ERISA Preemption of State PBM Laws

Background The Employee Retirement Income Security Act of 1974 (ERISA) aims to create a uniform regulatory regime for employee benefit plans, preempting state laws that "relate to" these plans. Recently, states have increased regulations on Pharmacy Benefit Managers (PBMs) to enhance transparency and control costs in prescription drug benefits, leading to complex legal debates on ERISA preemption.

State Regulation of PBMs States have enacted numerous laws addressing PBM practices, such as retaining drug manufacturer rebates and using spread pricing. This has raised questions about ERISA preemption, as PBMs play a crucial role in managing prescription drug benefits for approximately 270 million people in the U.S.

ERISA Preemption Analysis

• General Rule: ERISA preempts state laws that "relate to" ERISA plans.
• Savings Clause: This clause exempts state laws that regulate insurance from ERISA preemption.
• Deemer Clause: Limits the savings clause by exempting self-funded plans from state insurance regulations.

Key Judicial Interpretations

1. Impermissible Connection: A state law is preempted if it governs a central matter of plan administration or interferes with nationally uniform plan administration. Preempted Examples: State laws requiring specific benefit structures or forcing plans to adopt certain coverage schemes. Not Preempted Examples: Laws that increase costs or alter incentives without dictating plan structures.
2. Reference to an ERISA Plan: A state law is preempted if it acts immediately and exclusively upon ERISA plans or if an ERISA plan is essential to the law’s operation.

Recent Case Law

• Rutledge v. PCMA: Upheld state regulations that did not force specific plan structures.
• PCMA v. Mulready: Ruled that Oklahoma PBM regulations were preempted by ERISA.
• PCMA v. Wehbi: Upheld state regulations on PBM practices.

Implications for Plan Sponsors Employers must navigate the evolving legal landscape by:

• Establishing formal processes to select and monitor PBMs.
• Ensuring transparency and compliance with fiduciary duties.
• Keeping abreast of both state and federal legislative developments, such as the proposed "Lower Costs, More Transparency Act" which seeks to increase PBM accountability.

Conclusion The regulation of PBMs remains a dynamic and contentious area of law, heavily influenced by ongoing litigation and legislative actions. Employers should remain vigilant and proactive in managing their prescription drug benefits to ensure compliance and mitigate risks.