joint ventures, management arrangements, preferred networks, affiliate contracts, and market-entry strategies across healthcare.

The companies that respond most effectively will examine their structures now, determine where regulation could change the economics of the business, and use that analysis to make better decisions about transactions, contracts, governance, and growth.

Lanton, Lanton & Sosa Law advises healthcare and regulated organizations on transactions, contracting structures, regulatory change, compliance, governance, and commercial strategy. In a market where ownership structures are becoming policy questions, legal analysis must extend beyond what is permitted today to how a business model may be evaluated tomorrow.

PBM Reform After Rutledge: Why ERISA Still Matters

In 2020, the U.S. Supreme Court gave states a major victory in the fight over PBM regulation.

In Rutledge v. Pharmaceutical Care Management Association, the Court upheld an Arkansas law that regulated pharmacy reimbursement. For pharmacies, state policymakers, and patient-access advocates, that decision mattered. It confirmed that state PBM laws are not automatically preempted by ERISA simply because they affect prescription drug benefits.

That was a big moment but apparently it was not the end of the ERISA fight.

After Rutledge, many people understandably viewed the Supreme Court’s decision as a turning point for state PBM reform. States had been trying to respond to reimbursement pressure and pharmacy deserts by regulating PBMs, but many states were hesitant on how far they could go with PBMs threatening to sue under ERISA. Rutledge gave states more confidence to keep going.

However; the PBM industry did not stop litigating and their arguments in favor of ERISA evolved.

Before Rutledge, the broader argument was that many state PBM laws were preempted because they touched employer-sponsored health plans. After Rutledge, that argument became harder to make in its broadest form. The Supreme Court had already said that states could regulate certain PBM reimbursement practices without automatically interfering with ERISA plan administration. So the next phase for PBMs became more targeted.

In PCMA v. Mulready, the Tenth Circuit reviewed Oklahoma’s Patient’s Right to Pharmacy Choice Act. The court held that several parts of the law were preempted by ERISA. Oklahoma later asked the U.S. Supreme Court to review the case, but the Court declined to take it. This is important because Mulready is not a U.S. Supreme Court decision. It did not overrule Rutledge and it did not say states are powerless to regulate PBMs. What it did do was give PCMA a post-Rutledge roadmap.

The lesson from Oklahoma is that courts may treat reimbursement regulation differently from laws that reach deeper into network design or plan administration. A state law focused on what pharmacies are paid may be viewed differently from a law that affects which pharmacies must be included in a network, how preferred pharmacy arrangements are structured, or how an ERISA plan administers its pharmacy benefit.

That distinction is becoming central to the next phase of PBM litigation. This also comes at a very different moment politically.

Congress passed PBM reform this year. That was a watershed moment. For years, PBM reform was largely a state-level issue. State legislatures were often the ones responding to community pharmacy concerns, patient-access issues, and questions about transparency. Now Congress has entered the conversation in a meaningful way.

The 2026 federal PBM reforms may not solve every issue in the market, and they do not replace the need for state action. They still matter because they show that PBM oversight has moved from a statehouse issue into the national healthcare-policy conversation.That changes the environment around these lawsuits.

PBM reform is no longer a fringe debate. It has become a bipartisan healthcare issue. Once Congress acts, it becomes harder to argue that PBM oversight is unusual or unnecessary. This may be one reason ERISA litigation becomes even more important to the PBM industry.

If the political momentum is moving toward more PBM oversight, then the legal fight becomes about where the boundaries are drawn. PCMA does not need to defeat every PBM law to change the practical effect of reform. It can try to narrow the parts of state laws that reach network access, preferred pharmacy structures, anti-steering rules, or plan administration.

That is why the recent lawsuits challenging state PBM laws in Illinois and Tennessee are worth watching.

According to PLANSPONSOR, PCMA has again turned to ERISA preemption arguments in challenging those state laws. The details of those laws are not the focus of this article. The larger point is that PCMA is continuing to use ERISA preemption as a central litigation tool even after Rutledge. This is the post-Rutledge strategy in action.

The argument is not that states cannot regulate PBMs. The argument is that some state laws cross the line from regulating PBM conduct into regulating the design and administration of ERISA plans.

For pharmacies, pharmacy associations, and policymakers, the takeaway is practical. Passing a PBM reform law is only the first step. The next fight is often in federal court. That means the drafting matters.

A state PBM law should be clear about what it is regulating and why. If the goal is reimbursement fairness, patient access, transparency, anti-steering protection, or pharmacy network accountability, the statute should be written with the expected ERISA challenge in mind.

This does not mean states should stop acting. It simply means states need to be precise.

The same is true for pharmacy advocates. PBM reform cannot be built only for the legislative hearing room. It also has to be built for the courtroom that may come next.

Taken together, these developments show where the PBM fight is moving. Rutledge gave states room to regulate. Mulready showed that ERISA preemption still has limits to test. Congress has now moved PBM reform into the national healthcare-policy conversation.

For pharmacies, healthcare organizations, and policymakers, this is not an academic issue. The policy momentum around PBM reform is real, but so is the legal risk. Passing a law is only the first step. The next question is whether that law can survive the federal preemption challenge that may follow.

Lanton Law Speaks with Drug Topics on Its Over the Counter Podcast on MFN

Ron Lanton of Lanton Law speaks with Drug Topics on their podcast episode of Over the Counter. Ron discusses developing policy expected to enact significant change in the pharmacy industry and beyond titled “Most Favored Nation: Global Benchmarking to Reimagine US Drug Distribution.” Click here to access the podcast.

Lanton Law Quoted in Pharmacy Times Interview on Drug Pricing Reforms Amid the Repeal of Executive Order 14087

Lanton Law was quoted in the Pharmacy Times Article titled "Reversal of Executive Order (EO) 14087 Raises Questions About Future Drug Pricing Reforms.” We discuss the EO and how pharmacists are impacted. The article can be viewed here.

New York Proposes New PBM Regulations

The New York State Department of Financial Services has proposed new rules surrounding pharmacy benefit managers (PBMs) that deal with establishing definitions; licensing; contracting with pharmacies; acquisition of PBMs; consumer protections and audit regulations regarding PBMs.

This rulemaking is one to monitor especially with the recent events from the 10th Circuit. We have written a recent blog post on this developments surrounding this decision. 

Lanton Law is a national boutique law and lobbying firm that focuses on healthcare/life sciences and technology. Our pharmacy practice has been helping pharmacies nationwide with operational issues, mergers and acquisitions, regulatory inquiries, audits, licensure, employment issues and contracting. Our lobbying efforts help pharmacies nationwide achieve improved business climates through carefully crafted legislation as well as counseling clients on responding to relevant proposed rules.  

If you are an industry stakeholder with questions about the current landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today.

Lanton Law Speaks at Summit & Reverse Expo

We were pleased to be invited to Orlando, Florida to speak with IDN with our presentation titled “Price, Innovation & Policy: What’s on the Horizon for the Industry.

Pharmacy Times Speaks with Lanton Law About "Vanity Drugs"

In an interview by Aislinn Antrim of Pharmacy Times called “Calling Them ‘Vanity Drugs,’ Some Insurers Refuse to Cover New Anti-Obesity Drugs,” Ron Lanton III, Esq., Partner at Lanton Law, discussed why insurers are refusing to cover new, highly effective anti-obesity drugs and how some prescribers are getting around the issue. Lanton said that this is a common issue across many different disease spaces and drug types, but some policy changes may be able to help.

The interview can be seen here.

We have taken the text that appears on Pharmacy Times.com from the interview and placed it below in case you have trouble accessing the video.

Aislinn Antrim: Hi, I'm Aislinn Antrim with Pharmacy Times, and I'm here with Ron Lanton, principal at Lanton Law, to discuss how and why some insurers are considering new weight loss and anti-diabetes drugs to be “vanity drugs.” So, there are several new drugs on the market, and they've shown significant weight loss in clinical trials. But some insurers are calling these “vanity drugs” and are not covering them. Do you have a sense of what this term, vanity drugs, means?

Ron Lanton III, Esq.: No, I don't. I think whenever somebody askd me, like, “What does that mean?” I’m always like, okay, let's go to the legal definition. And I don't think there really is a legal definition of vanity drugs, which is something that we say. But to me, whenever I hear something like that characterized as vanity drugs, it's just another excuse. We're not going to pay for it. Right? So, I got a couple of ideas about what I think is going on behind that terminology, but I just wanted to talk a little bit about what this drug is and kind of the history about why it got here and where we are.

So, the brand name drug is Wegovy, because it's just too complex for me to say the generic form of the name of it, but it was approved last year in June by the FDA. And apparently, this is a new generation of highly effective hormone-based obesity medications. And specifically, what it does is that it targets a hormone, GLP-1, which is secreted in the gut, and then targets receptors throughout the body. And it makes it so that there is some kind of positive response, where you do lose the weight. And for this drug, it was prescribed for patients that are obese, who have a BMI or body mass index of greater than 30, or a BMI greater than 27 accompanied by weight-related medical problems, such as high blood pressure and type 2 diabetes and cholesterol, things like that. It’s definitely something that I believe would be beneficial to the patient because if you do take it, if it works as it says, we're not going to jump to those other more expensive disease states that cost a lot of money to treat.

But, going back to like the whole vanity drug classification of it, yes, this isn't a proven curative drug, I think they were saying like up to 13% of individuals don't lose any weight that take this drug. But, you know, insurance companies have for a while used thing called step therapy, where they're like, try drug A first before you go to drug B, and a lot of time is wasted. And a lot of dollars can be wasted too, because that's that kind of one-size-fits-all approach to everything. Whereas, you know, if we're doing more curative, something that just kind of goes right to your specific biological makeup, that could have a lot better of an outcome for a patient and at a lower cost. So, I think they're coming at it from a step therapy mindset.

And, too, there is a policy that's been weakened a little bit ago by the court, but the copay accumulator, where they're stopping you from having the rebates from a manufacturer go to the deductible and the patient's maximum allowable cost. So, it's like you have those mindsets of let's try not to pay it. But I think, you know, with our medicine and science getting a lot better, we're going to have to think past that old traditional reimbursement system.

Aislinn Antrim: Yeah, absolutely. This seems to be kind of a widespread issue—you talked about Wegovy, and it's been applied to a couple of these other similar new drugs. What are pharmaceutical lobbyists really doing to kind of get insurers to pay for these?

Ron Lanton III, Esq: That's an interesting question. So, I can't speak for pharma, I don't know what they're doing. I talked to pharma interests, I did look at their website, and one of their policy issues is called “Build a better patient-centered agenda.” And I like where they're going with that, because essentially, what it's saying is we want insurance to work like insurance is supposed to work. Which is, if we have something that's wrong with us, we go see the doctor, the doctor prescribes. And the doctor says, “This is what we think is good for that patient to have a good outcome.” And the insurance is supposed to just pay for it. Now, you know, there's all kinds of things, and I know why there's rules about it and there's all kinds of special circumstances. But you know, more times than not, we're fighting the insurance company to pay for things that seem to be common sense. So, I think there is a bill, which I'll talk about in a little bit, on the obesity issue that we're talking about here. But instead of it being what I call a hard lobbying issue, which is I'm going to go directly to my congressman, or my senator and we'll go lobby about how we need this particular drug. It seems to be more of a soft lobbying issue to me, where the pharmaceutical industry would have to reach out to the payers to have that conversation about why the manufacturers think this is a good thing with the patients today. They have to talk to the patient themselves and educate the patient. So, if the patient feels comfortable enough, what you're dealing with is years of stigma and everything about this. Again, this is getting out of traditional health care and going to the root of the problem. And instead of just treating a symptom, you know, we're really trying to figure out what's going on here. So that's the other thing. And then really, the last thing that I see as kind of the soft lobbying by pharma is educating the doctors about this drug and why this is here, and why they should start to utilize this in their weapons system of fighting whatever it is that they're dealing with patients. So that's what I call more of a soft lobbying issue.

Aislinn Antrim: Interesting. Are there policy changes that could address this issue?

Ron Lanton III, Esq: The court system is weakening the copay accumulators, which I mentioned earlier, and there have been several state and state efforts. And, definitely, there's a federal bill right now on step therapy, where they're trying to get rid of that, because again, it's like, why are we doing all these things that may not work, and it's wasting time and it's causing a lot of money. And we could just get right to the heart of the problem, especially when the doctors are saying, you really shouldn't get in between my relationship with my patient, because I know the patient. And, you know, I'm the closest that's here. So, this is what I think.

There is an interesting bill that I want to bring up about policy changes that you had asked about. So, there is a bill, HR 1577, and there's also a senate version of this—SB 596 is a companion bill. So it’s basically the same bill that's in the house is also in the Senate, same language, and everything. It’s called the Treat and Reduce Obesity Act and let me tell you just really quick what this is. The bill would allow for coverage for therapy that is provided by a physician who's not a primary care physician, or other health care providers and approved counseling programs, if you have a referral from your PCP. Currently, the therapy is covered only if provided by a PCP. The bill would also allow coverage under Medicare's prescription drug benefit, so under Part D, for the treatment of obesity, or weight loss management for individuals who are overweight. So, this really targets what we're talking about right now. And if we actually have this bill go through, I think this conversation will be a lot easier, because we already have the regulatory scheme for it, instead of having to build it from scratch and just kind of convince people that this is a good thing for patients to take. Again, when we're coming at it from the traditional mindset of “Let's try not to pay for things and if we do, let's try the cheaper stuff first, before we get to something that might actually help,” I think that's just backwards.

Aislinn Antrim: Yeah, absolutely. Do you see similar issues in other drug classes or treatment areas?

Ron Lanton III, Esq: A long while ago—well, it's about 2013, so seems like a long while ago, with everything that's happened between then—[we had] Sovaldi with hepatitis C, you know, at $4,000. For the treatment, I think it was 12 course treatment, and people were like, “Oh, my God.” I know there's still an issue but, you know, if 9 out of 10 times a patient takes this, they get better, those are pretty decent odds. So why not try it for a little bit? So, that would be my kind of form of step therapy, which is let's just try, and if it's not working, then okay, we can get off of it. But this kind of seems to be what I call a best-in-breed prescription out there. So, like, if this is the best thing, let's take it and see what happens. And I think, again, with drugs that are curative and more expensive, because the upfront cost has to be there, because you're not going to have the repeat customer because they're getting cured. But at the same time, I think somebody has to do a cost analysis at the payer by saying, if we put patient on drug A and it costs this, but if we put them on drug B, it's going to cost all this other stuff and the patient's going to get sicker. It's just that's just not really what we should be doing. I do know that there's this balance of, you know, we have to have something that's affordable for patients to take. So it's $84,000. And I hate to bring up old wounds, but it's at $4,000, something that is reasonable or not. And I think that's, you know, something that the pharma and the insurance just still haven't quite worked out yet, especially since we keep seeing this thing about drug price from congress, and why is this stuff so high? But I think now there's a lot more scrutiny starting to come into the picture with the Federal Trade Commission, and how they're now saying, okay, well, high drug prices and what are these PBMs doing and let's find out a little bit more about this. So, that's something we should continue to watch. But those are the policies. You know, if we get bills like this, we have an FTC that is really scrutinizing both pharma and the PBM industry, I think we'll start to slowly but surely get to an answer that's tolerable for everybody.

Aislinn Antrim: Well, that's good to hear. Some companies have found kind of an interesting workaround by marketing these drugs as diabetes treatments, rather than weight loss drugs. And in some cases that seems to have worked. Does this seem like an effective solution? Or what are your thoughts on this?

Ron Lanton III, Esq: I think it obviously depends on what the doctor is seeing from the patient. I mean, if you're pre-diabetic, then you know, if you don't do anything, you're going to get over into type 2 diabetes, potentially. So, I can understand the rationale behind it. But I don't think it's really that different than off labeling. I mean, you know, if you have a drug and it's supposed to be used for cancer A but also works for cancer B, it’s not approved for cancer B, but, you know, there may be times as a patient where your condition doesn't have something that is FDA approved, but the doctor is looking at these studies and trying to see what can help you. Again, that's that patient-doctor relationship that you just have to trust. And that's what the patient is looking for. So, I think it's really no different than off labeling and if that really goes to the result that we're getting to, I'm all for it.

Aislinn Antrim: Absolutely. Why do list prices vary for the same drug with different indications? So, with diabetes versus for obesity?

Ron Lanton III, Esq: Yeah, that's the million-dollar question. Literally, if you live with these high-priced drugs, right? I don't know if I can give you an answer. I think the best people to ask this question to would be the pharmacy benefit managers, because the more and more they've gotten involved, the more and more prices have gone up. And that is because the manufacturer has to hire the higher price because they have to compensate for the rebate that they're giving to the pharmacy benefit manager. So why is that? And I think that, you know, like I was telling you earlier, the scrutiny with the Federal Trade Commission going in and just seeing exactly what PBMs are doing with these drug prices, and then, you know, either getting some federal standards around it, and what they can and can't do or be giving the PBM a federal regulator. They don't have one, you know, and it's just this piecemeal stuff that they're doing by state. I think those days are numbered, as far as just having a PDMP and unregulated entity. But I think the more layers that start to get peeled back, the more attention that's coming. Again, this stuff doesn't happen overnight. None of this happened overnight at all. I mean, PBMs really didn't grow until the ‘90s. So, we're talking from the ‘90s until now, there's been some changes, gradual changes, but there's been a shift. And I think we're starting to start to shift that backwards to where we can get an answer. We'll find out these things.

Aislinn Antrim: Wonderful. Is there anything else you wanted to add on this topic?

Ron Lanton III, Esq: No. I think this is definitely not the last thing that we're going to see. I just think it's, I hate to say it, I know it's a different disease state, but it's just Sovaldi in a different form. I mean, we have these drugs that are promising to do things, and if 13%—and I know that's one study, but I mean, if somebody tells me “Okay, 13% of people this may not do anything for them.” I'm at least willing to give it a shot, because it's better than what we have now. And it's definitely better than some of the step therapy protocols that patients are going to have to go through.

Aislinn Antrim: Definitely, thank you for talking to me about this.

Ron Lanton III, Esq: Definitely. Thank you for asking.

FTC Takes Aggressive Policy Stance Against Drug Manufacturers and Pharmacy Benefit Managers (PBMs)

The Federal Trade Commission (FTC) has come out aggressively against both pharmaceutical manufacturers and pharmacy benefit managers (PBMs). The agency has released its policy statement seen here, announcing that the agency “will ramp up enforcement against any illegal bribes and rebate schemes that block patients’ access to competing lower-cost drugs.”  

Here is what the FTC is specifically targeting in its policy statement: 

• Exclusionary rebates that foreclose competition from lower-cost medicines may constitute unreasonable agreements in restraint of trade under Section 1 of the Sherman Act; unlawful monopolization under Section 2 of the Sherman Act; or exclusive dealing under Section 3 of the Clayton Act.

• Inducing prescription drug middlemen to place higher-priced drugs on formularies instead of lower-cost alternatives in a manner that shifts costs to payers and patients may violate the prohibition against unfair methods of competition or unfair acts or practices under Section 5 of the FTC Act. 

• Paying or accepting rebates or fees in exchange for excluding lower cost drugs may constitute commercial bribery under Section 2(c) of the Robinson-Patman Act, which prohibits compensating an intermediary to act against the interests of the party it represents in the transaction.

This follows the recently revealed PBM study by the FTC will officially examine the impact of vertically integrated PBMs on the access and affordability of prescription drugs. As part of this inquiry, the FTC will send compulsory orders to CVS Caremark; Express Scripts, Inc.; OptumRx, Inc.; Humana Inc.; Prime Therapeutics LLC; and MedImpact Healthcare Systems, Inc. 

Lanton Law is a national boutique regulatory law and lobbying firm that focuses on healthcare/life science and technology. If you are an industry stakeholder with questions about the current landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today.

Vermont Enacts New PBM Law

Vermont Gov. Phil Scott (R) signed H. 353, a bill that several issues including patient steering, reimbursement transparency, spread pricing, and other PBM practices.

Lanton Law is a national boutique law and lobbying firm that focuses on healthcare/life sciences and technology. Our pharmacy practice has been helping pharmacies nationwide with operational issues, mergers and acquisitions, regulatory inquiries, audits, licensure, employment issues and contracting. Our lobbying efforts help pharmacies nationwide achieve improved business climates through carefully crafted legislation.  

If you are an industry stakeholder with questions about the current landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today.

Lanton Law Micro Webinar on the Upcoming FTC Comment Period on PBMs

We have a micro webinar on the upcoming FTC comment period on pharmacy benefit managers. Click here to view the micro webinar.

Oral Arguments Scheduled for North Dakota PBM Case

A group of nine pharmacy associations have filed an amicus curiae (friend of the court) brief in the 8th Circuit matter known as PCMA v. Wehbi. This case is formerly known as Wilke v. PCMA. The amicus brief argues that ERISA does not preempt North Dakota PBM laws.

How did we get here? Last year (August) the 8th Circuit struck down contested North Dakota PBM laws due to ERISA. This is the argument that PBM attorneys advanced as a reason that the contested PBM laws in North Dakota could not stand. This decision was prior to the now landmark Rutledge case. 

Surprisingly and much to the relief of the pharmacy community, the U.S. Supreme Court’s 2021 PCMA v. Rutledge decision determined that the 8th Circuit decision could not stand due to the Supreme Court’s Rutledge decision and its ERISA interpretations. 

Oral arguments PCMA v. Wehbi have been scheduled for September 1, 2021 at 2:00 PM CST.

Lanton Law is a national boutique law and lobbying firm that focuses on healthcare/life sciences and technology. Our pharmacy practice has been helping pharmacies nationwide with operational issues, mergers and acquisitions, regulatory inquiries, audits, licensure, employment issues and contracting. Our lobbying efforts help pharmacies nationwide achieve improved business climates through carefully crafted legislation.  

If you are an industry stakeholder with questions about the current landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today.

New Proposed Congressional DIR Relief Bill

At Lanton Law we are constantly on the watch for issues impacting our specialty, retail and LTC pharmacy clients including the issue of DIR fees. Clients utilize our advocacy and legal tools while discussing business strategy to combat an ever changing reimbursement environment. 

A bipartisan group of Congressional legislators  have introduced the Pharmacy DIR Reform to Reduce Senior Drug Costs Act, also known as S. 1909/H.R. 3554. Both companion bills propose to transfer all pharmacy DIR to the point of sale. As many in the industry know, DIR fees were intended to be applied here but the definition and application of DIR fees have been so convoluted that they are causing deep and long lasting damage to the pharmacy community. 

Lanton Law is a national boutique law and lobbying firm that focuses on healthcare/life science and technology. Our pharmacy practice has been helping pharmacies nationwide with operational issues, mergers and acquisitions, regulatory inquiries, audits, licensure, employment issues and contracting. Our lobbying section helps pharmacies nationwide achieve improved business climates through carefully crafted legislation.   

If you are an industry stakeholder with questions about the current landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today.

Oregon Proposes New Policy to Control Drug Prices

Drug prices have been fiercely debated in Congress and in various state capitols before COVID-19 brought everything to a halt. Vermont was the first state in the country to require pharmaceutical manufacturers to explain drug price increases. That initiative was followed by Maryland in 2019 as the state created its five member Prescription Drug Affordability Board to monitor prices. It seems now the attention is focused on Oregon. 

SB 844 proposes to establish a Prescription Drug Affordability Board in the Department of Consumer and Business Services to review prices for prescription drug products meeting specified cost criteria. Business Services will review prices for prescription drug products meeting specified cost criteria. The bill also requires the board to establish an upper payment limit for drugs that are or are expected to create affordability challenges for health systems and patients in Oregon or health inequities for communities of color.

An insurer, pharmacy benefit manager or other person that pays for or reimburses the cost of prescription drugs in this state may elect to opt out of the upper payment limit for specific drugs to allow the payer to negotiate with a manufacturer for the cost of the drug. 

Additionally, the Prescription Drug Affordability Board shall annually assess fees to be paid by manufacturers that sell prescription drug products in this state. The fees shall be established in amounts necessary to meet the costs of the board. The fees shall be imposed based on a manufacturer’s share of gross revenue from sales of prescription drug products in this state.

Lanton Law is a national boutique law and lobbying firm that focuses on healthcare/life science and technology. If you are an industry stakeholder with questions about the current telemedicine landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today.

Lanton Law Quoted in Law360 Article titled "High Court Gives Green Light to Regulate PBMs"

Lanton Law was quoted in law 360’s article titled "High Court Gives Green Light to Regulate PBMs". The article was written by Emily Brill.

For those that have trouble with the link we have provided the story below.

Law360 (December 10, 2020, 10:08 AM EST) -- The U.S. Supreme Court backed an Arkansas law Thursday that bans insurers' affiliates from shortchanging pharmacies, clearing the way for other states to regulate pharmacy benefit managers and throwing a lifeline to small pharmacies that said PBMs' business practices were bankrupting them.

Pharmacies' advocates celebrated Arkansas' 8-0 win as "a historic moment for pharmacies, patients and state's rights," saying the ruling allows states such as New York to move forward with long-discussed plans to regulate the industry that manages insurers' drug components.

The ruling clarifies that PBMs can't use their ties with employee benefit plans to argue that only the federal Employee Retirement Income Security Act can regulate their business dealings. ERISA only preempts states' ability to regulate employee benefit plans, leaving states free to oversee PBMs and other members of the health care supply chain, the justices said.

In an opinion authored by Justice Sonya Sotomayor and joined by all the justices except newcomer Justice Amy Coney Barrett, who sat out from considering the case, the court clarified that ERISA won't preempt a regulation simply because it could increase a benefit plan's operating costs. The regulation actually has to affect the way the plan works to trigger ERISA's preemption provision, the court wrote.

"ERISA does not preempt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage," Justice Sotomayor wrote.

Justice Clarence Thomas authored a concurring opinion, saying he favors more of a textualist approach to applying ERISA's preemption provision — Section 1144 of the sprawling law — than his colleagues have applied in the past.

"I write separately because I continue to doubt our ERISA preemption jurisprudence. The plain text of ERISA suggests a two-part preemption test … but our precedents have veered from the text, transforming §1144 into a vague and potentially boundless … preemption clause," Justice Thomas wrote. "That approach … offers little guidance or predictability. We should instead apply the law as written."

The ruling overturns a 2018 decision by the Eighth Circuit, which had held that ERISA preempted Arkansas' Act 900. That law, passed in 2015, forbade PBMs from reimbursing pharmacies for drugs at rates below the drugs' acquisition costs. Arkansas passed it in response to community pharmacies' complaints that PBMs were reimbursing them less than they were shelling out to purchase drugs, while reimbursing PBM-affiliated pharmacies at significantly higher rates.

The win is significant for states, which had banded together in a bipartisan coalition to back Arkansas' position in the case. Forty-seven attorneys general told the high court in the spring that preserving states' ability to regulate PBMs was essential for curbing harmful business practices in health care and protecting consumers' access to medication. Arkansas Attorney General Leslie Rutledge called the ruling "a win for all Arkansans and Americans."

The ruling also hands a victory to local pharmacists, who say PBMs' practice of shortchanging them on drug reimbursements while overpaying PBM-affiliated pharmacies has threatened to put them out of business. The National Community Pharmacists Association cheered the high court's decision Thursday, saying it was thrilled that the Supreme Court had greenlit states to clamp down on that practice.

"This is a historic victory for independent pharmacies and their patients. And it confirms the rights of states to enact reasonable regulations in the name of fair competition and public health," said National Community Pharmacists Association CEO B. Douglas Hoey, who is a pharmacist himself.

The Pharmaceutical Care Management Association, the PBM industry lobbying group that sued over Act 900, said Thursday that it was disappointed in a decision that it claimed would "result in the unraveling of federal protections under ERISA."

"As states across the country consider this outcome, we would encourage they proceed with caution and avoid any regulations around prescription drug benefits that will result in higher health care costs for consumers and employers," the group said in a statement.

Attorneys said the decision provides much-needed clarity on the scope of ERISA's preemption provision. The ruling preserves Section 1144's broad reach in the context of benefit plan legislation but establishes that preemption can't be wielded as a weapon to knock out regulation of "middlemen somewhere in the [health care] supply chain," as James Gelfand, senior vice president of health policy at the ERISA Industry Committee, put it.

"For far too long, the PBM industry has confused both legislators and regulators with overly broad interpretations of ERISA in order to dodge oversight," said health care attorney Ron Lanton. "We have been arguing for years that ERISA should not be interpreted to where it would be virtually impossible to regulate PBMs."

Linda Clark, a health care attorney and partner at Barclay Damon LLP, seconded that notion. "The fact you have a tangential relationship with entities that are regulated by ERISA doesn't make you completely immune from state regulation of anything you do," she said, adding that PBMs need to be regulated to prevent them from "employ[ing] even more draconian practices in management of their pharmacy networks."

Michael Klenov, a benefits attorney and partner at Korein Tillery, said Thursday that the ruling will likely discourage challenges to other states' attempts to regulate PBMs. But "it may also embolden states to push the boundaries of health care-related legislation further, thus leading to new challenges that will test where the courts draw the preemption boundaries," he said.

The federal government, which weighed in as an amicus in support of Arkansas, did not respond to a request for comment Thursday.

Arkansas is represented by Attorney General Leslie Rutledge, Nicholas Jacob Bronni and Shawn J. Johnson of the Arkansas Attorney General's Office.

The federal government is represented by Kate O'Scannlain, G. William Scott, Thomas Tso, Wayne Berry and Stephanie Bitto of the U.S. Department of Labor and by Edwin Kneedler and Frederick Liu of the U.S. Department of Justice.

The Pharmaceutical Care Management Association is represented by Michael B. Kimberly, Sarah P. Hogarth and Matthew Waring of McDermott Will & Emery LLP and by Seth P. Waxman, Catherine M.A. Carroll, Paul R.Q. Wolfson, Justin Baxenberg, Claire H. Chung and Hillary S. Smith of WilmerHale.

The case is Rutledge v. Pharmaceutical Care Management Association, case number 18-540, in the Supreme Court of the United States.

--Editing by John Oudens and Haylee Pearl.

Update: This article has been updated with additional comments and more information about the case.

Lanton Law Quoted in Law360 Article Titled "High Court PBM Case Could Be Turning Point In 20-Year Fight"

Lanton Law was again quoted in Law360’s article titled “High Court PBM Case Could Be Turning Point in 20-Year Fight.” The article can be found here. For those having trouble finding the article written by Emily Brill we have provided it below:

Law360 (October 13, 2020, 8:47 PM EDT) -- Last week's U.S. Supreme Court arguments over Arkansas' attempt to regulate how much middlemen called pharmacy benefit managers reimburse pharmacies for drugs on insurers' behalf could mark a turning point in a broader legal fight that's been playing out for 20 years.

Here, Law360 brings you up to speed on what led to the pending high court showdown between the Pharmaceutical Care Management Association and the Natural State.

The Laws Come Down

Pharmacy benefit managers have assumed an increasingly large role in the health care landscape since the first PBM arose in 1968.

These companies started as third-party administrators, processing patients' prescription drug claims on behalf of health insurance plans. Over the years, though, PBMs have launched drug formularies, pharmacy networks and their own mail-order pharmacies as the industry has grown, and the largest PBMs have integrated with insurers in multibillion-dollar deals.

"They've always been a partner to the insurer, but now they're a crucial extension of the insurer," said Ron Lanton, an attorney and lobbyist who specializes in health care law. "The PBM has grown to this huge marketplace player — determining who's the provider in their networks, setting the prices for insurance reimbursement."

Today, PBMs have a hand in most aspects of prescription drug dispensing, from how much consumers pay and how much pharmacies are reimbursed to where patients get their drugs and whether they receive name-brand or generic versions.

PBMs have drawn praise for saving consumers and plan sponsors money, but they've also met criticism, particularly from pharmacists, who say PBMs routinely reimburse their own mail-order pharmacies at much higher rates and thus drive local pharmacies out of business.

"PBMs are not only managing benefits for their clients — they're actively competing in the networks they manage," said Linda Clark, a partner at Barclay Damon LLP. "That's the fundamental optical conflict of interest that's in play. And as a result, many states have attempted to even the playing field."

States have been attempting to regulate PBMs since at least 2003, passing laws that primarily target the industry's pricing and reimbursement practices. Today, all but three states have some legislation on the books impacting PBMs, according to the National Community Pharmacists Association.

Much of that legislation has arrived recently. An influential model bill released in December 2018 by the National Council of Insurance Legislators inspired the introduction of between 250 and 300 pieces of PBM reform legislation around the country in 2019, according to the NCPA.

Another model bill from a different insurance regulators group is in the works, with the National Association of Insurance Commissioners releasing a first draft in July after working on the policy for a year. The model bill proposes requiring PBMs to get licensed and banning practices such as self-dealing and retroactive payment reductions to pharmacies.

The Suits Flood In

PBMs have not sat idly by as states have tried to regulate them. They've met lawmakers' bills with aggressive lobbying and sued a half-dozen states that adopted PBM reform legislation.

"A lot of times when there are regulations in states proposed to provide some kind of oversight, the PBM lobby tends to get very aggressive," Lanton said. "I've directly lobbied on a lot of these issues, so I've come face to face with what they've been saying to legislators."

The PBM industry's lobbying group, the Pharmaceutical Care Management Association, began suing states over their PBM laws in the early 2000s. The first suit arose in Maine, a challenge to a law that required PBMs to disclose their payments from pharmaceutical companies and forbade them from switching patients to more expensive drugs.

That law survived the PCMA's challenge, with both a Maine federal judge and the First Circuit handing wins to the state and then the U.S. Supreme Court declining to take up the case in 2006. But other jurisdictions have not fared as well in the years since.

Since Maine's win, Washington, D.C., Iowa and North Dakota have been forced to walk back PBM regulations after the PCMA convinced the D.C. Circuit and Eighth Circuit that the laws tread on territory that could only be regulated by the federal Employee Retirement Income Security Act.

Oklahoma could be next, with a court battle playing out in the Tenth Circuit to determine the viability of a PBM law there. An Oklahoma federal judge blocked part of the law in July, ruling some of its language was likely preempted by Medicare Part D.

High Court Joins the Fray

As the Tenth Circuit weighs the legitimacy of Oklahoma's law, the U.S. Supreme Court is considering whether to strike down an Arkansas law in a case with huge implications for the legal fight between states and PBMs.

On Oct. 6, the high court heard oral arguments in the PCMA's challenge to a 2015 Arkansas law requiring PBMs to reimburse local pharmacies at the same rates as their affiliated pharmacies.

If the high court rules that the law flouts ERISA, other state laws could fall on similar grounds, attorneys say.

"There are implications for other state laws based on what happens in this case," said Ben Conley, a partner at Seyfarth Shaw LLP.

Many states have placed their PBM reform plans on hold while waiting on the outcome of the case, Barclay Damon's Clark said. Other states aren't enforcing their PBM laws but would likely start if the Supreme Court rules in Arkansas' favor, she said.

She said her pharmacist clients also have their eyes trained on the high court, waiting on a decision that could have a huge effect on them.

"The decision in this case is really going to define the scope of permissible state regulation of pharmacy benefit manager practices. It's going to define the contours of what states can and can't do," Clark said. "And there could be a lot of nuances in the decision that could affect the impact on state legislation. That's why everybody's watching it so carefully."

The case is Rutledge v. Pharmaceutical Care Management Association, case number 18-540, in the Supreme Court of the United States.

Lanton Law Newsletter is Out

We have released our August newsletter. This month we discuss our presentations at the National Association of Specialty Pharmacy, the new Executive Order aimed at PBMs, our recent Blogcast with Ken Kaitin, Professor and Director at the Tufts Center for the Study of Drug Development, the new LTC Congressional pharmacy bill and our interview with Pharmacy Times on Rutledge v. PCMA. Click here to view it.

Lanton Law Speaks with Pharmacy Times about U.S. Supreme Court Case Rutledge v. PCMA & Its Implication on Pharmacy Policy

Lanton Law was interviewed by Pharmacy Times on the implications of the October 6, 2020 U.S. Supreme Court case of Rutledge v. PCMA. This case has major consequences for future PBM policies. Click here to access the interview.

New Executive Order Aimed at Pharmacy Benefit Managers (PBMs)

The White House has released an Executive Order titled “Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen.” 

“One of the reasons pharmaceutical drug prices in the United States are so high is because of the complex mix of payers and negotiators that often separates the consumer from the manufacturer in the drug-purchasing process.  The result is that the prices patients see at the point-of-sale do not reflect the prices that the patient’s insurance companies, and middlemen hired by the insurance companies, actually pay for drugs.  Instead, these middlemen — health plan sponsors and pharmacy benefit managers (PBMs) — negotiate significant discounts off of the list prices, sometimes up to 50 percent of the cost of the drug.” 

This Executive Order advocates for HHS to complete its prior January 2019 proposed rule aimed at “revising the discount safe harbor to explicitly exclude from the definition of a discount eligible for safe harbor protection certain reductions in price or other remuneration from a manufacturer of prescription pharmaceutical products to plan sponsors under Medicare Part D, Medicaid managed care organizations as defined under section 1903(m) of the Act (Medicaid MCOs), or pharmacy benefit managers (PBMs) under contract with them.”  

Not only does this Executive Order state that discounts offered on prescription drugs should be passed on to patients, but that HHS must confirm publicly prior to finalizing its proposed rule that “that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.”

Lanton Law is a national boutique law and government affairs firm that focuses on healthcare/life sciences, technology and finance. If you are an industry stakeholder with questions about the current landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today. 

National Association of Insurance Commissioners release PBM Model Legislation Draft

The National Association of Insurance Commissioners’ (NAIC) Pharmacy Benefit Manager (PBM) Regulatory Issues Subgroup has released a draft of its model PBM legislation. The model is called the [State] Pharmacy Benefit Manager Licensure and Regulation Act and “it seeks to establish the standards and criteria for the licensure and regulation of pharmacy benefit managers providing claims processing services or other prescription drug or device services for health benefit plans.”

The Task Force began discussion on this issue last year as the proposed model seeks to build on state legislative and regulatory efforts surrounding PBMs. The draft model addresses issues such as PBM licensure, the prohibition of gag clauses, state insurance commissioner enforcement, clawbacks, affiliate compensation and spread pricing to name a few.

A conference call is scheduled for July 16th to discuss this issue further.      

Lanton Law is a national boutique law and government affairs firm that focuses on healthcare and technology. If you are an industry stakeholder with questions about the draft or if you would like to discuss how your organization’s strategic initiatives might be impacted by the NAIC’s actions, contact us today.  

PBM U.S. Supreme Court Case Rescheduled for this Fall

We at Lanton Law along with many other pharmacy stakeholders have been closely monitoring the events surrounding the pending U.S. Supreme Court case of Rutledge v. Pharmaceutical Care Management Association.

We released our first blog about this case in December 2019 and are proud to be quoted in the January 2020 Pharmacy Times article regarding Rutledge.

To refresh the U.S. Supreme Court has provided a brief summary of the facts: 

Thirty-six States have enacted legislation to curb abusive prescription drug reimbursement practices by claims-processing middlemen-known as pharmacy benefit managers (PBMs)-who make money on the spread between the rates at which they reimburse pharmacies and the drug prices they charge health plans. In response, Respondent Pharmaceutical Care Management Association (PCMA), a PBM trade association, has launched a barrage of litigation across the country arguing that state regulations of PBMs generally, and state drug-reimbursement regulations specifically, are categorically preempted by the Employee Retirement Income Security Act of 1974 (ERISA). Disregarding this Court's ERISA precedent (and contrary to the First Circuit's conclusion that PBM regulations are categorically not preempted by ERISA), the Eighth Circuit embraced that argument.

The question presented is “Whether the Eighth Circuit erred in holding that Arkansas's statute regulating PBMs' drug-reimbursement rates, which is similar to laws enacted by a substantial majority of States, is preempted by ERISA, in contravention of this Court's precedent that ERISA does not preempt rate regulation.”

Due to COVID-19 the U.S. Supreme Court has rescheduled arguments for this case to its October 2020 term. 

Lanton Law will continue to monitor the developments around Rutledge v. PCMA and will advise our clients accordingly. If you have an issue that we can assist you with please feel free to contact us.