State Laws Regulating Pharmacy Reimbursement, ERISA,
and the Supreme Court – What Could Rutledge Mean for 340B Covered Entities?
by Elizabeth (Issie) Karan

On December 10, 2020, in Rutledge v. Pharmaceutical Care Management Association, the Supreme Court rejected a challenge to states’ authority to regulate pharmacy benefit managers (PBMs) and pharmacy reimbursements.

In a unanimous decision drafted by Justice Sotomayor, the Court determined that a 2015 Arkansas law was not preempted by the Employee Retirement Income Security Act (ERISA). The state legislature passed Arkansas Act 900 to stem the decline in independent and rural pharmacies operating in the state by requiring PBMs to reimburse pharmacies for the cost of prescription drugs at no less than the pharmacies’ acquisition costs. Prior to Arkansas Act 900, some pharmacies were losing money on certain prescription transactions because of contract terms. The Act sought to address this practice and other situations where the conduct of PBMs could cause harm to pharmacies. PBMs called for Arkansas Act 900 to be struck down arguing that it was preempted by federal rules under ERISA and Medicare. However, in Rutledge, the Court clarified that states may regulate plans’ contractors, and that cost-control regulation is presumptively beyond ERISA’s preemptive scope.

45 states have passed laws to regulate PBMs and Rutledge puts them on much firmer footing. These laws do different things, from banning PBM gag clauses that prevent pharmacies from telling consumers about lower-cost options, to requiring PBMs to disclose their price lists and manufacturer rebates to improve transparency. Importantly for HTCS, certain state laws regulating PBMs prohibit so-called “discriminatory reimbursement” practices where PBMs reimburse less or charge 340B covered entities more because of their participation in the 340B Program. Looking ahead, Rutledge may eliminate at least one challenge facing broader adoption of state laws regulating PBMs.