Facts of the Case
In 2015, the legislature of Arkansas passed a law regulating the conduct of pharmacy benefits managers ("PBMs")—the entities that serve as intermediaries between health plans and pharmacies—in an attempt to address the trend in that state of significantly fewer independent and rural-serving pharmacies. PBMs perform numerous functions in this rule, including creating a maximum allowable cost ("MAC") list which sets reimbursement rates to pharmacies dispensing generic drugs. As a result of contracts between PBMs and some pharmacies, some other pharmacies might actually lose money on a particular prescription transaction. The Act sought to address this and other situations where the conduct of PBMs could cause harm to pharmacies.
Pharmaceutical Care Management Association (PCMA), a pharmacy trade association, filed a lawsuit on behalf of its members claiming, among other arguments, that Arkansas Act 900 is preempted by both ERISA and Medicare Part D. The district court found that ERISA did preempt some portions of the Act but that Medicare Part D did not preempt the Act.
On appeal, the U.S. Court of Appeals for the Eighth Circuit affirmed in part and reversed in part, finding that Act 900 was preempted by both ERISA and Medicare Part D. The appellate court noted that ERISA broadly preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plans." Because Act 900 “both relates to and has a connection with employee benefit plans,” ERISA preempts it.
Question
Does ERISA preempt an Arkansas law regulating pharmacy benefit managers’ drug-reimbursement rates?
Conclusion
Arkansas’s Act 900 is not pre-empted by ERISA. Justice Sonia Sotomayor authored the unanimous (8-0) opinion of the Court. ERISA pre-empts state laws that relate to a covered employee benefit plan. A state law “relates to” a covered plan if it has “a connection with” or “reference to” such a plan. Act 900 has neither. Act 900 lacks a connection with an ERISA plan because it is merely a form of cost regulation and does not dictate plan choices. Additionally, it does not “act immediately and exclusively on ERISA plans”; although it affects some ERISA plans, it regulates those plans only incidentally, as part of its regulation of PBMs generally.
Justice Clarence Thomas joined the majority in full “because it properly applies our precedents” regarding the pre-emptive effect of ERISA but wrote a separate concurring opinion to express doubt about the Court’s ERISA pre-emption jurisprudence, claiming that it “veer[s]” from the text of the Act.Â
Justice Amy Coney Barrett took no part in the consideration or decision of this case.