Facts
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Pharmacy benefit managers (PBMs) served as intermediaries between prescription-drug plans and pharmacies that filled beneficiaries’ prescriptions.
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When a beneficiary filled a prescription, the pharmacy contacted the PBM to confirm coverage and the beneficiary’s copayment; after dispensing, the PBM reimbursed the pharmacy (minus the copayment), and the plan reimbursed the PBM.
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PBMs set pharmacy reimbursement rates using maximum allowable cost (MAC) lists for generic drugs.
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PBMs could profit from the “spread” between what a plan paid the PBM and what the PBM paid the pharmacy.
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Arkansas enacted Act 900 (2015) after concerns that pharmacies were reimbursed less than what they paid wholesalers to acquire certain generic drugs.
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Act 900 sought to ensure pharmacies were not forced to dispense at a loss by requiring PBMs to:
- update MAC lists when wholesale drug prices increased,
- provide an administrative appeal process for pharmacies to challenge MAC reimbursement rates, and
- allow pharmacies to refuse to dispense a drug when reimbursement would be below the pharmacy’s acquisition cost.
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Pharmaceutical Care Management Association (PCMA), a trade association representing PBMs, sued Arkansas Attorney General Leslie Rutledge in federal court, arguing Act 900 was preempted by ERISA.
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The district court enjoined Act 900 as ERISA-preempted, and the Eighth Circuit affirmed.
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The Supreme Court granted certiorari to decide whether ERISA preempted Act 900.
Issues
- Whether ERISA preempts Arkansas Act 900 because the Act has an impermissible “connection with” ERISA plans by governing plan administration or interfering with uniform plan administration.
- Whether ERISA preempts Act 900 because the Act makes an impermissible “reference to” ERISA plans by operating immediately and exclusively on ERISA plans, or because ERISA plans are essential to the Act’s operation.
Decision
- The Supreme Court unanimously held that ERISA does not preempt Arkansas Act 900.
- The Court reversed the Eighth Circuit and remanded.
- The Court treated Act 900 as cost regulation directed at PBM-to-pharmacy reimbursement and concluded it does not require ERISA plans to adopt any particular benefits, coverage rules, or plan structures.
- The Court held Act 900 does not have an impermissible “connection with” ERISA plans because any effect on ERISA plans is indirect (through possible changes in costs passed on by PBMs) and does not bind plan administrators to a particular administration choice.
- The Court held Act 900 does not make an impermissible “reference to” ERISA plans because the law applies to PBMs whether or not they manage ERISA plan benefits and can operate without ERISA plans.
- Justice Sotomayor wrote the Court’s opinion; Justice Thomas concurred. Justice Barrett did not participate.
Legal Principles
- ERISA preempts state laws that “relate to” ERISA plans, meaning laws that have a prohibited “connection with” or “reference to” an ERISA plan.
- A law has an impermissible “connection with” an ERISA plan when it governs a central matter of plan administration or interferes with nationally uniform plan administration.
- State regulation that changes prices or affects costs, without dictating benefit design or forcing particular coverage or administrative structures, generally does not amount to regulation of an ERISA plan.
- A law makes an impermissible “reference to” ERISA plans if it acts immediately and exclusively on ERISA plans or if ERISA plans are essential to the law’s operation.
- A law that applies to PBMs regardless of whether they serve ERISA or non-ERISA clients ordinarily lacks the required “reference to” ERISA plans.
Conclusion
Rutledge held that ERISA does not preempt Arkansas Act 900’s requirements for PBM reimbursement practices, MAC-list updates, and pharmacy appeal procedures because the statute regulates PBM pricing and related conduct without controlling ERISA plan design or core plan administration, and it applies to PBMs generally rather than operating only by reason of ERISA plans.