Prime Therapeutics Llc, V. Office Of The Insurance Commissioner

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

PRIME THERAPEUTICS LLC,
DIVISION ONE
Appellant,
No. 84030-4-I
v.
PUBLISHED OPINION
WASHINGTON STATE OFFICE OF
INSURANCE COMMISSIONER,

Respondent.

DWYER, J. — Recognizing the economic challenges faced by retail

pharmacies, particularly those in rural and underserved communities, our state

legislature enacted legislation regulating the pharmacy benefit managers that

contract with such pharmacies. In so doing, our legislature established

regulatory oversight of pharmacy benefit manager reimbursement decisions and

an appeals process whereby pharmacies can seek review of such decisions. In

subsequent amendments to the legislation, our legislature broadened the

categories of reimbursement decisions within the law’s regulatory reach.

Here, Prime Therapeutics, a pharmacy benefit manager (PBM), appeals

from eight final orders of the Office of the Insurance Commissioner (OIC), which

concluded that the PBM failed to comply with regulatory requirements in

reimbursing claims submitted by Cle Elem Pharmacy. Prime Therapeutics

asserts on appeal, as it did during administrative proceedings, that the pertinent
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No. 84030-4-I/2

statute is inapplicable to those reimbursement claims. Because the PBM’s

preferred interpretation of the statute contravenes both the administrative code

and the statute’s plain language, this contention is unavailing. We additionally

conclude that Prime Therapeutics’ assertion that the statute contravenes our

state and federal contract clauses is without merit. Accordingly, we affirm the

OIC’s final orders.

I

A

Prime Therapeutics is a PBM that acts as an intermediary between the

pharmacies with which it contracts and pharmaceutical manufacturers to

administer the prescription drug benefit portions of health care plans. See H.B.

REP. ON ENGROSSED SUBSTITUTE S.B. 5857, at 2, 64th Leg., Reg. Sess. (Wash.

2016). Cle Elem Pharmacy, a retail pharmacy with fewer than 15 retail outlets in

Washington, contracts with Prime Therapeutics. According to Prime

Therapeutics, the parties’ agreement provides that claims submitted by Cle Elem

Pharmacy may be reimbursed pursuant to a maximum allowable cost (MAC) list

or a reimbursement rate calculated from the Average Wholesale Price (AWP).1

Pursuant to the contract, the “‘MAC’ means the list delineating the maximum per

unit reimbursement as established and solely determined by Prime for a multiple

source prescription drug . . . at the time a claim is processed.” The AWP is “the

1 Neither during administrative proceedings nor on appeal did Prime Therapeutics submit

the portions of the parties’ contract setting forth the terms for reimbursement decisions. Instead,
the PBM submitted only the definitions for MAC and AWP provided in the agreement.

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average wholesale price of a Prescription Drug Service at the time a claim is

processed as established in Prime’s price file for that date of service.”

From May 2019 through March 2020, Cle Elem Pharmacy filled 11

prescriptions for the drug Levorphanol for the same patient. After confirming

available prices with three national drug wholesalers, the pharmacy obtained the

drug for the lowest of the three prices. Cle Elem Pharmacy then submitted the

11 reimbursement claims to Prime Therapeutics.

After receiving the claims, Prime Therapeutics reimbursed Cle Elem

Pharmacy significantly less for each claim than the amount that the pharmacy

had paid to obtain the drugs. The pharmacy filed appeals of the reimbursement

decisions to the PBM, and Prime Therapeutics agreed to increase the

reimbursement amount paid on two of the 11 claims. Those claims, the PBM

explained, were paid from the “MAC list.” However, Prime Therapeutics asserted

that the remaining nine claims were “not paid pursuant to the MAC list,” but

instead “reimbursed pursuant to the parties’ contractual reimbursement rate,

calculated based off of the agreed-upon AWP price.” Following a further appeal

on one of the claims, the OIC ordered Prime Therapeutics to reimburse the

pharmacy for the underpaid amount.

In June 2021, Cle Elem Pharmacy submitted to the OIC a small pharmacy

benefits appeal, challenging Prime Therapeutics’ reimbursement of the remaining

eight claims. Prime Therapeutics asserted that the statute governing

reimbursement decisions and appeals resulting therefrom, former RCW

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19.340.100 (2016)2, did not apply to Cle Elem Pharmacy’s claims. According to

the PBM, this is so because it reimbursed those claims pursuant to the parties’

contract, rather than pursuant to a “predetermined list price (also referred to as a

MAC price).”

Administrative law judges (ALJs) with the Office of Administrative

Hearings thereafter held adjudicative proceedings to determine whether the

pertinent statute applied to Cle Elem Pharmacy’s eight remaining claims. The

ALJs issued eight initial orders concluding that the pharmacy, pursuant to former

RCW 19.340.100, was entitled to reimbursement from Prime Therapeutics for the

full amount of each claim. The initial orders also imposed on Prime Therapeutics

a civil penalty of $1,000 for each claim, as authorized by former chapter 19.340

RCW.

Prime Therapeutics filed a petition for review of each of the eight initial

orders. In August 2021, the OIC’s reviewing officer issued eight final orders

affirming the initial orders. In each final order, the reviewing officer concluded

that, pursuant to former chapter 19.340 RCW, Cle Elem Pharmacy is entitled to

reimbursement for the full amount of each of the eight claims. The reviewing

officer additionally upheld the civil penalty of $1,000 imposed in each of the initial

orders.

Prime Therapeutics filed a petition for review of the agency’s final orders

in the superior court. The appeal was ultimately transferred to this court for direct

review.

2 Former RCW 19.340.100 (2016) has been recodified as RCW 48.200.280.

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B

The history of our state legislature’s efforts to regulate PBMs informs our

understanding of the issues in this case. Both the impetus for this legislation and

our legislature’s later amendments to expand its regulatory scope illuminate the

circumstances our legislature sought to address.

In 2014, our legislature sought for the first time to regulate PBMs by

setting reimbursement standards and providing an appeals process for

pharmacies to challenge PBM reimbursement decisions. S.B. REP. ON

ENGROSSED SUBSTITUTE S.B. 6137, 63d Leg., Reg. Sess. (Wash. 2014); H.B. REP.

ON ENGROSSED SUBSTITUTE S.B. 6137, 63d Leg., Reg. Sess. (Wash. 2014).

Public testimony evidenced the economic challenges faced by Washington

pharmacies, especially those in rural and underserved communities, which were

described as being in a “desperate state.” S.B. REP. ON ENGROSSED SUBSTITUTE

S.B. 6137, at 3. See also H.B. REP. ON ENGROSSED SUBSTITUTE S.B. 6137, at 2-4.

Testimony indicated that “[t]he growth of the [PBM] business has resulted in

business practices . . . that have made it hard for pharmacies to stay in

business.” H.B. REP. ON ENGROSSED SUBSTITUTE S.B. 6137, at 4. Pharmacists

reported taking “huge financial losses on some drugs” because “they are

consistently reimbursed less [than] they paid for the drugs.” S.B. REP. ON

ENGROSSED SUBSTITUTE S.B. 6137, at 3.

In response to such testimony, our legislature enacted a bill restricting

PBMs to setting a “maximum allowable cost” only for drugs falling within certain

categories. The legislation additionally required PBMs to establish a process

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whereby pharmacies could appeal PBM reimbursement decisions for such drugs.

ENGROSSED SUBSTITUTE S.B. 6137, § 10(2)(a), (3), 63d Leg., Reg. Sess. (Wash.

2014). The 2014 legislation defined “maximum allowable cost” as “the maximum

amount that a [PBM] will reimburse a pharmacy for the cost of a drug.”

ENGROSSED SUBSTITUTE S.B. 6137, § 10(1)(b). It provided that a pharmacy “may

appeal [to the PBM] a maximum allowable cost if the reimbursement for the drug

is less than the net amount that the . . . pharmacy paid to the supplier of the

drug.” ENGROSSED SUBSTITUTE S.B. 6137, § 10(3). Thus, pursuant to the 2014

legislation, when a PBM reimbursed a pharmacy for the cost of a drug for which

the PBM had set a “maximum allowable cost,” the pharmacy could appeal from

that decision through an internal appeals process. ENGROSSED SUBSTITUTE S.B.

6137, § 10(1)(a), (3). The legislation required that, if the PBM denied the

pharmacy’s appeal, the PBM was required to provide the reason for the denial

and demonstrate that the pharmacy could obtain the drug “at a price that is equal

to or less than the maximum allowable cost” set by the PBM. ENGROSSED

SUBSTITUTE S.B. 6137, § 10(4)(c).

Our legislature again addressed the issue of PBM reimbursement

practices in its 2016 legislative session. Testimony indicated that pharmacies

continued to be reimbursed by PBMs in amounts substantially less than the

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purchasing costs for many prescription drugs.3 S.B. REP. ON FIFTH ENGROSSED

SUBSTITUTE S.B. 5857, at 3, 64th Leg., Reg. Sess. (Wash. 2016); H.B REP. ON

FIFTH ENGROSSED SUBSTITUTE S.B. 5857, at 5, 64th Leg., Reg. Sess. (Wash.

2016). Testimony noted “tremendous losses,” particularly for small pharmacies,

which are “often the only pharmacies available for miles.” H.B. REP. ON FIFTH

ENGROSSED SUBSTITUTE S.B. 5857, at 5. Our legislature thus adopted

amendments and additions to the prior law that (1) provide enforcement authority

to the OIC, (2) expand the PBM reimbursement decisions that are subject to

regulation, and (3) when certain conditions are met, require PBMs to uphold

reimbursement appeals of pharmacies with fewer than 15 retail outlets in the

state. FIFTH ENGROSSED SUBSTITUTE S.B. 5857, § 4(1)(a), (3), (6), 64th Leg., Reg.

Sess. (Wash. 2016).

Pertinent here, the 2016 legislation expanded the categories of PBM

reimbursement decisions from which a contracting pharmacy may appeal. The

legislation adopted in 2014 required a PBM to provide an appeals process for

reimbursement decisions applicable to drugs for which the PBM had set a

“maximum allowable cost.” ENGROSSED SUBSTITUTE S.B. 6137, § 10(3)

(emphasis added). In contrast, the current law, adopted in 2016, provides that a

pharmacy “may appeal its reimbursement for a drug subject to predetermined

3 A summary of public testimony on the proposed legislation states:

Despite the [2014] law, [pharmacies] continue to be paid below costs for the
product and we cannot sustain the business this way. The [PBMs] are not
following the law with the appeals process or listing of market prices. They
continue to deny requests for reimbursement of the cost of the drugs. The PBMs
are not updating the costs of the drugs to reflect the market prices [pharmacies]
must pay.
S.B. REP. ON FIFTH ENGROSSED SUBSTITUTE S.B. 5857, at 3.

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reimbursement costs for multisource generic drugs.” FIFTH ENGROSSED

SUBSTITUTE S.B. 5857, § 4(3) (emphasis added). In elsewhere setting forth which

drugs a PBM may place on a cost-limiting “list,” the 2016 legislation provides that

a “list” is “the list of drugs for which predetermined reimbursement costs have

been established, such as a maximum allowable cost or maximum allowable cost

list or any other benchmark prices utilized by the [PBM].” FIFTH ENGROSSED

SUBSTITUTE S.B. 5857, § 4(1)(a) (emphasis added).4

Thus, in 2016, our legislature expanded the scope of regulation of PBMs’

reimbursements to contracting pharmacies, particularly those pharmacies in rural

and underserved communities, which sustain more significant economic loss due

to under-reimbursement. Our legislature did so by broadening the categories of

PBM reimbursement decisions encompassed within the law. Whereas only

reimbursement for drugs subject to a “maximum allowable cost” were previously

regulated, ENGROSSED SUBSTITUTE S.B. 6137, § 10(3), current law regulates

reimbursement for all drugs subject to “predetermined reimbursement costs.”

FIFTH ENGROSSED SUBSTITUTE S.B. 5857, § 4(1)(a). This includes drugs subject

to a “maximum allowable cost or maximum allowable cost list or any other

benchmark prices utilized by the [PBM].” FIFTH ENGROSSED SUBSTITUTE S.B.

5857, § 4(1)(a) (emphasis added).

Prime Therapeutics asserts that the reimbursement decisions at issue

here are not encompassed within the scope of this expanded regulation.

4 In contrast, the 2014 legislation, which provided an appeals process only for

reimbursement decisions for drugs for which a “maximum allowable cost” had been set, defined
“list” as only “the list of drugs for which maximum allowable costs have been established.”
ENGROSSED SUBSTITUTE S.B. 6137, § 10(1)(a), (2)(a).

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II

Prime Therapeutics first contends that former RCW 19.340.100 does not

apply to the eight reimbursement decisions from which Cle Elem Pharmacy

appealed. This is so, according to the PBM, because it reimbursed the

pharmacy according to a contractually-agreed upon rate calculated based on the

AWP, and, thus, there is no list “for which predetermined reimbursement costs

have been established.” We disagree. The administrative code definition of

“predetermined reimbursement cost” applies to the challenged reimbursement

decisions, and the plain language of the pertinent statute demonstrates a clear

intent to encompass those decisions within the legislation’s regulatory reach.

Prime Therapeutics’ assertions to the contrary are without merit.

A

1

Judicial review of a final administrative decision is governed by the

Washington Administrative Procedure Act (WAPA), chapter 34.05 RCW.

Chandler v. Office of Ins. Comm’r, 141 Wn. App. 639, 647, 173 P.3d 275 (2007).

“Reviewing courts may grant relief only if the party challenging the agency order

shows that the order is invalid for one of the reasons set forth in RCW

34.05.570(3).” Chandler, 141 Wn. App. at 647. As relevant here, we may grant

relief due to a “violation of constitutional provisions” or when “[t]he agency has

erroneously interpreted or applied the law.” RCW 34.05.570(3)(a), (d).

We review de novo “an agency’s interpretation or application of the law.”

Chi. Title Ins. Co. v. Off. of Ins. Comm’r, 178 Wn.2d 120, 133, 309 P.3d 372

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(2013). Additionally, we “interpret agency regulations as if they were statutes.”

Shimmick Constr. Co. v. Dep’t of Lab. & Indus., 12 Wn. App. 2d 770, 778, 460

P.3d 192 (2020). Pursuant to the WAPA, “[t]he error of law standard ‘allows the

reviewing court to essentially substitute its judgment for that of the administrative

body, though substantial weight is accorded the agency’s view of the law.’”

Premera v. Kreidler, 133 Wn. App. 23, 31, 131 P.3d 930 (2006) (quoting Franklin

County Sheriff’s Office v. Sellers, 97 Wn.2d 317, 325, 646 P.2d 113 (1982)). In

other words, although we “‘accord[] deference to an agency interpretation of the

law where the agency has specialized expertise in dealing with such issues,’” we

are “‘not bound by an agency’s interpretation of a statute.’” Chi. Title Ins. Co.,

178 Wn.2d at 133 (quoting City of Redmond v. Cent. Puget Sound Growth Mgmt.

Hearings Bd., 136 Wn.2d 38, 46, 959 P.2d 1091 (1998)).

2

Washington state law regulates PBM reimbursement decisions and

establishes a process whereby pharmacies may appeal from such decisions. To

this end, former RCW 19.340.100 restricts which drugs a PBM may place on a

“list” of drugs and the PBM’s obligations in maintaining and providing

transparency of that “list.”5 A “list” is defined as

the list of drugs for which predetermined reimbursement costs have
been established, such as a maximum allowable cost or maximum
allowable cost list or any other benchmark prices utilized by the

5 For instance, a PBM “[m]ay not place a drug on a list unless there are at least two

therapeutically equivalent multiple source drugs, or at least one generic drug available from only
one manufacturer, generally available for purchase by network pharmacies from national or
regional wholesalers.” Former RCW 19.340.100(2)(a). The PBM must also ensure that all drugs
on a list are “readily available for purchase” by Washington pharmacies and “are not obsolete.”
Former RCW 19.340.100(2)(b), (c). The PBM must provide for transparency regarding the list to
contracting pharmacies and regularly update any list, including “all changes in the price of drugs.”
Former RCW 19.340.100(2)(d)-(f).

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[PBM] and must include the basis of the methodology and sources
utilized to determine multisource generic drug reimbursement
amounts.

Former RCW 19.340.100(1)(a) (emphasis added).

Pursuant to authority granted by the statute, the OIC has adopted a rule

defining “predetermined reimbursement cost.” See RCW 48.200.900 (“The

insurance commissioner may adopt any rules necessary to implement this act.”).

Thus, consistent with the statute, the administrative code provides:

“‘Predetermined reimbursement cost’ means maximum allowable cost, maximum

allowable cost list, or any other benchmark price utilized by the [PBM], including

the basis of the methodology and sources utilized to determine multisource

generic drug reimbursement amounts.” WAC 284-180-130(17).

In addition to restricting the drugs for which a PBM may set predetermined

reimbursement costs, the statute requires that a PBM establish a process by

which a pharmacy “may appeal [the PBM’s] reimbursement for a drug subject to

predetermined reimbursement costs for multisource generic drugs.”6 Former

RCW 19.340.100(3). A pharmacy “may appeal a predetermined reimbursement

cost for a multisource generic drug if the reimbursement for the drug is less than

the net amount” that the pharmacy paid to the drug supplier. Former RCW

19.340.100(3). If a pharmacy with fewer than 15 retail outlets in Washington can

demonstrate that it is unable to purchase a therapeutically equivalent

6 “‘Multisource generic drug’ means any covered outpatient prescription drug for which

there is at least one other drug product that is rated as therapeutically equivalent under the
[pertinent FDA publication]; is pharmaceutically equivalent or bioequivalent, as determined by the
[FDA]; and is sold or marketed in the state during the period.” Former RCW 19.340.100(1)(c).
Prime Therapeutics does not dispute that Levorphanol, the drug at issue here, is a “multisource
generic drug.”

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interchangeable product from a supplier doing business in Washington at the

PBM’s list price, then the PBM “shall uphold the appeal of [the] pharmacy.”

Former RCW 19.340.100(3); see also WAC 284-180-505(4). In other words, the

PBM must reimburse small pharmacies, as defined by the statute, at the price

paid by such pharmacies for those drugs if the pharmacy demonstrates that it

could not find the drugs at a lower price than it ultimately paid.

However, if the PBM does not uphold the pharmacy’s appeal in this “first

tier appeal,” see WAC 284-180-505, the PBM must provide a reason for the

denial and the “national drug code of a drug that has been purchased [by other

Washington pharmacies] at a price that is equal to or less than the

predetermined reimbursement cost for [that drug].” Former RCW

19.340.100(4)(b); see also WAC 284-180-505(5). In short, for a drug subject to

“predetermined reimbursement costs,” the PBM must show that the pharmacy

could have obtained the drug at a lower price in order to deny the reimbursement

appeal. If a pharmacy’s appeal to the PBM is denied, the pharmacy “may

dispute the decision and request review by the commissioner” within 30 days.

Former RCW 19.340.100(6).

B

Here, in each of the eight final orders, the OIC reviewing officer found that

Cle Elem Pharmacy had shown that it was unable to purchase a drug

therapeutically equivalent to Levorphanol at Prime Therapeutics’ list price. The

reviewing officer further found that, in responding to the pharmacy’s appeal of its

reimbursement decisions, “Prime Therapeutics did not produce a name of a drug

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wholesaler in Washington where [the pharmacy] could acquire the drug or its

therapeutic equivalent at the price [the PBM] reimbursed.” Instead, Prime

Therapeutics denied the appeal “because the claim was reimbursed according to

the [parties’] contract.”

Indeed, Prime Therapeutics asserted, as it does here, that it “reimbursed

these claims according to the contract, not according to a predetermined list

price,” which the PBM defined as “a MAC price.” However, the reviewing officer

concluded that Prime Therapeutics

denied the appeal based on the belief that because it did not
reimburse the pharmacy using the maximum allowable cost (MAC)
list, the claim was not appealable under RCW 19.340. However,
this is not a lawful basis for denial under RCW 19.340, as the
definition of “list” specifically references “any other benchmark
prices utilized by the [PBM] . . .” in addition to the maximum
allowable cost list or maximum allowable cost.

“[B]ecause the definition of ‘list’ contemplates other benchmarks used instead of

the MAC list,” the reviewing officer concluded, “the fact that the AWP less 30

percent was the basis of the reimbursement is not a sufficient basis to deny the

appeal under RCW 19.340.100.”

1

On appeal, Prime Therapeutics contends that the challenged

reimbursements do not constitute “predetermined reimbursement costs” pursuant

to former RCW 19.340.100 and, thus, that the statute is inapplicable to those

reimbursements. The PBM asserts that, pursuant to the parties’ contract, claims

can be reimbursed based either on a MAC list or a reimbursement rate

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calculated from the AWP.7 According to Prime Therapeutics, reimbursement

rates calculated from the AWP are not “predetermined” because the AWP is

subject to change at the behest of drug manufacturers, and such changes are

outside of the PBM’s control. We disagree. Although the AWP itself is subject to

change, the formula from which reimbursement rates are calculated is itself

predetermined. Pursuant to both the administrative code provision defining

“predetermined reimbursement cost” and the plain language of former RCW

19.340.100, Cle Elem Pharmacy is entitled to full reimbursement of the eight

claims at issue here.

“The goal of statutory interpretation is to discern and carry out legislative

intent.” Bennett v. Seattle Mental Health, 166 Wn. App. 477, 483, 269 P.3d 1079

(2012). We consider the context of the entire statute is effectuating such intent.

Cannabis Action Coal. v. City of Kent, 180 Wn. App. 455, 469, 322 P.3d 1246

(2014), aff’d, 183 Wn.2d 219, 351 P.3d 151 (2015). When a statute’s meaning

“is plain on its face,” we “must give effect to that plain meaning as an expression

of legislative intent.” Dep’t of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1,

9-10, 43 P.3d 4 (2002). “We discern a statute’s plain language by considering

the text itself, amendments to the statute, and related statutory provisions.”

Columbia Riverkeeper v. Port of Vancouver USA, 188 Wn.2d 421, 437, 395 P.3d

1031 (2017). Moreover, the “‘[r]ules of statutory construction apply to

administrative rules and regulations, particularly where . . . they are adopted

7 Although Prime Therapeutics did not provide the relevant terms of the contract, the

record indicates that the PBM reimbursed Cle Elem Pharmacy for the eight claims at issue in an
amount calculated from the formula “AWP – 30%.”

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pursuant to express legislative authority.’” City of Kent v. Beigh, 145 Wn.2d 33,

45, 32 P.3d 258 (2001) (alterations in original) (quoting State v. Burke, 92 Wn.2d

474, 478, 598 P.2d 395 (1979)).

Here, both the administrative code and the pertinent statute contravene

Prime Therapeutics’ preferred interpretation of “predetermined reimbursement

cost.” First, the relevant code provision explicitly defines “any other benchmark

price utilized by the [PBM]” as a “predetermined reimbursement cost.” It

provides: “‘Predetermined reimbursement cost’ means maximum allowable cost,

maximum allowable cost list, or any other benchmark price utilized by the

pharmacy benefit manager.” WAC 284-180-130(17) (emphasis added). To

“mean” is “to serve or intend to convey, show, or indicate” or to “signify, denote,

[or] express.” WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 1398 (2002).

Accordingly, the plain language of WAC 284-180-130(17) provides that “any

other benchmark price” is necessarily a “predetermined reimbursement cost.”

Prime Therapeutics’ preferred interpretation of former RCW 19.340.100

conflicts with the code provision defining “predetermined reimbursement cost.”

The PBM asserts that, in order to be subject to former RCW 19.340.100, a

reimbursement must qualify as both a “benchmark price” and a “predetermined

reimbursement cost.”8 In other words, the PBM contends not all “benchmark

price[s]” constitute “predetermined reimbursement cost[s].” Prime Therapeutics’

interpretation requires that benchmark prices are simply a subset of

8 Prime Therapeutics does not dispute that reimbursement rates calculated from the

AWP constitute “benchmark price[s].” Rather, the PBM asserts simply that, even as “benchmark
price[s],” they are not “predetermined reimbursement cost[s].”

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predetermined reimbursement costs, where some benchmark prices could

nevertheless not qualify as predetermined reimbursement costs. The

administrative code, however, indicates that the two are equivalencies—any

benchmark prices also constitute predetermined reimbursement costs.

“We give great deference to [an agency’s] interpretation of its own

properly promulgated regulations, ‘absent a compelling indication’ that the

agency’s regulatory interpretation conflicts with legislative intent or is in excess of

the agency’s authority.’” Litchfield v. KPMG, LLP, 170 Wn. App. 431, 441, 285

P.3d 172 (2012) (internal quotation marks omitted) (quoting Silverstreak, Inc. v.

Dep’t of Lab. & Indus., 159 Wn.2d 868, 884, 154 P.3d 891 (2007)). Here, our

legislature expressly provided that the OIC “shall have enforcement authority

over [former] chapter 19.340 RCW” and “may adopt rules to implement [that]

chapter.” FIFTH ENGROSSED SUBSTITUTE S.B. 5857, § 5(2), (3). Prime

Therapeutics’ preferred interpretation of the pertinent statute contravenes the

definition of “predetermined reimbursement cost” properly adopted by the OIC.

Absent an indication that the administrative code provision conflicts with our

legislature’s intent in enacting that statute, we defer to the OIC’s determination

that benchmark prices necessarily constitute predetermined reimbursement

costs.

Thus, we next consider the plain language of former RCW

19.340.100(1)(a) to determine whether the OIC’s definition of “predetermined

reimbursement cost” is consistent with legislative intent. The statute provides:

“List” means the list of drugs for which predetermined
reimbursement costs have been established, such as a maximum

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allowable cost or maximum allowable cost list or any other
benchmark prices utilized by the [PBM] and must include the basis
of the methodology and sources utilized to determine multisource
generic drug reimbursement amounts.

Former RCW 19.340.100(1)(a) (emphasis added). “[P]redetermine[d]” means “to

determine beforehand.” W EBSTER’S, supra, at 1786. “[S]uch” means “of a kind or

character about to be indicated, suggested, or exemplified,” W EBSTER’S, supra, at

2283, while “as” means “for instance” or “by way of example.” W EBSTER’S, supra,

at 125. Thus, the statutory language “such as” indicates that the three categories

following the term “predetermined reimbursements costs” are encompassed

within that term. Consistent with the definition set forth in the administrative

code, the pertinent statutory provision also indicates that “any other benchmark

prices utilized by the [PBM]” constitute “predetermined reimbursement costs.”

Prime Therapeutics nevertheless asserts that reimbursement rates

calculated from the AWP are not “predetermined” pursuant to the statute.

According to the PBM, reimbursement rates calculated from the AWP are not

determined beforehand because the AWP, which is set by drug manufacturers, is

subject to change. “Predetermined” does not, however, mean “unchanging” or

within the control of the PBM itself. Moreover, Prime Therapeutics disregards

that the formula provided in the parties’ contract, which sets forth the method for

determining reimbursement rates from the AWP, is itself predetermined.

Although the input to the formula—the AWP—may fluctuate, the formula itself

does not. The formula is thus a “benchmark” and is “predetermined.”

Additionally, our legislature’s amendment in 2016 of the definition of “list”

demonstrates intent to expand the reimbursement decisions subject to the

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statute’s regulatory reach. As discussed above, the 2014 legislation defined “list”

as only “the list of drugs for which maximum allowable costs have been

established.” ENGROSSED SUBSTITUTE S.B. 6137, § 10(1)(a), (2)(a). However, the

amended version of the law, adopted in 2016, significantly expanded that

definition to encompass additional categories of reimbursement decisions.

Pursuant to the amended definition, a “list” is “the list of drugs for which

predetermined reimbursement costs have been established, such as a maximum

allowable cost or maximum allowable cost list or any other benchmark prices

utilized by the [PBM].” FIFTH ENGROSSED SUBSTITUTE S.B. 5857, § 4(1)(a). We

may consider amendments to statutory language in analyzing the plain language

of a statute. Columbia Riverkeeper, 188 Wn.2d at 437. Here, those

amendments, consistent with the text of the statute itself, indicate an intent to

expand the reimbursement decisions subject to regulation to include those based

on “any other benchmark prices utilized by the [PBM].”

2

Thus, the OIC’s definition of “predetermined reimbursement cost,” set forth

in WAC 284-180-130(17), is consistent with the language employed by our

legislature in former RCW 19.340.100. We nevertheless recognize that the

administrative code definition can reasonably be read as more limiting than the

statutory definition of “list” set forth above. Whereas the administrative code

states that “‘[p]redetermined reimbursement cost’ means . . . any other

benchmark price utilized by the [PBM],” WAC 284-180-130(17) (emphasis

added), the statutory language could be read to encompass not only the three

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categories of “predetermined reimbursements costs” explicitly listed, see former

RCW 19.340.100(1)(a), but also any other category of reimbursement decision

subject to “predetermined reimbursement costs.” In other words, the language

“such as” can be interpreted as including the listed categories without indicating

that those categories are exclusive. Pursuant to such a reading, “[MAC] or

[MAC] list or any other benchmark prices utilized by the [PBM]” qualify as

“predetermined reimbursement costs,” but other categories of reimbursement

decisions may also fall within the statute’s scope. Thus, the statute can

reasonably be read to be more inclusive than the definition of “predetermined

reimbursement cost” promulgated by the OIC.

However, any possible misstatement in the wording of the administrative

code provision does not affect the propriety of our ruling here. As did the OIC’s

reviewing officer, we address only whether the reimbursement decisions

appealed from by Cle Elem Pharmacy are subject to “predetermined

reimbursement costs.” Thus, we do not consider whether reimbursement

decisions subject to a MAC, MAC list, or any other benchmark prices utilized by a

PBM could also constitute “predetermined reimbursement costs” and, thus, be

encompassed within the statute’s regulatory reach.

Here, whether we rely solely on the plain language of the statute or on the

definition promulgated by the OIC, we arrive at the same conclusion—the

reimbursement costs calculated by Prime Therapeutics on the basis of the AWP

constitute both “benchmark prices” and “predetermined reimbursement costs.” It

is for another day to consider whether a PBM’s reimbursement decision that

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does not fall within the ambit of the three categories listed in former RCW

19.340.100(1)(a) can nevertheless constitute “predetermined reimbursement

costs” and be thereby subject to regulation.

3

The administrative code provision defining “predetermined reimbursement

cost,” though perhaps less inclusive, is consistent with the statutory language

setting forth the categories of reimbursement decisions subject to former chapter

19.340 RCW. Prime Therapeutics’ interpretation of the statute, which severs the

term “predetermined” from the term “any other benchmark prices,” is neither

mandated by the words used nor consistent with our legislature’s purpose in

enacting that legislation. Furthermore, the PBM’s preferred interpretation is

inconsistent with our legislature’s intent to broaden the category of

reimbursement decisions subject to regulation.

The eight final orders challenged by Prime Therapeutics, under the facts

presented to the OIC, were properly decided whether we tether our review to the

plain language of the statute or to the pertinent administrative code provision.

We conclude, as did the OIC reviewing officer, that the challenged

reimbursement decisions are subject to former RCW 19.340.100. We find no

error in the reviewing officer’s conclusion that the reimbursement decisions at

issue here fall within the language of “predetermined reimbursement costs” in the

pertinent statute.

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III

Prime Therapeutics additionally contends that former RCW 19.340.100, as

applied in the final orders, unconstitutionally impairs the terms of the parties’

contract. Again, we disagree. Given the highly regulated nature of the

pharmaceutical industry generally, and our state’s regulation of PBMs

specifically, the challenged statute does not impair any reasonable contractual

expectations. Moreover, even were that not so, the statute serves the legitimate

public purpose of maintaining access to pharmacies in rural and underserved

communities. Accordingly, the statute is constitutional.

A

Both our state and federal constitutions prohibit our state legislature from

enacting laws that impair existing contractual obligations. U.S. CONST. art. I, § 10

(“No State shall . . . pass any . . . law impairing the obligation of contracts.”);

WASH. CONST. art. I, § 23 (“No . . . law impairing the obligations of contracts shall

ever be passed.”). As has our Supreme Court, we “read our state contracts

clause as coextensive with the federal constitution’s contracts clause when

neither party has argued to the contrary.” Wash. Food Indus. Ass’n v. City of

Seattle, No. 99771-3, slip op. at 34,

http://www.courts.wa.gov/opinions/pdf/99771-3.pdf (Wash. Feb. 9, 2023) (lead

opinion).9 The prohibition against impairment of contractual obligations,

however, “‘is not an absolute one and is not to be read with literal exactness.’”

9 Although we cite here to the lead opinion, our Supreme Court was unanimous in its

holding regarding the contract clause claim of error. Wash. Food Indus. Ass’n, No.99771-3, slip
op. at 3 (lead opinion).

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Tyrpak v. Daniels, 124 Wn.2d 146, 151, 874 P.2d 1374 (1994) (quoting Home

Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 428, 54 S. Ct. 231, 78 L. Ed. 413

(1934)). Rather, it “must be accommodated to the inherent police power of the

State ‘to safeguard the vital interests of its people.’” Energy Rsrvs. Grp., Inc. v.

Kan. Power & Light Co., 459 U.S. 400, 410, 103 S. Ct. 697, 74 L. Ed. 2d 569

(1983) (quoting Blaisdell, 290 U.S. at 434).

The “threshold inquiry” in determining whether legislation

unconstitutionally impairs a contract is “‘whether the state law has, in fact,

operated as a substantial impairment of a contractual relationship.’” Energy

Rsrvs., 459 U.S. at 411 (quoting Allied Structural Steel Co. v. Spannaus, 438

U.S. 234, 244, 98 S. Ct. 2716, 57 L. Ed. 2d 727 (1978)). “To determine whether

there is a substantial impairment of a contractual relationship, we consider ‘the

extent to which the law undermines the contractual bargain, interferes with a

party’s reasonable expectations, and prevents the party from safeguarding or

reinstating his rights.’” Gonzales v. Inslee, 21 Wn. App. 2d 110, 139, 504 P.3d

890 (2022) (quoting Sveen v. Melin, ___ U.S. ___, 138 S. Ct. 1815, 1822, 201 L.

Ed. 2d 180 (2018)). If the legislation constitutes a substantial impairment, “the

inquiry turns to the means and ends of the legislation.” Sveen, 138 S. Ct. at

1822.

Specifically, we ask whether the legislation “is drawn in an ‘appropriate’

and ‘reasonable’ way to advance ‘a significant and legitimate public purpose.’”

Sveen, 138 S. Ct. at 1822 (quoting Energy Rsrvs., 459 U.S. at 411-12).

“[L]egislation does not unconstitutionally impair contractual obligations where the

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legislation constitutes an exercise of the police power in advancing a legitimate

public purpose.” Optimer Int’l, Inc. v. RP Bellevue, LLC, 151 Wn. App. 954, 966,

214 P.3d 954 (2009). Such legislation “may advance a legitimate purpose by

remedying a general social or economic problem, and [it] need not only be in

response to an emergency.” Wash. Food Indus. Ass’n, No. 99771-3, slip op. at

35-36 (lead opinion). Thus, even if legislation constitutes a substantial

impairment of contractual obligations, we must uphold that legislation if its

“adjustment of ‘the rights and responsibilities of contracting parties [is based]

upon reasonable conditions and [is] of a character appropriate to the public

purpose justifying [the legislation’s] adoption.’” Energy Rsrvs., 459 U.S. at 412

(alterations in original) (quoting U.S. Trust Co. of N.Y. v. New Jersey, 431 U.S. 1,

22, 97 S. Ct. 1505, 52 L. Ed. 92 (1977)).

B

Here, Prime Therapeutics asserts that former RCW 19.340.100, as

applied in the OIC’s final orders, constitutes a substantial impairment of its

contract with Cle Elem Pharmacy. According to Prime Therapeutics, this is so

because the contract “sets forth how reimbursement rates will be calculated and

the processes for any appeal of those rates.” Br. of Appellant at 23-24. We

disagree.

1

First, Prime Therapeutics has not demonstrated that former RCW

19.340.100 interferes with its reasonable contractual expectations. See Sch.

Dists.’ All. for Adequate Funding of Special Educ. v. State of Washington, 170

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Wn.2d 599, 605, 244 P.3d 1 (2010) (“In Washington, it is well established that

statutes are presumed constitutional and that a statute’s challenger has a heavy

burden to overcome that presumption; the challenger must prove that the statute

is unconstitutional beyond a reasonable doubt.”). When an industry is heavily

regulated, such “pervasive regulation” puts the parties on notice that the

government might further intervene in contractual relationships. Gonzales, 21

Wn. App. 2d at 140.

We find the decision of a federal court upholding similar state legislation

against a contract clause challenge to be persuasive. See Pharm. Care Mgmt.

Ass’n v. Rutledge, 240 F. Supp. 3d 951 (E.D. Ark. 2017), aff’d in part, rev’d in

part and remanded on other grounds, 891 F.3d 1109 (8th Cir. 2018), rev’d and

remanded on other grounds, ___ U.S. ___, 141 S. Ct. 474, 208 L. Ed. 2d 327

(2020). There, in concluding that the pertinent legislation had not substantially

impaired reasonable contractual expectations, the court reasoned that “PBMs

cannot be surprised by legislative efforts to protect public health and welfare by

protecting pharmacies.” Pharm. Care Mgmt. Ass’n, 240 F. Supp. 3d at 963. This

is because “the pharmaceuticals industry is already highly regulated,” and the

predecessor statute in Arkansas had already regulated PBMs within that state.

Pharm. Care Mgmt. Ass’n, 240 F. Supp. 3d at 963. The court further reasoned

that PBMs have “been on notice of the national controversy caused by MAC

methodology because other jurisdictions have enacted similar laws regulating

PBMs.” Pharm. Care Mgmt. Ass’n, 240 F. Supp. 3d at 963.

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The same is true here. Prime Therapeutics is undoubtedly aware of the

highly regulated nature of the pharmaceutical industry in general, and of our

state’s regulation of PBMs in particular. Multiple states had already enacted

legislation regulating the relationship between PBMs and pharmacies when our

state legislature, in 2014, first sought to address the economic challenges faced

by Washington pharmacies due to PBM reimbursement practices. S.B. REP. ON

ENGROSSED SUBSTITUTE S.B. 6137, at 1. PBMs were thus on notice of such

regulation when our state legislature, two years later, expanded the scope of

those reimbursement decisions subject to our state’s law. See FIFTH ENGROSSED

SUBSTITUTE S.B. 5857. Because the challenged statute did not disrupt Prime

Therapeutics’ reasonable contractual expectations, it did not substantially impair

the parties’ contract.10 See Pharm. Care Mgmt. Ass’n, 240 F. Supp. 3d at 962.

2

Furthermore, even if the application of former RCW 19.340.100 in the final

orders substantially impaired the parties’ contract, the statute is nevertheless

constitutional because it serves a legitimate public purpose. “[L]egislation does

not unconstitutionally impair contractual obligations where the legislation

10 Further complicating Prime Therapeutics’ assertion of substantial contractual

impairment is the fact that the PBM has not provided the relevant portions of the contact that, it
claims, have been substantially impaired by former RCW 19.340.100. Although the excerpts
provided include the contractual definitions of “‘Average Wholesale Price’ or ‘AWP’” and
“‘Maximum Allowable Cost’ or ‘MAC,’” the excerpts do not include the reimbursement terms
purportedly impaired by the challenged legislation.
Without the specific contractual terms alleged to be impaired, we cannot assess to what
extent the law may undermine the contractual bargain. Nw. Grocery Ass’n v. City of Seattle, 526
F. Supp. 3d 884, 896 (W.D. Wash. 2021) (“[T]he court cannot properly assess whether the statute
‘substantially impairs’ Plaintiffs’ members’ contracts, as Plaintiffs have provided no specific
allegations of contracts or contractual terms which the Ordinance might impair.”). However, even
were we to hold that the contract has been substantially impaired, we would nevertheless uphold
the statute’s constitutionality. As explained infra, the legislation advances a legitimate public
purpose and is, therefore, constitutional.

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constitutes an exercise of the police power in advancing a legitimate public

purpose.” Optimer Int’l, Inc., 151 Wn. App. at 966. When the state is not a party

to the contract alleged to have been impaired, we generally defer to “‘legislative

judgment as to the necessity and reasonableness of a particular measure.’”

Energy Rsrvs., 459 U.S. at 413 (quoting U.S. Trust Co. of N.Y., 431 U.S. at 22-

23). “Moreover, ‘[i]n determining whether . . . particular legislation tends to

promote the welfare of the people of the State of Washington, we must presume

that if a conceivable set of facts exists to justify the legislation, then those facts

do exist and the legislation was passed with reference to those facts.’” Optimer

Int’l, Inc., 151 Wn. App. at 970 (first alteration in original) (quoting State ex rel.

Faulk v. CGS Job Ctr., 117 Wn.2d 493, 504, 816 P.2d 725 (1991)).

Bill reports from the proposed 2014 and 2016 legislation evidence the

financial distress facing Washington pharmacies due to PBM reimbursement

practices. Public testimony showed that small pharmacies in rural and

underserved communities were, in particular, finding it difficult to stay in

business. Our legislature, in response, expanded the scope of the

reimbursement requests that are subject to regulation and, in the 2016

legislation, set forth specific provisions for the protection of small pharmacies in

such communities. See former RCW 19.340.100(3).

Prime Therapeutics’ suggestion that the challenged legislation is simply

intended to provide a benefit to pharmacies themselves is supported by neither

the record nor legislative history. Moreover, the fact that legislation “may

incidentally benefit pharmacies in the process of protecting the public’s ability to

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access pharmacies does not render the law an insignificant or illegitimate use of

the state’s police power.” Pharm. Care Mgmt. Ass’n, 240 F. Supp. 3d at 963.

Because former RCW 19.340.100 serves a legitimate public purpose, the

legislation is constitutional even were it to substantially impair Prime

Therapeutics’ reasonable contractual expectations.

Affirmed.

WE CONCUR:

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