Skip to site navigation Skip to main content Skip to footer content Skip to Site Search page Skip to People Search page

Alerts and Updates

PBMs Keep ERISA Preemption Fight Alive

May 18, 2021

PBMs Keep ERISA Preemption Fight Alive

May 18, 2021

Read below

With the Supreme Court ruling finding that the Arkansas law was not preempted by ERISA, both North Dakota and PCMA agreed that the case needed a second look by the Eighth Circuit.

Five months after the Supreme Court of the United States handed down a loss to the pharmacy benefit manager (PBM) lobbying group Pharmaceutical Care Management Association (PCMA), PCMA filed a brief in the Eighth Circuit arguing that the Court’s ruling does not narrow the scope of Employee Retirement Income Security Act (ERISA) preemption for PBM regulation.

On December 10, 2020, the Supreme Court, in Rutledge v. Pharmaceutical Care Management Association, ruled that an Arkansas law prohibiting PBMs from reimbursing pharmacies for drugs at rates below the drugs’ acquisition costs was not preempted by ERISA, equating Arkansas Act 900 to permissible rate-setting.

Specifically, Ark. Code Ann. § 17-92-507, commonly known as Arkansas Act 900, requires PBMs to reimburse pharmacies for the dispensing of generic drugs at a price equal to or greater than the cost of the drug to the pharmacy. The law was enacted to combat the growing trend by PBMs to drive down reimbursement rates to independent pharmacies, oftentimes paying pharmacies for medications below the cost that the pharmacy was able to purchase the medication.

At the same time Arkansas’ law was being considered by the Supreme Court, PCMA was involved in active litigation before the Eighth Circuit against the state of North Dakota over a series of statutes similarly regulating PBM conduct in that state. (Pharmaceutical Care Management Association v. Dirk Wilke et al., case number 18-2926). The North Dakota laws, among other things, bar PBMs from holding pharmacies to accreditation standards that exceed government requirements, limit PBMs’ ability to enact performance fees on pharmacies and regulate hefty claims-processing fees PBMs charge pharmacies. With the Supreme Court ruling finding that the Arkansas law was not preempted by ERISA, both North Dakota and PCMA agreed that the case needed a second look by the Eighth Circuit.

PCMA’s filing signified the opening round of the next fight as to whether the Supreme Court’s ruling will be narrowly construed to apply to rate-setting regulation or applied more expansively to preempt PBM regulation of other conduct.

While that question will play out over the next few months before the Eighth Circuit, since the Supreme Court ruling, numerous states across the country have wasted no time in introducing bills aimed at regulating PBMs and their conduct in the states and toward pharmacies.

Where state governments have previously felt powerless to hold PBMs accountable for anticompetitive activity, decreasing revenues and increasing closures of independent pharmacies, they are starting to find sympathetic ears with the background of Supreme Court precedent.

In 2021 alone, at least eight states have enacted some sort of PBM reform legislation, including Alabama, Arizona, Arkansas, Mississippi, New York, North Dakota, West Virginia and Wisconsin. PBM reform regulation has passed both the state house and senate in Texas and is on its way to the governor. These bills run the gamut of regulating the PBM industry, from prohibiting PBMs from charging pharmacies fees during and after the claims adjudication process, prohibiting PBMs from reimbursing their own affiliated pharmacies at a higher level than independent pharmacies to banning PBM discrimination against pharmacies participating in the Federal 340B medication discount program. This trend is likely to continue with almost 100 bills introduced across 39 states similarly aimed at regulating the PBM industry.

About Duane Morris

Duane Morris attorneys will continue to monitor developments in this area and other related issues, and report on the key details for our clients and others in the industry in subsequent Alerts.

For More Information

If you have any questions about this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, any of the attorneys in our Pharmacy Litigation Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.