The nation's first-ever state law designed to regulate pharmacy benefit managers will remain intact.

Ending a three-year legal battle, the Supreme Court on Monday declined to review a Maine law requiring PBMs to put their clients' interests ahead of their own. Giant PBMs like

Caremark

(CMX)

and

Medco

(MHS)

have been accused of engaging in secret deals that line their own pockets and cut into the savings that they are hired to secure for others. The PBMs have consistently stood by their business practices while fighting against state laws that threaten their lucrative strategy.

But this week a Maine senator, who chairs a multi-state group pushing for widespread reforms, was quick to celebrate the survival of his state's PBM law.

"By allowing the state to address pricing issues by middlemen, we can have a real impact on prescription drug prices," says Arthur Mayo III, chairman of the National Legislative Association on Prescription Drug Prices, or NLARx. "This is good news for Maine's consumers -- and I hope it acts as a green light for other states who were awaiting this decision to enact similar laws."

The Pharmaceutical Care Management Association, a powerful lobbying group representing the PBM industry, has fought hard to derail the Maine law and a similar one passed by the District of Columbia that's tied up in the court system right now. For its part, PCMA portrayed the Supreme Court's action as "an expected procedural move" that still leaves the door open for review of the Maine law down the road. PCMA hopes to win its court battle in D.C. and then ask the Supreme Court to review the conflicting Maine and D.C. decisions.

But NLARx foresees a different scenario entirely.

"Although a final decision has not been rendered in the D.C. case, we are hopeful that upon reconsideration, the D.C. Circuit will follow the clear reasoning of the First Circuit" upholding Maine's PBM law, says Sharon Treat, a former Maine senator who sponsored the state's law and now serves as executive director of NLARx. "The Supreme Court's action makes that result more -- not less -- likely."

PCMA has fared better in state capitols, where it can use its considerable lobbying muscle, than it has in the court system. The group noted on Monday that 17 states have abandoned proposed PBM regulations so far this year. The group said the states dropped their plans after realizing they would lead to higher drug prices. But supporters of such laws blame intense lobbying, coupled with confusion over the secretive PBM industry, for at least some of those defeats.

In the meantime, both North Dakota and South Dakota have managed to pass weaker versions of Maine's PBM law already. South Dakota has reportedly saved more than $800,000 in state health insurance costs as a result.

Meanwhile, some organizations that operate in states without PBM laws have simply established strict guidelines of their own. Treat points to the University of Michigan as an example. There, she says, university officials shifted away from traditional PBM plans and saved the university $4.3 million as a result.

"We are starting to have a track record demonstrating the fiscal benefits of greater transparency," Treat says.

Treat's group will be using that record to fight for Maine-like laws that are currently pending in New Jersey, New York, Pennsylvania and Rhode Island. But its opponents will continue to heavily arm themselves as well. Indeed, on Tuesday, PCMA unveiled a new study showing that Pennsylvania's proposal would supposedly raise prescription drug costs in that state. The proposal could lessen the use of mail-order pharmacies, which can generate outsize profits for PBMs.

For now, at least, the big three PBMs -- Caremark, Medco and

Express Scripts

(ESRX)

-- continue to enjoy favorable industry fundamentals. But one of those companies faces serious issues of its own. Notably, Caremark has been caught up in a sweeping investigation of companies suspected of possibly backdating stock-option awards to their executives.

As first reported by

TheStreet.com

back in April, Caremark issued its 2005 stock-option awards on March 1 -- when the stock hit its lowest closing price of the year. The company claimed that it had simply followed a routine practice of granting options at its first-quarter board meeting. But the company has never followed a set schedule of issuing options in the past.

Rather, a study by Gradient Analytics shows, Caremark has often granted stock options just before the stock started climbing. Before 2005, the study shows, the company, in fact, granted options in March only once. Those 2000 grants, priced at a year-long low of just $3.88 a share, have since come under scrutiny.

For its part, Caremark has explicitly denied that any backdating occurred. But even some former Caremark fans have started to lose their faith in the company.

Notably, Wall Street Strategies analyst Brian Sozzi last week downgraded Caremark due to his uneasiness about the company's disclosures.

"There have been many inquiries into the company's business practices," he noted. "We can't help but to think that management has been less than 100% transparent regarding internal happenings, and that a big shoe is about to drop in the future. (Thus), we are lowering our rating to hold from buy, citing growing uncertainty regarding the company's corporate culture."

Despite everything, Caremark's stock has held up rather well. The shares climbed a nickel to $49.30 on Tuesday and continue to trade near the high end of their 52-week range.