Supreme Court Gives Nod to States Regulating Pharmacy Benefit Managers Reimbursement

Alerts / December 11, 2020

On Dec. 10, the United States Supreme Court issued its ruling in Rutledge v. Pharmaceutical Care Management Association. The Court reversed the 8th Circuit to uphold a state’s ability to regulate the price at which pharmacy benefit managers (PBMs) reimburse pharmacies for the cost of drugs covered by prescription-drug plans. Specifically, the Court ruled that the Employee Retirement Income Security Act of 1974 (ERISA) does not preempt Arkansas’ Act 900, which regulates the price at which PBMs reimburse pharmacies.


Arkansas passed Act 900 in 2015, requiring PBMs to reimburse Arkansas pharmacies at a price equal to or higher than that which the pharmacy paid to buy the drug from a wholesaler. PBMs administer the pharmacy benefit of health insurance plans. PBMs pay pharmacies for filling prescriptions, and health insurance plans pay PBMs to handle this arm of health insurance administration. The amount a pharmacy is reimbursed for filling a prescription is usually set through contracts between the PBM and the pharmacy. PBMs commonly set reimbursement rates based on maximum allowable costs (MAC) lists. MAC lists are not necessarily tied to the price at which pharmacies can obtain drugs. Therefore, a pharmacy could fill a prescription and the PBM could reimburse the pharmacy less than the pharmacy’s cost for the drug.

Arkansas’ Act 900 employs three means to achieve the end result of regulating the rate at which PBMs reimburse pharmacies: First, the Act requires PBMs to tie reimbursement rates to pharmacies’ acquisition costs by updating their MAC lists when drug wholesale prices increase. Ark. Code Ann. §17–92–507(c)(2). Second, PBMs must provide an administrative appeal procedure for pharmacies to challenge MAC reimbursement prices that are below the pharmacies’ acquisition costs. §17–92–507(c)(4)(A)(i)(b). If a pharmacy could not have acquired the drug at a lower price from its typical wholesaler, a PBM must increase its reimbursement rate to cover the pharmacy’s acquisition cost. Third, Act 900 permits a pharmacy to decline to sell a drug to a beneficiary if the relevant PBM will reimburse the pharmacy at less than its acquisition cost. §17–92–507(e).

Legal Analysis

At issue in Rutledge v. Pharmaceutical Care Management Association was whether ERISA preempts Arkansas’ Act 900. ERISA (which applies to group health insurance plans that private sector employers sponsor and maintain but not to, e.g., comparable plans maintained by state and local governments, or to individually-purchased health insurance policies) preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA. According to the Court, “not every state law that affects an ERISA plan or causes some disuniformity in plan administration has an impermissible connection with an ERISA plan. That is especially so if a law merely affects costs.” The Court reasoned that Arkansas’ “Act 900 is merely a form of cost regulation. It requires PBMs to reimburse pharmacies for prescription drugs at a rate equal to or higher than the pharmacy’s acquisition cost.” Thus, Arkansas’ Act 900 does not relate to ERISA. The Court also concluded that Arkansas’ Act 900 does not relate to ERISA because Arkansas Act 900 applies to PBMs whether or not they manage an ERISA plan.

Future Effects

With the Court’s unanimous decision (Justice Barrett took no part in the consideration or decision of this case, as she joined the Court after oral argument) in Rutledge v. Pharmaceutical Care Management Association, states received a playbook for how to regulate PBMs and pharmacy reimbursement. States can use Arkansas’ Act 900 to model laws relating to pharmacy reimbursement by PBMs. The 8th Circuit, which the Court reversed here, recently held that ERISA preempts a North Dakota law that regulates the fees PBMs and third-party payers charge pharmacies, limits what copayments PBMs or third-party payers may charge, and dictates the quality metrics PBMs and third-party payers may use to evaluate pharmacies. The Court’s ruling in Rutledge v. Pharmaceutical Care Management Association that ERISA does not preempt a state law regulating the price at which PBMs reimburse pharmacies may set the stage for another reversal of the 8th Circuit.

Authorship Credit: Lee Rosebush, Lindsay Holmes and Marc Wagner

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