Rutledge v. Pharmaceutical Care Management Assn.
The Supreme Court unanimously ruled that Arkansas can require pharmacy benefit managers to pay pharmacies at or above the pharmacies' actual drug acquisition costs, holding that federal retirement and benefits law (ERISA) does not override the state pricing rule.
The decision gives states more room to regulate the companies that set drug reimbursement rates — an issue of particular importance to rural and independent pharmacies that were being reimbursed below their costs and facing possible closure.
“In sum, Act 900 amounts to cost regulation that does not bear an impermissible connection with or reference to ERISA.”
The majority's bottom-line holding that Arkansas's pharmacy reimbursement rule is not displaced by federal benefits law.
How it got here: PCMA sued in federal district court in Arkansas; the district court followed Eighth Circuit precedent and held ERISA preempts Act 900; the Eighth Circuit affirmed; the Supreme Court agreed to hear the case.
The Case in Depth
What happened
Pharmacy benefit managers (PBMs) are middlemen between prescription-drug plans and pharmacies. They set the rates pharmacies receive for dispensing drugs using "maximum allowable cost" lists, and often reimburse pharmacies below what those pharmacies paid to acquire the drugs. Arkansas passed Act 900 in 2015 to protect its pharmacies — especially rural and independent ones facing losses — by requiring PBMs to reimburse at or above pharmacies' actual acquisition costs. A national trade association representing the 11 largest PBMs sued, arguing federal ERISA law preempts the state rule.
The question before the Court
Can Arkansas require pharmacy benefit managers — the middlemen between drug plans and pharmacies — to reimburse pharmacies at least as much as those pharmacies paid to acquire the drugs, or does federal employee-benefits law block that kind of state pricing rule?
The Court's answer
No — ERISA does not block Arkansas's Act 900. The Court held that the state law is simply a form of cost regulation: it sets a floor on what PBMs must pay pharmacies, but it does not require any particular benefit to be offered, dictate how benefit plans must be structured, or force plans to make any specific coverage choices. PBMs may pass higher costs on to plans, meaning ERISA plans could pay a bit more for drug benefits in Arkansas than elsewhere — but the Court said cost variation across states is not what ERISA was designed to prevent. This situation is materially the same as an earlier case involving New York hospital surcharges, where the Court held that indirect cost effects do not create an impermissible tie between a state law and an ERISA plan.
Act 900 also does not single out ERISA plans for special treatment. It applies to all PBMs regardless of whether the plans they serve are covered by ERISA — including Medicaid, Medicare, and private market plans — so ERISA plans are not essential to how the law operates. Because Act 900 has neither an impermissible "connection with" nor a "reference to" an ERISA plan, ERISA leaves the Arkansas law intact.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
States that have passed, or are considering, similar laws protecting pharmacies from below-cost reimbursements can now enforce them without fear of federal ERISA preemption. Rural and independent pharmacies threatened by low reimbursement rates gain stronger legal footing. Pharmacy benefit managers operating in Arkansas must comply with the state's pricing floor, and may pass some of those costs on to prescription-drug plans and their members.
What changes now
The case is sent back to the Eighth Circuit for further proceedings consistent with the Supreme Court's ruling. Arkansas's Act 900 can now be enforced. Other states with similar pharmacy reimbursement laws gain support for their validity, though future cases may raise different facts or arguments not addressed here. The Eighth Circuit's earlier ruling that a similar Iowa statute was also preempted is now called into serious doubt by this decision.
What this does not decide
The ruling addresses only whether Act 900's reimbursement floor constitutes impermissible cost regulation under ERISA. It does not validate all state PBM regulations — laws that cross from cost rules into dictating plan structure or benefit choices could still face preemption. The Court also did not adopt Justice Thomas's proposed textual alternative to the existing ERISA preemption framework.
Concurrences and dissents
Concurrence — Justice Thomas
“We unanimously reverse that decision today, but we can hardly fault judges when they apply the amorphous test that we gave them. We can and should do better.”Justice Thomas criticizing the Court's own ERISA preemption doctrine as too vague to guide lower courts reliably.
Justice Thomas joined the majority in full but wrote separately to criticize the Court's ERISA preemption jurisprudence as having drifted away from the statute's actual text. He argued the Court should apply a two-step textual test: first, whether any ERISA provision governs the same subject as the challenged state law; and second, whether the state law has a meaningful relationship to ERISA plans. He noted that the existing 'purposes and objectives' framework is vague and unpredictable, and that the decision below — unanimously reversed today — was a foreseeable result of the 'amorphous test' the Court created. He urged the Court to apply the law as written.
How the Court got there
The legal reasoning, step by step
- ERISA preempts state laws that 'relate to' employee benefit plans — meaning laws with either an impermissible 'connection with' or a 'reference to' such a plan. The Court applied a two-part test for these relationships, asking separately whether Act 900 had either kind of impermissible tie.
- On the connection prong, a state law runs afoul of ERISA only if it governs a central matter of plan administration or effectively forces plans to adopt a particular structure of benefits. Cost regulations that merely increase what plans pay, without dictating plan design, do not cross that line — a principle the Court established in Travelers (a 1995 case upholding New York hospital surcharges as plain cost regulation).
- Act 900 is cost regulation in the same mold as the New York surcharge law in Travelers: it sets a floor on PBM reimbursement rates to pharmacies. PBMs may pass those higher costs on to plans, meaning ERISA plans could pay more for drug benefits in Arkansas than in other states — but cost uniformity was not what ERISA was designed to guarantee, and Act 900 does not force any plan to make any particular coverage decision.
- On the reference prong, a state law 'refers to' ERISA only if it acts immediately and exclusively on ERISA plans, or if ERISA plans are essential to how the law operates. Act 900 covers all PBMs regardless of whether the plans they serve fall under ERISA — including Medicaid, Medicare, and marketplace plans — so neither condition is met.
- The Court rejected four specific arguments from the trade group: (1) the requirement to update maximum-cost lists is simply rate regulation, not plan design control; (2) the pharmacy appeal procedure does not govern central plan administration just because a plan might have to recalculate what it owes a PBM after a successful appeal; (3) allowing pharmacies to refuse below-cost dispensing places responsibility on the PBM, which set the inadequate rate, not on the plan; and (4) 'operational inefficiencies' alone — even if they lead to higher costs or fewer benefits — cannot trigger ERISA preemption.
Doctrinal impact
Cases affected by this decision
Reaffirms New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co. (514 U.S. 645)
The Court applied Travelers' principle that state cost regulations affecting ERISA plans are not preempted, calling it decisive here.