The U.S. Supreme Court today issued an 8-0 ruling that could help states develop indirect strategies for regulating large employers’ benefits plans.
The court handed down the ruling in connection with Rutledge v. Pharmaceutical Care Management Association (Case Number 18-540).
A provision in the federal Employee Retirement Income Security Act of 1974 (ERISA) normally “preempts,” or blocks, efforts by states to impose state benefits laws on the kinds of large employer-sponsored health plans governed by ERISA. Congress put in the preemption provision in an effort to keep state rule variations from increasing the cost of large, multistate benefit plans.
In the past, the Supreme Court has often ruled in favor of employers and employer groups in ERISA preemption cases.
In the new Rutledge v. PCMA ruling, the court held that an Arkansas prescription drug payments standards law is too far away from ERISA and ERISA plans to have an “impermissible connection” with ERISA plans, even though the law has an indirect effect on what ERISA plans pay for prescription drugs.
- A transcript of the oral arguments is available here.
- A copy of the Rutledge v. PCMA opinion is available here.
- An article about the Supreme Court’s Gobeille ruling is available here.
“State rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage are not preempted by ERISA,” Justice Sonia Sotomayor wrote in an opinion explaining the ruling.
Justice Clarence Thomas wrote in a concurring opinion that he agrees with the other justices on the outcome of the case but believes that the court should take a different approach, based more directly on the text of ERISA, when deciding whether a state benefits law relates to ERISA.
The Arkansas Law
Until recently, U.S. prescription drug costs were increasing more rapidly than other types of health care costs. Many health insurers and large employer plans have tried to fight back by using outside pharmacy benefits managers, or PBMs, to help them buy and negotiate lower prices for drugs.
Trade groups for rural pharmacies and independent pharmacies have argued that, in some cases, the PBMs’ strategies are unfair to independent pharmacies.
Arkansas, like many other states, has developed a law that governs PBM operations.
A section in the Arkansas PBM law requires a PBM to pay pharmacies prices for drugs that are equal to or higher than the wholesale prices for the drugs, based on the information in frequently updated drug wholesale price lists.