Pharmacy benefit managers (PBMs) are suing the state of Arkansas over a new law, Act 900. PBMs are hired by employers and public programs to manage prescription drug benefits.

PBMs lower the cost of prescription drug plans by negotiating with pharmaceutical companies for favorable pricing, pushing for the use of generic drugs, and negotiating with pharmacies and drugstores for better payment rates.

Act 900 in Arkansas is the first-of-its kind law that guarantees pharmacies will be reimbursed the amount their invoices show they spent on generic drugs, whether or not the pharmacies shopped around and got the best deal possible, and whether or not the invoice actually reflects whether they received discounts off the “list price” of the drug. The law basically holds PBMs to the amount a pharmacy asks for, which means Arkansas pharmacies are guaranteed a profit on generic drugs.

That may sound reasonable, but it is not the way a free-market economy works. Businesses are not guaranteed profits, they have to be smart and understand their industry. In addition, it stands to reason that if a business is guaranteed a profit at the expense of another business, someone is going to pay the price – and that is likely to be the consumer.

The law will reduce pharmacies’ motivation to buy drugs from large wholesalers at better deals and lower prices. Act 900 also overlooks discounts, rebates or other ways drugstores may have actually purchased the drugs for less than the amount listed on an invoice.

Removing competitive forces from a free-market economy and protecting profits for certain special interest groups will cause health care to become even less affordable. Perhaps reevaluating the role government regulations play in driving up the cost of health care is a better approach than passing new, anti-free market legislation. The best way to expand quality health care at affordable prices is through a free-market approach, and Act 900 does not appear to advance such a goal.