Eighth Circuit: Considers Arkansas Act 624 PBM Pharmacy Ownership

• The Eighth Circuit Court of Appeals recently heard arguments regarding Arkansas Act 624, a state law prohibiting pharmacy benefit managers (PBMs) from owning pharmacies.
• Arkansas contends the law prevents anti-competitive practices and protects patients, asserting it applies equally to all vertically integrated pharmacies.
• PBMs argue that Act 624 constitutes illegal favoritism and discrimination against out-of-state businesses, violating the Dormant Commerce Clause.
• A U.S. District Judge previously issued an injunction against the law, finding it likely discriminates against interstate commerce.
• The upcoming Eighth Circuit decision will significantly impact state regulatory power over PBM vertical integration and set a precedent for healthcare competition.

This Eighth Circuit decision will establish a significant precedent regarding state authority to regulate pharmacy benefit manager (PBM) vertical integration under the Dormant Commerce Clause, dictating potential compliance exposures for PBM business models and informing future state-level regulatory efforts concerning healthcare competition.

The Eighth Circuit Court of Appeals recently heard oral arguments concerning Arkansas Act 624, a state law designed to prohibit pharmacy benefit managers (PBMs) from owning pharmacies within its borders. This legislative effort, signed in 2025, was slated to take effect on January 1, 2026, but its implementation was halted by a preliminary injunction from U.S. District Judge Brian S. Miller. Judge Miller, a George W. Bush appointee, concluded that the law likely discriminates against interstate commerce, setting the stage for the current appellate review.

The legal challenge was initiated by the three largest PBMs and their associated pharmacies, which collectively manage mail-order and specialty prescriptions for hundreds of thousands of Arkansans. Conversely, independent pharmacies have voiced strong support for Act 624, viewing it as a crucial mechanism to address potential conflicts of interest inherent in PBM vertical integration. The outcome of this Eighth Circuit PBM vertical integration case is highly anticipated, with a decision expected in the coming months.

This case centers on whether the Arkansas Act 624 PBM pharmacy ownership ban represents an unlawful favoritism toward local businesses or a legitimate regulatory measure to ensure fair competition and patient protection. The arguments presented before the appellate panel, comprising U.S. Circuit Judges Bobby E. Shepherd, L. Steven Grasz, and David R. Stras, delved deeply into the nuances of state authority versus federal commerce protections.

Representing the state, attorney Joseph Nelson articulated Arkansas's core rationale for Act 624 pharmacy benefit managers. He asserted that when PBMs own pharmacies, it creates an "irresistible opportunity" for them to engage in predatory and anti-competitive practices. Nelson emphasized that the law's primary objective is to safeguard patients by fostering fair competition within the pharmaceutical market.

Nelson countered claims of discrimination by arguing that Act 624 applies uniformly to all vertically integrated pharmacies, irrespective of their origin. He contended that the Dormant Commerce Clause, a central point of contention in this Arkansas PBM ban, does not grant out-of-state entities a "get-out-of-jail-free card" from state regulation when their practices are deemed harmful or anti-competitive. Nelson further highlighted that non-integrated national chains, such as Walgreens, Kroger, and Amazon, would not be affected by the ban and would, in fact, benefit from a more level playing field. He also suggested that PBM-owned pharmacies facing the ban could simply sell their operations, potentially to other out-of-state entities like Walgreens, without significant disruption to patient care.

Conversely, attorney Jeffrey B. Wall, arguing on behalf of the PBM companies in this Jeffrey B. Wall PBM challenge, characterized Act 624 as a clear instance of "textbook favoritism." He maintained that the law represents a "clear violation" of the Dormant Commerce Clause's established test for discrimination. Wall pointed to the explicit language of the statute itself as protectionist and cited legislative history "rife with protectionist rhetoric," including a sponsor's statement expressing a desire to keep business within Arkansas rather than allowing "big companies" to "suck our business and tak[e] it out of Arkansas."

Wall also warned the court of significant real-world consequences should the Arkansas PBM ban be upheld. He projected that enforcing Act 624 would force approximately one-in-five Arkansans to find new pharmacies for their prescriptions. Furthermore, he estimated that over 50 pharmacies would be compelled to close, leading to the termination of pharmacists and impacting the fulfillment of five to six million prescriptions annually. These potential disruptions, Wall argued, underscore the discriminatory and impractical nature of the state's legislation.

The appellate judges actively engaged with both legal teams, probing the specifics of the Arkansas Act 624 PBM pharmacy ownership ban. Judge L. Steven Grasz, a Donald Trump appointee, questioned Joseph Nelson on the threshold at which a ban on vertical integration crosses into illegal discrimination against out-of-state companies. Nelson responded that no court has ever invalidated such a ban on those grounds, noting that non-integrated out-of-state chains remain unaffected. Judge David R. Stras, another Trump appointee, inquired whether lawmakers crafted a facially neutral rule with the implicit understanding that it would primarily impact large, out-of-state entities. Nelson reiterated that the legislative intent was centered on patient welfare, not protectionism.

Judge Bobby E. Shepherd, a George W. Bush appointee, sought clarification on the statutory phrase "locally operated pharmacies." Nelson explained that this referred to brick-and-mortar locations rather than ownership structure. However, Jeffrey B. Wall countered that this phrase, combined with the legislative record and last-minute carve-outs for Walmart, strongly indicated a discriminatory target. This Eighth Circuit decision will establish a significant precedent regarding state authority to regulate pharmacy benefit manager (PBM) vertical integration under the Dormant Commerce Clause, dictating potential compliance exposures for PBM business models and informing future state-level regulatory efforts concerning healthcare competition. The resolution of this Joseph Nelson Arkansas PBM case will be closely watched by legal professionals and industry stakeholders alike.

This Eighth Circuit decision will establish a significant precedent regarding state authority to regulate pharmacy benefit manager (PBM) vertical integration under the Dormant Commerce Clause. Lawyers advising PBMs, pharmacies, or state legislative bodies should monitor the outcome closely, as it will dictate potential compliance exposures for PBM business models and inform future state-level regulatory efforts concerning healthcare competition.

Source: Original reporting via Court News Service