New Iowa prescription drug law faces still uncertain future after federal court hearing

DES MOINES — Pieces of a new state law regulating third-party health care companies are likely to remain on hold — but only for certain companies — a federal judge appeared to indicate Friday.

U.S. District Judge Stephanie Rose on Friday heard arguments in a lawsuit over the new state law, which 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.

Previously, U.S. District Judge Rebecca Goodgame Ebinger granted a temporary restraining order, pausing enforcement of the new law a day before it was to go into effect.

But the pause applied only to the plaintiffs in the case: 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.

For the rest of the state, the law is in effect.

Rose took over the case shortly after Ebinger granted the temporary restraining order. During Friday’s hearing at the U.S. Courthouse in Des Moines, Rose indicated she likely will grant a preliminary injunction on at least some portions of the new law, telling attorneys that she believes some provisions of the law are “fairly safe” and others are not. She did not discuss specific provisions of the law.

Rose asked attorneys for both sides how the law would be implemented if she grants an injunction that halts only some provisions.

Arguing for the plaintiffs, attorney Anthony Shelley said they request an injunction against the law in its entirety but enforced only for the plaintiffs. He argued an injunction that blocks only parts of the law would be like “a jigsaw puzzle with half its pieces gone.”

Iowa Deputy Solicitor General Patrick Valencia — arguing for Iowa Insurance Commissioner Doug Ommen, who is listed as a defendant — said the Insurance Division would publish a bulletin that would inform companies how to comply with the law after Rose’s pending ruling.

Rose said she planned to issue her ruling before the temporary restraining order expires Monday morning.

What does the law do?

The new Iowa law requires all prescription drug contracts in Iowa to use a “pass-through” pricing model, in which 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.

The new law also requires PBMs pay a $10.68 dispensing fee to small pharmacies, and prohibits them from:

Arguments over the law

Plaintiffs in the case have argued most of the new state law violates the federal law that establishes standards for most private health and retirement plans and that some provisions violate health care companies’ free speech rights.

Pharmacies and other health care organizations supported the new law, 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.

During Friday’s hearing, Valencia argued on behalf of the state that the plaintiffs cannot cite a specific injury because the impacts of the law are speculative. And, he noted, none of the plaintiffs are pharmacy benefit manager companies.

Shelley pushed back on that argument, saying the plaintiffs will be hurt whether PBMs comply with the new state law or if they do not. “We are injured whatever the PBMs do,” Shelley argued.

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

Get the latest Iowa politics and government coverage each morning in the On Iowa Politics newsletter.