Episode 57 – 2025 Pharmacy Benefits Legislation: What Happened and What’s Next

Mike Stull (0:10)

Hi, everyone, and thanks for joining us on this episode of HR Benecast. This is your host, Mike Stull. Stay up to date on all things Employers Health by checking out the links in the episode description.

There, you’ll find helpful resources, upcoming webinars, and our monthly newsletter. On today’s episode, I’m joined by my colleague, Madison Connor. Madison is no stranger to HR Benecast or any of our other podcasts that you may have listened to lately.

Madison has been featured multiple times and is my co-host on our two new shorter podcasts, Benefits Bites and Healthcare Headlines. If you enjoyed today’s conversation, be sure to check them out. Madison, welcome back.

I’m told this is a very anticipated episode. I know we’ve talked a lot about different legislative items or at least have sprinkled them into our conversations on Benefits Bites and Healthcare Headlines. So to get started, for those of you who may not know, tell the audience a little bit about yourself and what you do here at Employers Health.

Madison Connor (1:25)

Great. Thanks, Mike. So, I am Madison Connor, Senior Vice President, Regulatory Compliance and External Affairs.

I’ve been with Employers Health for almost seven years now, and my role has evolved quite a bit over time. So I started off in our corporate legal department, and it quickly became a full-time job keeping track of the state-by-state updates and all of the regulatory dynamics impacting plan sponsors. One of my first major projects at the organization was working on an amicus brief that we filed in the U.S. Supreme Court for the Rutledge v. PCMA case, which some of you may know is where all of this started. And ever since, I’ve been a dedicated resource for our clients to help them navigate the complex industry developments. I’m really excited to join this podcast today.

As Mike said, we’re on a few of them. And while I do enjoy being recorded on Benefits Bites with you, it’s nice to be not video recorded today and have to be subjected to my bizarre facial expressions.

Mike Stull (2:28)

Yes. One of the, for those listening, one of the most terrifying things that can happen to a person is you get recorded and then have to sit there and watch yourself. And yeah, it can be quite a harrowing experience.

Madison Connor (2:46)

Absolutely terrifying.

Mike Stull (2:47)

So as we like to do with all of our legislative-related talks, we need to timestamp it. So it is December 3rd when we’re recording this, and we are just coming off of a government shutdown. And we know that what was passed to get us out of the government shutdown was a short-term continuing resolution.

And so everything at the federal level is pointing towards this next government spending deadline, which is January 30th of 2026. And so, let’s start out by talking about what’s the outlook for PBM-related legislative proposals as we start to creep up on that January 30th deadline.

Madison Connor (3:36)

Yes, given the government shutdown and all of the existing discussions on whether and how to extend ACA subsidies, that’s really been the focus of lots of the congressional action when it comes to health care. So it’s been unusually silent in terms of PBM reform discussions. With that being said, a few weeks ago, some senators announced their intent to reintroduce the PBM proposals that almost passed last year as part of the end-of-the-year appropriations bill.

At the last minute, though, it was dropped out, and they decided to go with a more pared-down spending bill. So those provisions could be fair game as the government works to pass new funding by January 30th. But I will call out that many of those provisions in that proposal will not impact commercial plans.

So there are some pieces there about delinking in the Medicare program, shifting PBM compensation to a fee-for-service model, and then mandating that 100 percent rebate pass-through for Medicare plans, as well as a ban for spread pricing in the Medicaid market, and then just some additional transparency and disclosure rules for PBMs to the federal government, as well as to plan sponsors. So as we continue to approach the holidays and continue to see this gridlock over the ACA subsidy discussions, there may not be room for much else. But these provisions do have broad enough support to pass.

It continues to change week by week, but there’s a chance we could see those introduced by the end of the year or as we approach that deadline at the end of January.

Mike Stull (5:19)

Where most employers have seen a lot more action is at the state level. So, what types of legislation should employer plan sponsors be paying closest attention to, and how might these changes influence plan design strategies?

Madison Connor (5:39)

I do think it’s important to start with a disclaimer here. So not all PBMs have the same interpretation or compliance stance when it comes to some of these laws. So if I bring a few of them up and maybe you haven’t heard the same interpretation, it truly does depend on your vendor, which obviously adds further confusion and uncertainty to this issue.

But to answer your question directly, I believe that any bills that force minimum reimbursements or plan design changes are top of mind for our clients. So you have more and more states mandating copay parity amongst the channels. So mail and retail, you cannot incentivize a mail order pharmacy by a discount in cost sharing or the ability to obtain a longer day supply.

So this year, we’ve had clients that were forced to make national plan design changes to accommodate potentially their given state of domiciles PBM requirements. So that’s been a huge problem for employers this year. We also have states moving to ban copay accumulator programs.

So that’s either by mandating that all amounts paid by or on behalf of a participant have to count towards their deductible or cost share, or by disallowing PBMs from adjusting that member cost share based on the availability of manufacturer copay assistance. You know, a court has not ruled on whether or not copay accumulator bans are preempted by ERISA yet. That’s something that we see making its way through a case right now.

But it’ll be interesting to see what the courts have to say about that. And then lastly, I would just bring up the classic minimum reimbursement laws that we see tied to a mandated dispensing fee. Those are typically between $10 and $15, and they’re paid directly to the pharmacies as a dispensing fee really has a direct cost impact on the plan and the participants.

If you’re in a high-deductible health plan, Montana had a law go into effect this year that mandated a $15 dispensing fee for independent pharmacies, and that’s the highest that we’ve seen so far at the state level.

Mike Stull (7:50)

So, all those individuals that were paying $2, $3, $4, $5 for their generic drug are now paying at least $10 to $15.

Madison Connor (8:01)

Absolutely.

Mike Stull (8:02)

And if the average person takes five or six medications, then it adds up really quickly. One piece I did want to clarify, because I know we get a lot of questions about it, do the state laws apply only to plan sponsors headquartered or domiciled within that given state?

Madison Connor (8:24)

That’s an excellent point here, and that is the million-dollar question. It does depend. More and more, we’re seeing states apply laws on an extraterritorial basis, so that is across state lines, and to out-of-state plans that have lives or a presence within a state.

And we’re seeing states retroactively go back and say, hey, you remember that law that we passed in 2022, 2023? Historically, we’ve been applying it only to employers in our state, but now it’s going to apply to out-of-state plans that have lives within that state. We saw clarification from the Kentucky Department of Insurance earlier this year that stated as much.

But largely, it does vary bill to bill.

Mike Stull (9:09)

Speaking of bills, one of the headlines this year was the state of Arkansas passing House Bill 1150, a vertical integration ban. Can you tell us about this first-of-its-kind law and remind us when it takes effect, if at all?

Madison Connor (9:28)

Exactly. Yes, so this bill passed in April, first-of-its-kind bill, truly, and what it did was effectively ban the operation of PBM-owned pharmacies in the state of Arkansas. And the way that it did this was by beginning on 1-126, the state board of pharmacy would revoke or decline to renew any pharmacy permits if that pharmacy was owned by a PBM in the state.

And so this also included mail-order pharmacies as well. So any PBM-owned directly or indirectly vertically integrated pharmacy would not be able to obtain a business license in the state of Arkansas. So Express Scripts and CBS sued the state board of pharmacy, and the law was ultimately put on pause.

So that means that the state cannot enforce this law as that lawsuit proceeds. And we will have to see what the courts have to say about this. In the injunction order that the judge ruled upon, it did say that this very likely violates the Commerce Clause of the Constitution.

So, there’s some constitutional concerns there as well. And I do think it’s important to note that Louisiana and Indiana also considered similar legislation this year, didn’t ultimately pass. But other states are looking to see what happens here in Arkansas.

Mike Stull (10:51)

And you may have mentioned this, and I may have missed it. It’s not just retail pharmacies, right? It’s specialty and mail-order pharmacies as well.

Madison Connor (10:59)

Exactly.

Mike Stull (11:00)

Excellent.

Madison Connor (11:02)

Very broad.

Mike Stull (11:03)

Speaking of lawsuits, you mentioned those. I recall there have been several ERISA preemption challenges to state PBM laws. How are the federal courts approaching this issue of preemption and how are vendors responding?

Madison Connor (11:25)

Largely, we have seen favorable ERISA preemption decisions across the board. It starts with the Supreme Court upholding the Tenth Circuit’s decision in Mulready. And so that court found that the Oklahoma Patients’ Right to Pharmacy Choice Act was preempted by ERISA.

It said that this any willing provider law infringed upon plan design by mandating copay structures as well as network composition. Subsequently, there was another case in Tennessee that found along very similar lines of the Mulready decision said that those state laws that mandate network composition and copay structure are preempted by ERISA. We’re also following a court case in Iowa where a group of employers have challenged an Iowa recent kitchen sink bill, its Senate File 383, as preempted by ERISA.

And so far, there have been two favorable decisions within that Iowa case. So preliminary decisions finding that the law was likely preempted by ERISA so that it could not be enforced against those plaintiffs that had filed that particular lawsuit. So, it was somewhat limited relief.

Then there was an additional lawsuit filed to further extend that injunction to other groups of employers because the state insurance commissioner within Iowa said that while that lawsuit proceeded, he would continue to enforce the law as immediately intended. So lots of back and forth and really last-minute lawsuits being filed up until the very last days before some of these laws do take effect to try and prevent plans from having to make these national plan design decisions based on what we see going on across the states. So states are citing these cases as reasons that they won’t enforce anti-steering legislation or plan design legislation against ERISA plans.

So I mentioned that Department of Insurance memo from the state of Kentucky earlier in the podcast and actually this year within that memo that said it would apply its law on an extraterritorial basis, it also said those anti-steering components of the bill were not enforceable against ERISA plans. So you do see states start to recognize that line, that boundary where ERISA preemption kicks in and those state insurance laws cannot apply.

Mike Stull (13:56)

And as we sit here in early December, we had a ruling on a different type of lawsuit last week, which are the fiduciary lawsuits that were filed against some very large corporations. And while we’re not going to get into it, I would refer people to our Benefits Bites episode where we talk all about fiduciary responsibilities and also just say that I’m sure we’ll have more to talk about as it relates to this case as we move forward. So as we wrap up on legislative and regulatory, what else?

Open-ended question to end. So what else is on your mind? As we come to a close in 2025, are there any other laws or maybe rules?

I know there are rules that we’ve been waiting for final guidance on.

Madison Connor (14:50)

Good question, especially as we did have quite a bit of a delay due to the government shutdowns. There are a couple outstanding rules that we’re waiting on from the federal government. One that I feel like we’ve probably mentioned the last three years that we’ve recorded this type of recap podcast.

But it’s a rule for machine-readable files for prescription drugs under the transparency and coverage rules. So those were expected to be released by October. Again, I think that the government shutdown contributed to this delay, but we do expect those by the end of the year, I heard, is a possible target.

We’re also waiting on proposed rules on the reasonable fees paid to planned service providers under ERISA. So these are ERISA 408b2 rules, and they have to do with any compensation paid to planned service providers by planned fiduciaries. So this also ties into the Johnson & Johnson ERISA fiduciary dynamics as well, ties into broker fees and compensation.

So we will have to see what those proposed rules from the federal government say and be prepared to engage based on what the department comes out with. Both of those rules are currently at the Office of Management and Budget, and so that is the last stop before rules are released in the federal register. So it truly could be at any time now.

I’m not really sure what the delay is, but we will wait patiently for those. And just to wrap things up, I do want to say, as always, we know that this is a lot, and we’re here to support you through understanding all of this, making sense of what’s happening, where things stand. So please feel free to always reach out, and we can take some time to discuss, share our perspective, and let you know where things stand.

Mike Stull (16:45)

Excellent. Well, thank you, Madison. And just a reminder for everyone, don’t forget to subscribe to HR Benecast to be notified when new episodes are released. Thank you for taking the time to listen and for your continued support, participation, and interest in Employers Health. Be well, and we’ll see you soon.