Eighth Circuit grills Iowa on law regulating healthcare middlemen

While the state says its statute aims to preserve competition and help consumers, employers and plan sponsors are fighting to throw out the entire legislation.(CN) — Iowa attorneys urged an Eighth Circuit panel Tuesday to reinstate Iowa’s sweeping law regulating healthcare intermediaries, arguing a lower court overreached in blocking key protections designed to rein in abuse in the pharmacy system.The state seeks to overturn the lower court order largely blocking enforcement of a 2025 law — Senate File 383 — that imposes strict regulations on pharmacy benefit managers and health benefit plans designed to curb anti-competitive practices.Pharmacy benefit managers are third-party companies that act as middlemen in the U.S. prescription drug supply chain. These managers create and maintain lists of covered medications, negotiate rebates and discounts and build networks of participating pharmacies.Iowa Deputy Solicitor General Patrick Valencia told judges the various business and healthcare groups that sued to block the law lack standing because the provisions only directly regulate pharmacy benefit managers. The judges expressed strong skepticism.“To me, you’re the one pushing for a novel result,” U.S. Circuit Judge James Loken said, noting plaintiffs suing over federal preemption of state laws governing benefit plans have routinely been allowed to challenge healthcare regulations. “Nobody’s ever thrown anything like this out for lack of standing.”Loken, a George H.W. Bush appointee, pressed Valencia on whether the state’s rigid view of standing meant employers and plan sponsors could only bring a suit if a state law immediately threatened their existence.Anthony Shelley, attorney for the health plans and business groups, added that harm to pharmacy middlemen directly affects his clients, as legal liability, fines or compliance penalties levied against intermediaries can be passed directly back to the health plans.“We’re the health plan, that injunction isn’t just against the PBM, it’s against us,” he said, referring to pharmacy benefit managers.Iowa Governor Kim Reynolds signed the law in June 2025 to combat poor business practices by healthcare intermediaries — which the state identifies as predatory reimbursement rates, self-dealing with affiliated pharmacies and steering patients away from local independent pharmacies.In response, the Iowa Association of Business and Industry, alongside several self-funded Employee Retirement Income Security Act plan sponsors, sued Iowa Insurance Commissioner Doug Ommen to block the law.In July 2025, a lower federal court preliminarily enjoined 13 provisions of the law, prompting the appeal to the Eighth Circuit. While Iowa seeks a complete reversal, the health and business groups are asking the appellate panel to throw out the entire statute.Iowa argues without the law, widespread closures of community pharmacies will hurt patients’ access to care across the state — though health plan sponsors claim what these intermediaries do is a fiduciary requirement.“PBMs must help the beneficiaries determine how they can get the benefits at the cheapest cost,” Shelley said.Iowa says the law is shielded by the ERISA Insurance Savings Clause, which protects state laws regulating insurance, banking or securities from being wiped out by federal preemption — though the bench again pushed back.“I don’t think that’s what we have here,” U.S. Circuit Judge Morris Arnold, also a George H.W. Bush appointee, said. “This is a statute that deals with the relationship between PBMs and providers and plan owners; that’s not an insurance dispute.”Also at issue Tuesday was Iowa’s decision to hastily pass the law instead of giving time for healthcare plan companies to adjust their coverage, as the statute was to take effect shortly after it was signed.“The Legislature got very aggressive and made the statute effective within essentially 15 days after it was signed,” Shelley said. “We admit that if the state had been less aggressive and, say, set up the 2028 plan year or even the 2027 plan year for something like this, that might be a different story.”While many states have sought to regulate pharmacy benefit managers, Iowa’s law is thought to be the most expansive statute in the nation, as it directly addresses health benefit plans and carriers.U.S. Circuit Judge Ralph Erickson, a Donald Trump appointee, rounded out the panel.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads