Supreme Court Rules States Can Regulate PBMs

InsureReinsure Blog
December 14, 2020

On December 10th, the Supreme Court of the United States issued its ruling in Rutledge v. Pharmaceutical Care Management Association (PCMA), which held Arkansas’ Act 900 is not pre-empted by ERISA. This decision is seen as a victory for the interests of patients, pharmacists, and community pharmacies, as states and local authorities will now have greater ability to regulate PBMs.

 The unanimous decision (8 to 0) centered on the extent to which the federal Employee Retirement Income Security Act of 1974 (ERISA), which regulates private employee benefit plans, preempts an Arkansas state law aimed at regulating the amount that Pharmacy Benefit Managers (PBMs) pay pharmacies to dispense prescription drugs that are covered by an employer-sponsored health plan. Prior to 2015, PBMs had been found to reimburse pharmacies at less than a pharmacy’s cost to acquire a drug.  In 2015, Arkansas passed a law (Act 900) prohibiting PBMs from reimbursing local pharmacies at a lower rate than what the pharmacies pay to fill prescriptions, by requiring that PBMS update their maximum allowable cost (MAC) lists when drug wholesale prices increase,

Ark. Code Ann. §17–92–507(c)(2), and provide pharmacies an administrative appeal procedure to challenge MAC reimbursement rates, §17–92–507(c)(4)(A)(i)(b).

Pharmaceutical Care Management Association (PCMA), which represents the 11 largest PBMs, challenged the law in court alleging that Arkansas’ Act 900 was pre-empted by ERISA. The District Court held that ERISA pre-empted Act 900, and the Eighth Circuit affirmed. The decision by the Supreme Court reversed, finding that Arkansas’ Act 900 is not pre-empted by ERISA, as the Arkansas law was not “related” to a covered employee benefit plan, nor did the law have an impermissible connection with an ERISA plan.

With this ruling, states will have greater authority to protect their local pharmacies from PBM overreach, by allowing states the ability to regulate PBMs, increasing drug pricing transparency and pharmacy access for patients.

The full text of the decision can be found here.

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