Iowa business groups sue state, ask federal judge to strike new law designed to help rural pharmacies

DES MOINES — Claiming it would hurt Iowa businesses by raising health care costs by millions of dollars and violating their free speech, a group of businesses and organizations on Monday asked a federal court to block a new state law that was designed to protect rural pharmacies through regulation of pharmacy benefit managers.

The new law, which is scheduled to go into effect July 1, would place new regulations on pharmacy benefit managers, or PBMs, which are companies that function as intermediaries between insurance providers and drug manufacturers.

The law, Senate File 383, was passed by the Iowa Legislature on May 12 and signed into law by Gov. Kim Reynolds on June 11.

The lawsuit was filed Monday by the Iowa Association of Business and Industry, Iowa Bankers Benefit Plan, Iowa Laborers District Council Health and Welfare Fund, Des Moines Orthopedic Surgeons, and Iowa Spring Manufacturing and Sales Co.

The lawsuit, filed in federal court in Des Moines, was filed against Doug Ommen as Commissioner of the Iowa Insurance Division, the state’s insurance regulator.

The lawsuit alleges the new state law violates the federal law that regulates employee benefit plans and the First Amendment by both suppressing and requiring commercial speech. It asks for both preliminary and permanent injunctions halting the enforcement of Senate File 383 in its entirety.

The lawsuit echoes arguments that business interests made while the law was debated in the Iowa Legislature, including that it would increase insurance costs for businesses.

At the heart of that concern was the new law’s requirement that PBMs pay a $10.68 dispensing fee to small pharmacies.

“Plaintiffs understand SF 383 to be among the most expensive, single Iowa legislative enactments ever passed effecting an increase in costs for health benefit plans,” the lawsuit says, “and it will likely precipitate the largest increase in health-benefit-plan costs for Iowa’s third-party payors from any source of legislation — federal or state — since enactment of the Patient Protection and Affordable Care Act by Congress in 2010.”

The lawsuit also alleges the new law “upend the prescription drug coverage that Iowans receive through their employers, even going so far as to suppress health benefit plans from communicating cost-saving information about one pharmacy over the other,” and is “preempted by the federal statute designed to prevent exactly this kind of heavy-handed state interference.”

The lawsuit accuses state lawmakers of using “a sledgehammer” to accomplish their stated goals of protecting rural pharmacies from closure by adding “far-reaching, draconian, and expensive new measures” to state law.

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Pharmacies and other health care organizations supported the legislation, saying it would help protect pharmacies from closure. Last year, more than 30 pharmacies closed in Iowa, affecting both rural and urban communities, according to the Iowa Pharmacy Association. Since 2014, more than 200 Iowa pharmacies have closed, creating pharmacy deserts and limiting access to care.

Senate File 383 sought to eliminate “spread pricing,” where PBMs keep the difference between what they pay the pharmacy and what they charge the insurance company.

Under the legislation, all prescription drug contracts in Iowa would be required to use a “pass-through” pricing model. In a pass-through model, the amount paid by the PBM to the pharmacy is passed through to the plan sponsors — employers, insurers, government agencies or managed care organizations — and the PBM is compensated through administrative fees.

In addition to being required to pay small pharmacies a dispensing fee, PBMs under the law would be prohibited from:

Comments: (515) 355-1300, erin.murphy@thegazette.com

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Download: Iowa PBM Litig - Complaint.pdf