Attorney General Bonta Defends the Rights of States to Regulate the Rising Cost of Prescription Drugs

Joins coalition of attorneys general in support of regulation of pharmaceutical go-betweens 

OAKLAND – California Attorney General Rob Bonta today joined a bipartisan coalition of 34 attorneys general in filing an amicus brief in the U.S. Court of Appeals for the Eighth Circuit supporting North Dakota’s regulation of Pharmacy Benefit Managers (PBMs). PBMs act as a middleman between pharmacies, drug manufacturers, health insurance plans, and consumers. Their position gives them an enormous impact on consumers’ access to prescription drugs. In 2020, the U.S. Supreme Court unanimously agreed with the arguments in a California-led, bipartisan amicus brief filed by 46 attorneys general, which supported the state of Arkansas’ position that federal law does not prevent states from regulating PBMs.

“When you have the power to impact the price people pay for often life-saving medication, you can’t be allowed to operate in the shadows,” said Attorney General Bonta. “States have a duty to our residents to regulate the rising cost of prescription drugs and to ensure all those who have need can access their medication. PBMs are a part of the pharmaceutical industry that doesn’t want that to happen. The expansion of their power in the industry has had an outsized, negative impact on the price of prescription drugs and the availability of neighborhood pharmacies in our communities. Regulating these intermediaries is a critical part of protecting Californians’ healthcare.”

Over the years, the role of PBMs has expanded, and has done nothing to lower the prescription drug prices paid by health plans to drug manufacturers. In response, states like California have increased their regulation of PBMs to protect residents from the increasing cost of prescription medications. This regulation is essential because the net price consumers pay for pharmaceuticals has continually risen under the oversight of PBMs.

In addition to costs, the regulation of PBMs is also critical to ensuring residents have access to their prescribed medication. As PBMs consolidate with big name retail pharmacies like CVS and health plans such as Aetna, communities lose their independent pharmacies because they are reimbursed at below-market rates and, as a result, are often forced to close. In California, the closure of neighborhood pharmacies disproportionately occurs in communities that are majority Black and Latino. According to Health Affairs, in major metropolitan areas in the U.S. between 2007 and 2015, pharmacies were less likely to open and more likely to close in neighborhoods with majority Black or Hispanic/Latino residents.

In today’s brief, the coalition of attorneys general argue that:

• Regulation of PBMs protects consumers and curbs abuses by the multi-billion-dollar pharmaceutical industry. Prescription drug spending in the United States has increased year after year. In 2019, spending grew by 5.7% to $369.7 billion, and it is projected to continue increasing and comprising more of the country’s gross domestic product. Running parallel to this massive increase, the role of PBMs in the industry has also expanded over the past 50 years, and PBMs now control nearly every aspect of a health plan’s pharmacy benefits. PBMs make money from large fees and rebates while spending as little as possible to reimburse pharmacies, including neighborhood pharmacies, for medications. Without state regulation, PBMs will be able to operate in the shadows – driving down reimbursement rates and increasing drug prices.

• Federal law does not preempt state laws that govern transactions between PBMs and pharmacies. Last year, the U.S. Supreme Court reaffirmed in Rutledge v. PCMA that the Employee Retirement Income Security Act of 1974 (ERISA) does not prevent states from regulating PBMs. The Court’s decision includes laws like those at issue now in North Dakota.

• Medicare only preempts state laws that conflict with a Medicare standard. Medicare Part D does not prohibit laws that promote competition, increase price transparency, or minimize barriers to entry. North Dakota’s regulations on PBMs, like many other states’ regulations, do all three, and are therefore not preempted.

In today’s brief, Attorney General Bonta joined the attorneys general of Minnesota, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, Georgia, Hawaii, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, Washington, and the District of Columbia.

A copy of the brief is available here.