ERISA Education & History

In Rutledge v. PCMA, Arkansas passed Act 900 which regulated PBMs:

• Established a reimbursement floor by requiring PBMs to reimburse pharmacies at a rate that reflected the pharmacies’ acquisition costs.
• Required publication of PBM prices
• Provided an appeal process allowing pharmacies to challenge reimbursement rates
• Allowed pharmacies to refuse to fill prescriptions if reimbursement fell below acquisition costs

Rutledge v. PCMA, 141 S. Ct. 474, 479 (2020)

“Connection with" test

• State laws have a “connection with” ERISA plans if they “require providers to structure benefit plans in particular ways, such as by requiring payment of specific benefits, … or by binding plan administrators to specific rules for determining beneficiary status.”
• “A state law may also be subject to pre-emption if ‘acute, albeit indirect, economic effects of the state law force an ERISA plan to adopt a certain scheme of substantive coverage.’ ….  As a shorthand for these considerations, this Court asks whether a state law ‘governs a central matter of plan administration or interferes with nationally uniform plan administration.’ ….  If it does, it is pre-empted.
• “A law refers to ERISA if it ‘acts immediately and exclusively upon ERISA plans or where the existence of ERISA plans is essential to the law’s operation.’”
• “Act 900 does not act immediately and exclusively upon ERISA plans because it applies to PBMs whether or not they manage an ERISA plan. Indeed, the Act does not directly regulate health benefit plans at all, ERISA or otherwise. It affects plans only insofar as PBMs may pass along higher pharmacy rates to plans with which they contract.”

Rutledge v. PCMA, 141 S. Ct. 474, 479-81 (2020)

• “Crucially, not every state law that affects an ERISA plan or causes some disuniformity in plan administration has an impermissible connection with an ERISA plan. That is especially so if a law merely affects costs.”  Rutledge, 141 S. Ct. at 480
• Rutledge’s example: NY’s 13% hospital surcharge for non-Blue Cross insurers.  “[S]uch an ‘indirect economic influence’ did not create an impermissible connection between the New York law and ERISA plans because it did not ‘bind plan administrators to any particular choice.’” NY State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U. S. 645, 659 (1995)
• “ERISA does not pre-empt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.”  Rutledge, 141 S. Ct. at 480

• “The logic of Travelers decides this case. Like the New York surcharge law in Travelers, Act 900 is merely a form of cost regulation. It requires PBMs to reimburse pharmacies for prescription drugs at a rate equal to or higher than the pharmacy’s acquisition cost. PBMs may well pass those increased costs on to plans, meaning that ERISA plans may pay more for prescription-drug benefits in Arkansas than in, say, Arizona. But ‘cost uniformity was almost certainly not an object of pre-emption.’ ….  Nor is the effect of Act 900 so acute that it will effectively dictate plan choices. …. Indeed, Act 900 is less intrusive than the law at issue in Travelers, which created a compelling incentive for plans to buy insurance from the Blues instead of other insurers. Act 900, by contrast, applies equally to all PBMs and pharmacies in Arkansas. As a result, Act 900 does not have an impermissible connection with an ERISA plan.”Rutledge v. P.C.M.A., 141 S. Ct. 474, 481 (2020)