Iowa’s new prescription drug law partially halted by federal judge

DES MOINES — A new state law regulating certain pharmaceutical companies is partially and temporarily blocked — but only for the Iowa businesses that signed onto a lawsuit — under a federal judge’s ruling issued Monday.

The law in question was designed to help rural pharmacies and address prescription drug costs by adding regulations on pharmacy benefit managers, or PBMs — health care companies that function as intermediaries between insurance providers and drug manufacturers.

U.S. District Judge Stephanie Rose on Monday issued an order temporarily blocking 11 provisions in the new state law while the case continues to work its way through the courts.

Rose’s order temporarily halting portions of the law applies only to the plaintiffs in the federal lawsuit: the Iowa Bankers Benefit Plan, Iowa Laborers District Council Health and Welfare Fund, Des Moines Orthopaedic Surgeons, Iowa Spring Manufacturing and Sales Co., and the more than 600 members of the Iowa Association of Business and Industry.

In her decision, Rose wrote that the case “presents the familiar tension between state regulatory authority and federal preemption, complicated by the modern realities of employee benefit administration.”

At the heart of the legal arguments, made in multiple filings and during a hearing Friday at the U.S. Courthouse in Des Moines, centered on whether provisions of the new state law violate health care companies’ free speech rights or ERISA, the federal law that establishes standards for most private health and retirement plans.

“The Court’s analysis reveals that (the state law) crosses constitutional lines in multiple respects,” Rose wrote. “Several provisions impermissibly dictate the structure and administration of employee benefit plans by mandating network compositions, cost-sharing arrangements, and contractual terms that ERISA reserves to plan sponsors and fiduciaries. Other provisions violate the First Amendment by suppressing truthful commercial speech without adequate constitutional justification.”

Which parts of the law were blocked

Under Rose’s order, until the matter is ultimately resolved in the federal courts, the state cannot enforce on the plaintiff companies or their contractors and agents who administer the companies’ health care plans, these provisions in the news state law, among others:

Rose allowed other provisions in the law to stand, including a requirement that PBMs transfer 100 percent of manufacturer rebates on to health plans, otherwise known as “pass-through pricing”; a restriction on PBMs from using costs or literature to steer health benefit plan participants toward a particular pharmacy; and quarterly reporting and internet publication requirements.

“Iowa’s comprehensive approach to PBM regulation reflects legitimate concerns about market concentration and rural health care access,” Rose wrote. “Yet the Constitution’s allocation of regulatory authority between state and federal governments requires careful adherence to established boundaries, particularly where Congress has included express preemption provisions through comprehensive legislation like ERISA.”

The law in its entirety remains in effect and enforceable on all other Iowa businesses’ health care plans.

The ruling leaves the state with a patchwork law that is in effect for some Iowa companies but not others.

“We’re reviewing the court’s ruling and its impact on the Iowa market and will consult with the (Iowa) Attorney General’s Office on any next steps,” Iowa Insurance Commissioner Doug Ommen said Monday in a statement to The Gazette.

The Iowa Attorney General's Office responded to The Gazette on Tuesday, indicating it plans to appeal the judge's order.

“While it is good the judge allowed parts of the pharmacy benefit manager reform law to go into effect, this decision means significant portions that will protect rural pharmacies and keep drug prices low are on hold,” said a statement from the AG’s Office, sent by a spokeswoman. “We believe the law in its entirety is constitutional and are working on next steps to defend it in court.”

In a statement, the Iowa Association of Business and Industry said Monday the group is “pleased” with the judge’s order, which it called an “important step to protect the rights of Iowa employers and businesses.”

“Protecting workers and keeping health care costs affordable is why Iowa employers and benefit plans brought this lawsuit in the first place,” the ABI statement says, as sent by a spokeswoman. “We remain committed to stopping this unconstitutional law.”

In her opinion, Rose acknowledged the stakes raised by both parties in the lawsuit. Rose noted the law was passed in part to help rural pharmacies after more than 200 have closed across the state since 2014, including more than 30 in 2024; and that business and health care plan officials warned the new law in full would increase health care plan costs by tens of millions of dollars, increasing costs for workers.

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 June 23.

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

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Download: pbm temporary injunction 7-21.pdf