October 22, 2020

Volume X, Number 296

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ERISA Preemption Makes A Return To The Supreme Court

The U.S. Supreme Court recently agreed to hear Rutledge v. Pharmaceutical Care Management Association, No. 18-540, a case that asks the Court to decide whether ERISA preempts an Arkansas state law that regulates rates at which pharmacy benefits managers (PBMs) reimburse pharmacies.

PBMs are entities that verify benefits and manage financial transactions among pharmacies, healthcare payors, and patients.  Contracts between PBMs and pharmacies create “pharmacy networks.”  Some prescription drug reimbursement practices have resulted in independent rural pharmacies being reimbursed less than the cost of drugs, which, in turn, has driven them from the marketplace.  Some states, including Arkansas, have enacted legislation to curb these practices by regulating the rates at which PBMs reimburse pharmacies for drugs.

The Pharmaceutical Care Management Association (PCMA) commenced litigation on behalf of its members against Leslie Rutledge, in her official capacity as Attorney General of the State of Arkansas, arguing that the Arkansas statute was preempted by ERISA because it contained a prohibited “reference to” ERISA.  The Eighth Circuit (and the district court) concluded that ERISA preempted the Arkansas statute because it both related to, and had a connection with, employee benefits plans governed by ERISA. In so ruling, the Eighth Circuit explained that the Arkansas statute made implicit reference to ERISA through regulation of PBMs, which administer benefits for plans, employers, labor unions, and other groups that provide health coverage, and which are necessarily subject to ERISA.

Rutledge petitioned the Supreme Court for review on the question of whether the Arkansas statute regulating pharmacy benefits managers’ drug-reimbursement rates is preempted by ERISA.  Rutledge argued that review was warranted because the Eighth Circuit’s decision conflicts with Supreme Court precedent, which, in Rutledge’s view, has held that (1) a law regulating a class of entities that may include ERISA plans does not “relate to” ERISA plans; and (2) ERISA was not meant to preempt “basic rate regulation.”  Rutledge also argued that review was warranted because the Eighth Circuit’s decision deepened a circuit split by departing from a decision from the First Circuit that held that state statutes regulating PBMs are not preempted by ERISA because PBMs are not ERISA fiduciaries and are thus “outside the intricate web of relationships among the principal players in the ERISA scenario.”  The Solicitor General supported Rutledge’s request for review.

A briefing and oral argument schedule has not yet been set.

© 2020 Proskauer Rose LLP. National Law Review, Volume X, Number 22
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About this Author

Kyle Hansen Employment lawyer Proskauer
Associate

Kyle Hansen is an associate in the Labor & Employment Law Department and a member of the ERISA Litigation Group.

Kyle graduated summa cum laude from the University of Mississippi School of Law, earning his J.D. and two honors diplomas in the areas of Space & Aviation Law and Business Law. During law school, he won the North American Championship at the 2017 International Manfred Lachs Space Law Moot Court Competition, also winning “best brief.” He went on to represent North America at the world competition and was runner-up. Kyle also served as the senior editor for the ...

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