Rutledge v. Pharmaceutical Care Management Assn.

Background

In 2015 Arkansas passed Act 900 to stop pharmacy benefit managers (PBMs) from reimbursing pharmacies at prices below what pharmacies paid to buy drugs. The law requires PBMs to update maximum prices when wholesale costs rise, gives pharmacies a formal appeal to challenge low reimbursements, and allows pharmacies to refuse to dispense drugs if reimbursement is below their acquisition cost. The Pharmaceutical Care Management Association, representing the country’s largest PBMs, sued, arguing the federal ERISA law blocks state rules that affect employee benefit plans. Lower federal courts agreed and blocked the law; the state appealed to the Supreme Court.

Reasoning

The Court’s main question was whether ERISA “pre-empts” the Arkansas law. The Court said no. It explained Act 900 is a form of cost regulation that does not force benefit plans to adopt particular choices or govern central plan administration. The law applies to PBMs whether or not they serve ERISA plans, so ERISA plans are not essential to how the law works. The Court found that procedural features like the appeal process and a pharmacy’s ability to decline a sale create possible inefficiencies, but do not rise to the level of displacing ERISA.

Real world impact

The decision allows Arkansas to enforce Act 900 and protects pharmacies—especially small or rural ones—from being paid below acquisition cost. PBMs will face higher reimbursement obligations and may pass costs to prescription-drug plans, which could affect plan costs for employers and beneficiaries. The ruling resolves the federal preemption question for now and sent the case back to lower court for further proceedings consistent with the opinion.

Dissents or concurrances

Justice Thomas wrote separately to express concern about the Court’s broader ERISA pre-emption approach, urging a stricter textual test.