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As multiple states continue to undertake efforts to erode ERISA’s preemption powers, the U.S. 10th Circuit Court of Appeals recently ruled against a state law that was intended to regulate Pharmacy Benefit Managers (“PBMs”). A full link to this decision, PCMA v. Mulready, can be found here.
In 2019, Oklahoma enacted a PBM law that (1) eliminated mail-order only networks, including specialty networks; (2) required inclusion of “any willing pharmacy” into a plan’s preferred network; (3) prohibited use of cost-sharing discounts to incentivize use of particular pharmacies; and (4) prohibited the termination of a pharmacy’s contract based on whether one of its pharmacists is on probation with the State Board of Pharmacy.
SIIA, along with other employer and labor groups, argued in an Amicus Brief that Oklahoma’s law impermissibly restricted a self-insured plan sponsor’s ability to develop provider networks and other value-based plan designs intended to lower costs. As such, this Oklahoma law directly impacted a self-insured health plan’s design and network, something that the U.S. Supreme Court has consistently found is preempted under ERISA.
The 10th Circuit Court of Appeals agreed, overturning a lower court decision, and finding that Oklahoma’s law indeed had a “direct” impact on self-insured plans by binding plan sponsors to a particular choice concerning the substance of plan benefits and requiring plan sponsors to structure benefit plans in particular ways.
Defenders of the Oklahoma law relied on the Supreme Court’s decision in Rutledge v. PCMA, a ruling handed down in 2020 that allowed states to pass a law regulating the price at which PBMs reimburse pharmacies for the cost of drugs covered by a self-insured plan. The Rutledge Court ruled that this state law was not preempted by ERISA because the law had an “indirect” impact on a self-insured plan by merely impacting “the cost” of plan administration.
Unfortunately, the Rutledge decision has created a considerable amount of uncertainty over ERISA’s preemption powers, resulting in the introduction of a number of state laws mandating specific prescription drug designs and networks for self-insured plans, all under the guise that Rutledge permits this type of state law.
However, the recent 10th Circuit ruling is an important path in SIIA’s ongoing advocacy against these state proposals. In those states where a similar law has already been enacted, the 10th Circuit’s ruling should serve as another important precedent that this type of law is preempted by ERISA.
If you have questions or wish to discuss either PBM or ERISA issues further, please contact Ryan Work (rwork@siia.org) or Chris Condeluci (ccondeluci@siia.org).
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