Rutledge v. Pharmaceutical Care Management
The Facts
Arkansas enacted Act 900, which required PBMs to reimburse pharmacies at or above the wholesale cost of drugs and gave pharmacies the right to refuse to dispense a drug if reimbursement fell below their cost. The Pharmaceutical Care Management Association challenged the law as preempted by ERISA, which preempts state laws that 'relate to' employee benefit plans. The Eighth Circuit agreed. The Supreme Court reversed.
The Application
The Court applied the Travelers framework to recognize that Arkansas Act 900 regulated PBMs as commercial intermediaries and healthcare providers operating in the pharmacy market, not ERISA plans themselves. Although PBMs administer drug benefits under many ERISA plans, the state law's focus on reimbursement practices and the relationship between pharmacies and intermediaries fell within traditional state regulation of insurance and healthcare providers - categories Travelers explicitly preserved from preemption. The law's connection to ERISA plans was indirect and incidental to its primary purpose of ensuring fair pharmacy reimbursement, insufficient to trigger preemption where the state's legitimate interest in protecting local healthcare markets from cost-shifting by national operators was clear. This narrow application of the preemption doctrine preserved state authority to police commercial conduct in the healthcare supply chain, even when that conduct indirectly affects drug costs in ERISA-covered benefit plans.
The Conclusion
**Decided December 10, 2020. The unanimous ruling (Sotomayor writing) preserved state authority to regulate PBMs, rejecting the argument that any state law affecting drug costs in ERISA plans is preempted.** The decision is a significant check on ERISA preemption's reach and has enabled a wave of state PBM regulation legislation aimed at lowering prescription drug costs.
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Case Analysis
Overview
Rutledge v. Pharmaceutical Care Management Association (2020) held 8-0 that the Employee Retirement Income Security Act (ERISA) does not preempt Arkansas's law regulating pharmacy benefit managers (PBMs). The intermediaries between drug manufacturers, insurers, and pharmacies. The ruling allowed states to regulate PBM reimbursement rates and practices, a significant win for states trying to control drug pricing through PBM oversight.
Facts
Arkansas enacted Act 900, which required PBMs to reimburse pharmacies at or above the wholesale cost of drugs and gave pharmacies the right to refuse to dispense a drug if reimbursement fell below their cost. The Pharmaceutical Care Management Association challenged the law as preempted by ERISA, which preempts state laws that 'relate to' employee benefit plans. The Eighth Circuit agreed. The Supreme Court reversed.
Issue
Whether ERISA preempts state laws regulating pharmacy benefit manager reimbursement rates and practices as laws that 'relate to' ERISA-covered employee benefit plans.
Rule
ERISA § 514(a), 29 U.S.C. § 1144(a), preempts state laws that 'relate to' covered employee benefit plans. Shaw v. Delta Air Lines (1983) broadly interpreted 'relate to,' but New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co. (1995) clarified that preemption is not unlimited. States retain traditional police power to regulate insurance, healthcare providers, and commercial relationships. Laws with only tenuous connections to ERISA plans are not preempted.
Analysis
The Court applied the Travelers framework to recognize that Arkansas Act 900 regulated PBMs as commercial intermediaries and healthcare providers operating in the pharmacy market, not ERISA plans themselves. Although PBMs administer drug benefits under many ERISA plans, the state law's focus on reimbursement practices and the relationship between pharmacies and intermediaries fell within traditional state regulation of insurance and healthcare providers. Categories Travelers explicitly preserved from preemption. The law's connection to ERISA plans was indirect and incidental to its primary purpose of ensuring fair pharmacy reimbursement, insufficient to trigger preemption where the state's legitimate interest in protecting local healthcare markets from cost-shifting by national operators was clear. This narrow application of the preemption doctrine preserved state authority to police commercial conduct in the healthcare supply chain, even when that conduct indirectly affects drug costs in ERISA-covered benefit plans.
Conclusion
**Decided December 10, 2020. The unanimous ruling (Sotomayor writing) preserved state authority to regulate PBMs, rejecting the argument that any state law affecting drug costs in ERISA plans is preempted.** The decision is a significant check on ERISA preemption's reach and has enabled a wave of state PBM regulation legislation aimed at lowering prescription drug costs.
Notes
OT2020. Added via SCOTUS bulk import 2026-05-14
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