Seyfarth synopsis: The Supreme Court has just granted certiorari in a case regarding the question of whether ERISA preempts state efforts to regulate Pharmacy Benefit Managers (PBMs). The decision will have important implications as the broad ERISA preemption doctrine will become further defined.
The Supreme Court just granted certiorari in Rutledge v. Pharmaceutical Care Management Association, No. 18-540. A full description of the case is available here, but in summary, Arkansas enacted a law purporting to regulate PBMs, governing the conduct of third party administrators and claims processors for both ERISA and non-ERISA pharmaceutical plans. The law created an appeals process by which pharmacies could challenge reimbursement rates offered by PBMs, with the stated goal of protecting pharmacies against below-cost reimbursement.
The Court of Appeals for the Eighth Circuit found that ERISA preempts the law. Arkansas had tried to argue that merely because ERISA-governed plans are included, preemption should not be automatic, as the law targets third party administrators. The Eighth Circuit rejected this contention, finding that the law “relate[d] to and has a connection with employee benefit plans,” and was therefore preempted.`
In granting certiorari, the Supreme Court is poised to resolve a conflict over PBM regulation. The D.C. and Eighth Circuits hold that all PBM regulation is preempted, while the First Circuit holds that none is preempted.
Thus, the legality of PMB regulation by the states is likely to be resolved.
The decision in Rutledge also, hopefully, will clarify the scope of ERISA preemption by adding to over fifteen Supreme Court decisions on what it means for a state law to “relate to” an ERISA plan. The meaning of “relate to” is important because, in our era of political gridlock in Congress, some states would like to legislate expansively in the employee benefits space.
Seyfarth will pay close attention to the decision in Rutledge. Stay tuned.