SCOTUS Hears Arguments on State Law Regulating PBMs
Rutledge v. Pharmaceutical Care Management Association, a case heard by the Supreme Court in October, considers the validity of state laws governing the reimbursement of prescription drugs. Specifically, the case examines Act 900 adopted by the Arkansas state legislature in 2015. The legislation requires that PBMs reimburse pharmacies for generic drugs at a price equal to or higher than the cost the pharmacy paid to acquire the drug. Supporters of the law assert that it protects local pharmacies and ensures they can remain in business.
The Supreme Court decision on the case will likely affect more than Arkansas pharmacies, as at least 36 other states have enacted similar laws. Further, the Court’s decision will serve as guidance on other state laws limiting different kinds of PBM conduct.
The case turns on whether ERISA preempts the state law. As a general rule, ERISA preempts any state law that “relates to” an ERISA-governed employee benefit plan. If it is determined ERISA preempts the state law, the state law is invalid and unenforceable. Arkansas, defending the validity of the law, asserts that the law is not preempted because it regulates the relationship between PBMs and pharmacies and does not directly relate to ERISA health plans. The respondent Pharmaceutical Care Management Association, a national trade association representing PBMs, argues that there is not a distinction between the health plan and the entity the health plan contracts with, such as a PBM.
The Eighth Circuit determined that ERISA preempted Act 900 and therefore the law was invalid. If the Supreme Court affirms this decision, a state’s ability to regulate PBMs will be substantially constricted. On the other hand, if the Court upholds Act 900, then similar state laws—both currently enacted and in the future—will likely withstand scrutiny under the ERISA-preemption argument. The Supreme Court decision is expected in summer 2021.