The Supreme Court Holds That ERISA Does Not Preempt State Law Regulating PBM-Pharmacy Arrangements
In a unanimous 8-0 decision (with Justice Barret not participating), the U.S. Supreme Court once again entered the thicket of ERISA preemption in Rutledge v. Pharm. Care Mgmt. Ass’n, No. 18-540, 2020 U.S. LEXIS 5988 (Dec. 10, 2020). The Court held that ERISA preempts an Arkansas state law regulating rates at which pharmacy benefit managers (“PBMs”) reimburse pharmacies.
Rutledge involved an Arkansas statute requiring PBMs to (among other things) pay pharmacies certain rates for prescription drugs. The law was intended to protect rural and independent pharmacies, who purportedly were being squeezed by the negotiating power of larger PBMs. Relying on existing precedent, the Eighth Circuit held that ERISA preempted the Arkansas law because the law inevitably would affect group health plans, which contract with PBMs to manage prescription drug benefits.
The Supreme Court disagreed. It held that the Arkansas law governed the economic relationships between PBMs and pharmacies, not health plans themselves. Although the law may increase the cost that ERISA plans pay for prescription drugs, the mere fact that a law has a downstream effect on ERISA plans does not trigger ERISA preemption.
As often occurs, the Supreme Court’s decision in Rutledge may raise more questions, and generate more litigation, than it answers. Many states have laws regulating PBMs. One should expect that future cases will test the scope and breadth of the Rutledge decision.
The Rutledge decision can be found here.