Can a pharmacy benefits manager enforce an 'effective rate pricing' clause against a small local Louisiana pharmacy through its contract with a middleman PSAO?

Plain-English summary

A state representative asked the AG whether pharmacy benefit managers (PBMs) can enforce "effective rate pricing" (ERP) clauses against small Louisiana pharmacies, even when the clause sits inside a contract between the PBM and a Pharmacy Services Administrative Organization (PSAO) rather than directly with the pharmacy. The AG said no.

PBMs sit between drug manufacturers, insurers, and pharmacies, setting reimbursement rates and managing pharmacy networks. Many small "local pharmacies," those with fewer than ten retail outlets in a Louisiana parish, contract with a PSAO to negotiate on their behalf with PBMs, because they lack the size to negotiate directly. Some of those PBM-PSAO contracts contain ERP clauses that let the PBM set an aggregate reimbursement target across the whole PSAO network and then claw back "overpayments" by withholding future reimbursements until the network hits that target, even when an individual pharmacy's own drug costs justified its reimbursement.

The AG's answer turns on a single statute, La. R.S. 22:1863(2), which defines "Maximum Allowable Cost List" and specifically carves out ERP as something a PBM "may use... for a pharmacist or pharmacy that is not a local pharmacy." Applying the legal principle that naming one thing excludes what is not named, the AG read that language as barring PBMs from applying ERP to local pharmacies at all, whether the PBM does it directly or funnels it through a PSAO contract.

The opinion adds two more layers of support. First, La. R.S. 22:1860.2 bars a PBM from charging or holding a pharmacy responsible for fees that were not apparent at the time a claim was processed, not on the remittance advice, or applied after the claim was already adjudicated, exactly what a clawback-style ERP withholding does. Second, because PSAOs act as the pharmacies' negotiating agents (mandataries, under Louisiana civil law), they owe the pharmacies a fiduciary duty, and letting ERP apply to a local pharmacy through the PSAO's own contract would put the PSAO in breach of that duty.

What this means for you

Independent and local pharmacy owners. If your reimbursement is being reduced or withheld under an ERP-style clause in a contract your PSAO signed with a PBM, this opinion supports the position that the clause cannot lawfully be applied to you if you qualify as a "local pharmacy" (fewer than ten retail outlets under common ownership in a Louisiana parish, contracting through your own name or a PSAO).

PSAOs negotiating on behalf of local pharmacies. The opinion frames PSAOs as fiduciaries (mandataries under Louisiana Civil Code articles 2989 and 3001) of the local pharmacies they represent. Agreeing to an ERP clause that gets applied against those pharmacies risks a breach-of-fiduciary-duty claim, separate from any statutory violation by the PBM.

Legislators and insurance regulators. The opinion works from the existing statutory carve-out in La. R.S. 22:1863(2) rather than proposing new legislation. If enforcement disputes continue, this office's reading gives regulators and prosecutors a textual basis to act against ERP clauses reaching local pharmacies through PSAO contracts.

Healthcare and pharmacy attorneys. The opinion cites three out-of-state federal cases (Lackie Drug Store, Physician Specialty Pharmacy, Park Irmat Drug Corp.) as background on how PBMs have argued pharmacies are bound by PBM-PSAO contracts as the PSAO's principals. None of those cases actually decided the enforceability question; they are cited for factual context on how the PBM-PSAO-pharmacy relationship plays out in litigation elsewhere, not as controlling precedent on Louisiana law.

Common questions

Q: What counts as a "local pharmacy" under Louisiana law?
A: Under La. R.S. 46:460.36(A), a local pharmacy is one domiciled in at least one Louisiana parish with fewer than ten retail outlets under its corporate umbrella, contracting with a managed care organization or its contractor in its own name or through a PSAO, and not under a group purchasing organization's authority.

Q: Can a PBM ever use effective rate pricing in Louisiana?
A: Yes, but only against pharmacies or pharmacists that do not meet the "local pharmacy" definition. The statute expressly permits ERP for non-local pharmacies.

Q: If my PSAO signed a contract letting the PBM apply ERP to me, is that contract void?
A: The opinion concludes the ERP clause is unenforceable against the local pharmacy under the statute; it does not address whether the broader contract is void or what remedies (damages, injunction) would be available. That is a separate legal question outside this opinion's scope.

Q: Does this opinion require my PSAO to give me a copy of its full contract with the PBM?
A: The opinion notes that La. R.S. 22:1857.1 requires an organization representing independent pharmacies to provide them with a copy of new contracts, amendments, and related provider documentation concerning the pharmacy's network participation, but the requester did not ask the AG to opine on whether failing to provide an unredacted copy is an unfair trade practice, and the opinion does not answer that question.

Background and statutory framework

Pharmacy Benefit Managers and PSAOs. PBMs administer prescription drug benefits for most insured Americans, negotiating reimbursement rates and building pharmacy networks. Because individual small pharmacies often lack bargaining power, many join a PSAO, which negotiates contract terms with PBMs on their behalf.

The Maximum Allowable Cost List statute. La. R.S. 22:1863(2) defines a Maximum Allowable Cost List and states that a PBM "may use effective rate pricing for a pharmacist or pharmacy that is not a local pharmacy or local pharmacist as defined in R.S. 46:460.36(A)." The AG read the specific carve-out for non-local pharmacies as an implicit bar on using ERP against local pharmacies.

The fee-timing protection statute. La. R.S. 22:1860.2(A) prohibits a health insurance issuer or PBM from directly or indirectly holding a pharmacy responsible for a fee tied to a claim that was not apparent at claim processing, not reported on the remittance advice, or applied after the claim was already adjudicated.

PSAO fiduciary status. Because PSAOs negotiate and contract on behalf of local pharmacies, they are mandataries under La. CC. art. 2989, owing a fiduciary duty of prudence and diligence under La. CC. art. 3001, reinforced by La. R.S. 22:1660.9(A)'s duties of care, competence, good faith, fair dealing, and loyalty for organizations acting as a pharmacy's agent.

Liz Murrill is the Attorney General of Louisiana. Jesse Moroux signed the opinion as Assistant Attorney General.

Citations and references

Statutes:
- La. R.S. 22:1863(2) (Maximum Allowable Cost List; ERP carve-out for non-local pharmacies)
- La. R.S. 22:1860.2 (bars fees not apparent at claim processing, not on remittance advice, or applied post-adjudication)
- La. R.S. 46:460.36 (definition of "local pharmacy")
- La. R.S. 22:1857.1 (PSAO obligation to provide pharmacies copies of contracts and amendments)
- La. CC. art. 2989 (definition of mandate)
- La. CC. art. 3001 (mandatary's duty of prudence and diligence)
- La. R.S. 22:1660.9 (PSAO duties of care, competence, good faith, loyalty)

Cases cited (background only, not controlling):
- Lackie Drug Store, Inc. v. OptumRx, Inc., 2024 WL 505519 (E.D. Ark. Jan. 30, 2024)
- Physician Specialty Pharmacy, LLC v. Prime Therapeutics, LLC, 2019 WL 6910145 (D. Minn. Dec. 19, 2019)
- Park Irmat Drug Corp. v. Optumrx, Inc., 152 F.Supp.3d 127 (S.D.N.Y. 2016)

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/25-0044

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

STATE OF LOUISIANA
DEPARTMENT OF JUSTICE
OFFICE OF THE ATTORNEY GENERAL
P.O. Box 94005
BATON ROUGE, LA 70804-9005

LIZ MURRILL
ATTORNEY GENERAL

June 25, 2025

OPINION 25-0044

61-C LAWS - Special Legislation
La. R.S. 22:1860.2, La. R.S. 22:1863, La. R.S. 46:460.36, LAC 37:XIII.18509

The Honorable Michael Echols
Representative District 14
300 Washington Street, Suite 203
Monroe, LA 71201

An Effective Rate Pricing clause in a contract between a Pharmacy Benefits Manager and a Pharmacy Services Administrative Organization that is contracting on behalf of a "local pharmacy" as defined by La. R.S. 46:460.36(A), is not enforceable against the local pharmacy.

Dear Representative Echols:

Our office received your request for an opinion regarding the enforceability of effective rate pricing contractual clauses against a "local pharmacy," a statutorily defined term that refers to a pharmacy domiciled in at least one Louisiana parish with fewer than ten retail outlets under its corporate umbrella, in light of La. R.S. 22:1863(2).

Question: Are Effective Rate Pricing clauses in contracts entered into between Pharmacy Services Administrative Organizations, as agents for local pharmacies, and Pharmacy Benefits Managers enforceable against the local pharmacies?

Conclusion: An Effective Rate Pricing clause in a contract between a Pharmacy Benefits Manager and a Pharmacy Services Administrative Organization that is contracting on behalf of a "local pharmacy," as defined by La. R.S. 46:460.36(A), is not enforceable against the local pharmacy.

Background

Pharmacy Benefits Managers (PBMs) manage prescription drug insurance benefits for the vast majority of Americans, including Louisiana residents. PBMs operate as middlemen in the drug supply chain, connecting drug manufacturers, plan sponsors (such as insurance companies or employers), pharmacies, and ultimately consumers. As noted in your request, PBMs create pharmacy networks and determine prescription drug reimbursements, drug coverage, and patient out-of-pocket costs. PBMs also reimburse pharmacies for prescription drugs.

To access the large pharmacy networks created by PBMs, many local pharmacies contract with Pharmacy Services Administrative Organizations (PSAOs) to negotiate and execute contracts with PBMs. You advise that the contracts between PBMs and PSAOs, acting as agents for local pharmacies, often contain Effective Rate Pricing (ERP) clauses. You further advise that PBMs use these clauses to set pharmacy reimbursement rates, ostensibly to stabilize pharmacy reimbursement and prevent over- or under-reimbursements throughout a defined period. Because PBMs do not determine ERP until the end of that period, the initial reimbursement rate may differ from the final rate.

In addition, you advise that the ERP clauses in the PBM-PSAO contracts are enforced against local pharmacies. Specifically, ERP clauses allow PBMs, through the PSAO, to impose an aggregate contractual rate on all local pharmacies within the PSAO. Instead of ensuring each local pharmacy meets the contractual rate for a particular prescription drug on an individual basis, PBMs group every local pharmacy in the network together to guarantee the PBM pays no more than the contractual rate for a particular prescription drug across the whole network, regardless of the varying drug acquisition costs. When a PBM audit identifies a potential overpayment on a local pharmacy's prescription drug claims, the PBM withholds future reimbursements via the pharmacy's PSAO until the aggregate contractual rate is achieved. You further advise that ERP clauses prevent local pharmacies from accurately predicting revenue, which impedes cash flow. As a result, local pharmacies cannot afford to maintain inventory or provide care for their patients.

Analysis

La. R.S. 22:1863(2) provides:

"Maximum Allowable Cost List" means a listing of the National Drug Code used by a pharmacy benefit manager setting the maximum allowable cost on which reimbursement to a pharmacy or pharmacist may be based. "Maximum Allowable Cost List" shall include any term that a pharmacy benefit manager or a healthcare insurer may use to establish reimbursement rates for generic and multi-source brand drugs to a pharmacist or pharmacy for pharmacist services. The term "Maximum Allowable Cost List" shall not include any rate mutually agreed to and set forth in writing in the contract between the pharmacy benefit manager and the pharmacy or its agent and shall not include the National Average Drug Acquisition Cost. A pharmacy benefit manager may use effective rate pricing for a pharmacist or pharmacy that is not a local pharmacy or local pharmacist as defined in R.S. 46:460.36(A).

La. R.S. 22:1863(2) (emphasis added). This statute clearly and unambiguously provides that a PBM may use ERP for a pharmacist or pharmacy that is not a local pharmacy or local pharmacist. Applying the canon of statutory interpretation "expressio unius est exclusio alterius," the inclusion of one thing implies the exclusion of the other, it follows that the Louisiana Legislature did not intend for PBMs to use ERP for a local pharmacy or local pharmacist. Moreover, the plain language of the statute is not restricted to a PBM's use of ERP via contract. Thus, it is the opinion of this office that, under La. R.S. 22:1863(2), a PBM may not use ERP for a local pharmacy, whether through direct contract with the local pharmacy or any other means.

In addition, La. R.S. 22:1860.2 provides:

A. A health insurance issuer or a pharmacy benefit manager shall not directly or indirectly charge or hold a pharmacist or pharmacy responsible for any fee related to a claim that is any of the following:

(1) Not apparent at the time of claim processing.

(2) Not reported on the remittance advice of an adjudicated claim.

(3) After the initial claim is adjudicated.

If a PBM uses ERP to withhold future reimbursement to a local pharmacy via the pharmacy's PSAO, the PBM violates La. R.S. 22:1860.2 by indirectly holding the local pharmacy responsible for a fee related to a claim after the point of adjudication.

Furthermore, because the contracts between PSAOs and local pharmacies authorize the PSAO to negotiate and enter into contracts on the local pharmacies' behalf, PSAOs are mandataries of the local pharmacies in their network. See La. CC. art. 2989 ("A mandate is a contract by which a person, the principal, confers authority on another person, the mandatary, to transact one or more affairs for the principal."). As a mandatary, the PSAO has a fiduciary duty to the local pharmacy. See La. CC. art. 3001 ("The mandatary is bound to fulfill with prudence and diligence the mandate he has accepted. He is responsible to the principal for the loss that the principal sustains as a result of the mandatary's failure to perform."). In addition to this general fiduciary duty, a PSAO "that contracts with a pharmacy to perform any activity related to prescription drug benefits or to act as the pharmacy's agent is obligated to that pharmacy for the duties of care, competence, good faith and fair dealing, and loyalty." La. R.S. 22:1660.9(A). Since Louisiana law does not allow PBMs to use ERP for a local pharmacy, a PSAO breaches its fiduciary duties to local pharmacies in its network if it allows ERP to be applied to those local pharmacies by virtue of an intermediary contract.

Finally, we note that PBMs routinely contend that pharmacies are bound by the terms of contracts entered into by the PBM and the PSAO as the authorized contracting agent for the pharmacy. Thus, PBMs recognize that PSAOs are acting as agents, or mandataries, of local pharmacies when negotiating and entering into contracts with PBMs.

Based on the foregoing, it is the opinion of this office that an ERP clause contained in a contract between a PBM and a PSAO contracting on behalf of a local pharmacy is unenforceable against the local pharmacy.

We trust that this opinion of the Attorney General adequately responds to your inquiry. However, if our office can be of further assistance, please do not hesitate to contact us.

With best regards,

LIZ MURRILL
ATTORNEY GENERAL

BY:
Jesse Moroux
Assistant Attorney General

LM:JWM

Footnotes referenced in the opinion:

1. La. R.S. 46:460.36.
2. [Reference incomplete in the source PDF.]
3. See LAC 37:XIII.18509, promulgated by the commissioner of insurance governing PSAOs, which provides that the "roles and responsibilities solely within the purview of" PSAOs include: negotiating contracts, drug reimbursement rates, payments, and audit terms on behalf of pharmacy clients with PBMs; and developing pharmacy networks by using contracts that generally authorize PSAOs to interact with PBMs.
4. You advise that local pharmacies are generally not provided with a complete copy of the PBM-PSAO contract. As you note, La. R.S. 22:1857.1 requires an organization representing independent pharmacies to provide them with a copy of any new contract, provider agreement, amendment to such contract or agreement, or other provider documentation concerning the pharmacy's network participation with a third party payor. Although you suggest that the failure of PSAOs to provide unredacted copies of contracts with PBMs is an unfair trade practice, you have not requested an opinion on this issue.
5. La. R.S. 22:1863(2) (emphasis added).
6. See, e.g., Lackie Drug Store, Inc. v. OptumRx, Inc., 4:20CV1515 JM, 2024 WL 505519, at 1 (E.D. Ark. Jan. 30, 2024) (PBM contended that PSAO entered into network agreement as the plaintiff pharmacy's authorized contracting agent; plaintiff initially contested but, after further discovery, acknowledged that it was bound by the agreement between the PBM and the PSAO of which the pharmacy was a member); Physician Specialty Pharmacy, LLC v. Prime Therapeutics, LLC, 18-CV-1044 (MJD/TNL), 2019 WL 6910145, at 2 (D. Minn. Dec. 19, 2019) (PBM asserted that plaintiff pharmacy was bound by the PBM-PSAO contract because the PSAO, as the pharmacy's agent, authorized the pharmacy's participation in the PBM's network through that contract; court decided the motion before it without deciding this issue); and Park Irmat Drug Corp. v. Optumrx, Inc., 152 F.Supp.3d 127, 135-36 (S.D.N.Y. 2016) (PBM asserted, and court agreed, that plaintiff pharmacy was bound by agreement between its agent PSAO and a PBM).