Supreme Court takes up PBM case: Does ERISA preempt states’ efforts to regulate drug prices?

The U.S. Supreme Court plans to look at states’ ability to regulate pharmacy benefit managers this term.

Glen Mulready, Oklahoma’s insurance commissioner, is trying to overturn an appeals court ruling that found that the Employee Retirement Income Security Act of 1974 benefits rule uniformity provisions preempts state efforts to regulate PBMs when the PBMs are serving self-funded employer health plans.

The Supreme Court “has long cautioned against stretching ERISA to preempt laws in ‘traditionally state-regulated’ areas about which ‘ERISA has nothing to say,’” Mulready says in a brief filed in connection with the case, Mulready v. Pharmaceutical Care Management Association. “Pharmacy regulation is an area of traditional state concern and neither PBMs nor prescription-drug benefits are mentioned anywhere in ERISA.”

But the PCMA, the PBMs’ group, says ERISA should preempt the Oklahoma PBM law.

“This Court has said time and time again that any state law that ‘prohibits employers from structuring their employee benefit plans in a [particular] manner” is ‘clearly’ preempted,” the PCMA says.

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Congress included the state-rule preemption provision ERISA in an effort to make U.S. benefits rules uniform.

Congress wanted to encourage large, multistate employers to offer benefit plans, by eliminating the need for multistate plans to comply with 50 different sets of benefit rules.

The PBMs contend that the play an important role in holding pharmacy benefit costs down.

State regulators and some other players, including traditional pharmacy groups, argue that the big PBMs are not transparent, may not really hold employers’ costs down and are too hard on traditional pharmacies.

PCMA sued Oklahoma over its Patient’s Right to Pharmacy Choice Act in the U.S. District Court for the Western District of Oklahoma in 2019.

A district court judge ruled in favor of Mulready and Oklahoma’s PBM law in 2022.

The 10th U.S. Circuit Court of Appeals overturned the lower-court ruling in August 2023, finding that ERISA did preempt state efforts to regulate PBMs.

A group of 32 state attorneys general, which includes both Republican attorneys general and Democratic attorneys general, is supporting Mulready.

The list of organizations submitting “friend of the court briefs” or comments, in support of Mulready also includes health care provider groups and pharmacy groups.

The Supreme Court previously ruled in favor of state efforts to regulate self-insured employers’ PBMs in Rutledge v. Pharmaceutical Care Management Association.

PCMA contends that the Rutledge ruling did not give states’ new authority to regulate the benefits offered by ERISA plans.