Eighth Circuit Decision
On December 10, 2020, in a unanimous 8-0 decision (Justice Amy Coney Barrett did not participate), the Supreme Court held that an Arkansas state law that regulates the price at which PBMs pay pharmacies for prescription drugs is not preempted by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq. Rutledge v. Pharmaceutical Care Mgmt. Ass’n, 592 US __ (2020), slip op. at 1.
PBMs are intermediaries between prescription drug benefit plans and pharmacies. Id. When a covered individual goes to a pharmacy to obtain a prescription drug, the PBM pays the pharmacy for the prescription, and the plan pays the PBM. Id. at 1-2. The amount the pharmacy receives depends on the terms of the contract between the pharmacy and the PBM. Such contracts typically provide that payment will be based on the drug’s “maximum allowable cost” (MAC), developed by the PBM. Id. at 2. The PBM’s payment, in turn, is governed by its separate contract with the plan and generally exceeds the MAC so that the PBM makes a profit. Id.
In 2015, Arkansas adopted Act 900 (the Act) to protect pharmacies that were paid by PBMs at rates that were too low to cover the pharmacies’ costs. The Act requires PBMs to pay Arkansas pharmacies at rates equal to or higher than the drug’s acquisition cost, i.e., what the pharmacy paid the wholesaler for the drug. See Ark. Code Ann. § 17–92–507(c)(4)(A)(i)(b). The Act contains three mechanisms to ensure that result. First, PBMs must update their MAC lists when the wholesale price of a drug increases so that the MACs are tied to the pharmacies’ acquisition costs. Id. § 17–92–507(c)(2). Second, pharmacies must be afforded administrative appeal rights to challenge MAC payment rates, under which a PBM must increase its payment rate to cover the pharmacy’s acquisition costs if it is determined that the pharmacy could not have acquired the drug at a lower price. Id. § 17–92–507(c)(4)(A)(i)(b)), 17–92– 507(c)(4)(C)(i)(b)). Third, the Act permits a pharmacy to decline to sell a drug to a beneficiary if the pharmacy would be paid less than its acquisition cost. Id. § 17–92–507(e)).
The District Court and the Eighth Circuit Held ERISA Preempts Act 900Respondent Pharmaceutical Care Management Association (PCMA), a national trade association representing PBMs, brought suit on behalf of its members against the Attorney General of the State of Arkansas challenging Act 900. Among other grounds, PCMA argued that the Act was preempted by ERISA. On cross-motions for summary judgment, the District Court for the District of Arkansas granted partial summary judgment in favor of PCMA, holding that “Act 900 is invalid as applied to PBMs in their administration and management of ERISA plans.” Pharm. Care Mgmt. Ass’n v. Rutledge, 240 F. Supp. 3d 951, 957 (E.D. Ark. 2017), aff’d in part, rev’d in part and remanded, 891 F.3d 1109 (8th Cir. 2018), rev’d and remanded, No. 18-540, 2020 WL 7250098 (US Dec. 10, 2020).
ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA, i.e., any state law that “has a connection with or reference to” an ERISA plan. See 29 U. S. C. §1144(a); Egelhoff v. Egelhoff, 532 US 141, 147 (2001). The District Court held that it was bound by a recent Eighth Circuit ruling that a similar Iowa statute was preempted by ERISA because it “interferes with nationally uniform plan administration” and thus had a prohibited “reference to” and “connection with” ERISA. See Rutledge, 240 F. Supp. 3d at 958 (citing Pharmaceutical Care Management Ass’n v. Gerhart, 852 F.3d 722 (8th Cir. 2017)). The Iowa statute at issue in Gerhart required PBMs to provide a procedure for pharmacies to appeal MAC reimbursements. The Gerhart court concluded that the Iowa statute interfered with uniform plan administration—and thus had a “connection with” an ERISA plan—because it “restricted an administrator’s control in the calculation of drug benefits and removed the ability to conclusively determine final drug benefit payments and monitor funds.” Id. (citing Gerhart, 852 F.3d at 730–31). The Gerhart court also concluded that “restricting the class of drugs PBMs may place on MAC lists” and “restricting the sources from which PBMs may obtain pricing information” impermissibly “interfere[d] with the calculation of benefit levels and with making disbursements.” Id.
The District Court held that ERISA preempted Act 900 because the Act “regulates...
