Rutledge v. Pharmaceutical Care Management Assn.
592 U. S. ____ (2020) (2020)
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Rule of Law:
The Employee Retirement Income Security Act of 1974 (ERISA) preempts state laws that "relate to" a covered employee benefit plan if they have an impermissible "connection with" or "reference to" such a plan. However, a state law is not preempted if it merely increases costs or alters incentives for ERISA plans without forcing plans to adopt a particular scheme of substantive coverage, or if it does not act immediately and exclusively upon ERISA plans or require their existence for its operation.
Facts:
- Pharmacy benefit managers (PBMs) serve as intermediaries between prescription-drug plans and pharmacies, reimbursing pharmacies for drug costs based on maximum allowable cost (MAC) lists they develop.
- In 2015, Arkansas enacted Act 900 in response to concerns that PBM reimbursement rates were often too low to cover pharmacies' costs, jeopardizing the viability of many, particularly rural and independent pharmacies.
- Act 900 effectively requires PBMs to reimburse Arkansas pharmacies at a price equal to or higher than the pharmacy’s wholesale cost for a drug.
- Act 900 mandates that PBMs timely update their MAC lists when drug wholesale prices increase.
- Act 900 requires PBMs to provide an administrative appeal procedure for pharmacies to challenge MAC reimbursement rates that are below their acquisition costs.
- If a pharmacy successfully appeals, the PBM must increase its reimbursement rate to cover the pharmacy's acquisition cost and allow for rebilling of affected claims.
- Act 900 also permits Arkansas pharmacies to refuse to sell a drug to a beneficiary if the PBM's reimbursement rate is lower than the pharmacy’s acquisition cost.
Procedural Posture:
- Respondent Pharmaceutical Care Management Association (PCMA) filed a lawsuit in the Eastern District of Arkansas, alleging that Act 900 is preempted by the Employee Retirement Income Security Act of 1974 (ERISA).
- Before the District Court ruled, the Eighth Circuit Court of Appeals held in a different case (Pharmaceutical Care Mgmt. Assn. v. Gerhart) that ERISA preempted a similar Iowa statute.
- The District Court, following the Eighth Circuit's precedent, held that ERISA preempts Act 900 and granted summary judgment for PCMA.
- The Pharmaceutical Care Management Association (appellee) appealed the District Court's decision to the Eighth Circuit Court of Appeals.
- The Eighth Circuit Court of Appeals affirmed the District Court's holding that Act 900 is preempted by ERISA.
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Issue:
Does the Employee Retirement Income Security Act of 1974 (ERISA) preempt Arkansas' Act 900, which regulates the price at which pharmacy benefit managers (PBMs) reimburse pharmacies for prescription drugs?
Opinions:
Majority - justice Sotomayor
No, Arkansas’ Act 900 is not preempted by ERISA because the Act has neither an impermissible connection with nor reference to ERISA plans. To determine an "impermissible connection," the Court asks whether the state law "governs a central matter of plan administration or interferes with nationally uniform plan administration," citing Gobeille v. Liberty Mut. Ins. Co. ERISA does not preempt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage, as established in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co. Act 900 is primarily a form of cost regulation; while PBMs may pass increased costs to plans, this indirect economic influence does not dictate plan choices or substantive coverage, nor does it create an "acute" effect forcing plans to adopt a certain scheme. The Court rejected PCMA's argument that Act 900's enforcement mechanisms (pricing methodology, appeal procedures, right to refuse sale) affect central plan administration or create operational inefficiencies sufficient to trigger preemption, noting that such effects are akin to those from state-law mechanisms for executing judgments or general cost increases, which Mackey v. Lanier Collection Agency & Service, Inc. and De Buono v. NYSA–ILA Medical and Clinical Services Fund held are not preempted. Furthermore, Act 900 does not "refer to" ERISA because it does not act immediately and exclusively upon ERISA plans, nor is the existence of ERISA plans essential to its operation. The Act regulates PBMs whether or not the plans they service are covered by ERISA, defining a "pharmacy benefits plan or program" broadly to include any plan paying for pharmacist services to Arkansas residents or employees, similar to the law upheld in Travelers.
Concurring - justice Thomas
Yes, I join the Court’s opinion in full because it properly applies our precedents interpreting the pre-emptive effect of ERISA. Justice Thomas, however, expressed continued doubt about the Court's ERISA preemption jurisprudence, arguing that it has "veered from the text" of ERISA §1144(a). He suggests that the plain text of ERISA indicates a two-part preemption test: (1) whether any ERISA provisions govern the same matter as the state law at issue, and (2) whether that state law has a meaningful relationship to ERISA plans. He contends that the Court's current "purposes and objectives" preemption approach, which uses the "connection with" or "reference to" framework, is vague and lacks predictability, despite often leading to correct outcomes. He advocates for a return to a textualist interpretation of the statute, emphasizing that the word "supersede" implies replacement rather than categorical preemption of any related state law.
Analysis:
This decision significantly narrows the scope of ERISA's express preemption clause, particularly regarding state laws that indirectly affect the costs of employee benefit plans. By categorizing Act 900 as a mere "cost regulation," the Supreme Court grants states greater latitude to regulate entities like PBMs without triggering federal preemption, even if these regulations increase plan expenses or introduce operational complexities. This ruling reinforces the distinction between state laws that dictate the structure or administration of ERISA plans (which are preempted) and those that impact plan economics or apply broadly to healthcare entities (which generally are not). It likely encourages more state-level legislative efforts to control prescription drug costs and support local pharmacies, as such regulations are less susceptible to preemption challenges under ERISA.
