Recent Litigation over PBM Regulation
Recent Litigation over PBM Regulation
U.S. Supreme Court Activity. On June 30, 2025, the U.S. Supreme Court declined to review the decision of the Tenth Circuit Court of Appeals in Pharmaceutical Care Management Association v. Mulready, which found an Oklahoma law regulating PBMs to be preempted by ERISA.
Prior to Mulready, the U.S. Supreme Court had unanimously held that an Arkansas law requiring PBMs to reimburse pharmacies no less than their acquisition costs for prescription drugs was not preempted by ERISA. In that 2020 case, Rutledge v. Pharmaceutical Care Management Association, the Court distinguished the Arkansas law at issue from laws the Court had found to be preempted by noting that the Arkansas statute regulates only the relationships between PBMs and pharmacies and does not regulate the relationships between plans and their participants, between plans and their insurers, or even between plans and their PBMs. The Court found that the Arkansas statute did not have an impermissible connection with ERISA plans; it had only an “indirect economic influence” on the choices of an ERISA plan. The Court then identified examples of the types of state laws that have such an impermissible connection: laws that require employers to pay employees specific benefits, laws that bind ERISA plan administrators to a particular choice of rules for determining beneficiary status, laws that eliminate a method permitted under federal law for calculating benefits, and laws that prohibit employers from structuring their employee benefit plans in a particular manner.
The Tenth Circuit Court of Appeals applied the same analytical framework in deciding Mulready, a case that challenged several key network restrictions within Oklahoma’s Patient’s Right to Pharmacy Choice Act, including:
· An “access standard” requiring that plans provide for more brick-and-mortar (rather than mail-order) pharmacies to serve rural Oklahoma residents;
· A discount prohibition requiring that cost-sharing and copayments be identical for all network pharmacies, whether retail or mail-order, standard or preferred; and
· An “all willing providers” provision requiring PBMs to allow all pharmacies to join their preferred networks rather than allowing PBMs to craft limited preferred networks.
In determining that the network restrictions are preempted by ERISA, the Tenth Circuit Court agreed with PCMA’s assertion that such restrictions curtail and eliminate certain widely-employed plan structures and impose alternative benefit designs that prohibit employers from structuring their employee benefit plans in a certain manner. The Court also agreed with the reasoning in cases from the Fifth and Sixth Circuits finding that such restrictions were impermissibly connected with ERISA plans.
The Mulready decision reinforces the notion that although states may be able to enact legislation that regulates payment or compensation for prescription drugs, states may not force ERISA plans to adopt administrative requirements, network requirements, benefit design requirements, or substantive coverage requirements.
Iowa Case. More recently, on July 21, 2025, a Federal District Court in Iowa issued a preliminary injunction blocking the enforcement of multiple key provisions of a newly-enacted Iowa PBM law. In this case, Iowa Association of Business and Industry et al v. Ommen, plaintiffs, a coalition of Iowa employers and ERISA-governed health plans, sued the Iowa Insurance Commissioner arguing that the new law is preempted by ERISA, because it impermissibly intrudes upon the design and administration of ERISA-governed plans. The plaintiffs also argued that the new law suppresses health benefit plans from communicating cost-saving information in violation of the right to free speech under the First Amendment.
ERISA Preemption. The Court, having previously issued a temporary restraining order, found that several provisions within the new law impermissibly dictate the structure and administration of employee benefit plans by mandating network compositions, cost-sharing arrangements, and contractual terms that ERISA reserves to plan sponsors and fiduciaries. As such, based on ERISA preemption, the Court enjoined the Iowa Insurance Commission from enforcing the following provisions against the plaintiffs and their PBM contractors:
- Contractual Mandates Provision. Although the Court upheld the general requirement that PBMs must pass through manufacturer rebates to their health plan customers, it enjoined the provision mandating the inclusion of specific contractual terms in the agreements between PBMs and third-party payors (a term that includes self-funded ERISA plans), finding that such mandate interferes with fiduciary discretion under ERISA.
- Accumulator Ban Provision. The Court enjoined the provision requiring all participant payments to count toward a participant’s deductible, finding that the mandate directly regulates cost-sharing structures, a core element of ERISA plan design. The Court cited Mulready for the proposition that “cost-sharing arrangements constitute key benefit designs for ERISA plans under established precedent.” [According to commentators, although nearly 20 states have enacted laws banning copay accumulator programs, this is the first such law to be enjoined by a federal court on ERISA preemption grounds. Such commentators point to the fact that the Iowa law is distinguishable from the other laws banning accumulator programs due to the broad statutory framework in which it was enacted. Unlike other states that have targeted fully insured plans regulated under state laws, the Iowa law applies broadly to include self-funded ERISA plans within its intended scope.]
- Pharmacy Network Restrictions. The Court enjoined several pharmacy network-related restrictions, including:
- Anti-Discrimination Provision. The Court determined that the Iowa provision prohibiting differential treatment of pharmacies impermissibly interferes with a plan sponsor’s discretion to design plan networks based on cost, quality, or other fiduciary considerations.
- Any-Willing-Provider Provision. The Court noted that “network composition represents a core element of plan sponsors’ fundamental authority under ERISA to design benefit structures that best serve their participants’ interests. Once again citing Mulready for support, the Court found that the Iowa provision requiring the inclusion of any willing provider is “precisely the type of state interference with plan design that ERISA preempts.”
- Anti-Steerage Provisions. The Court considered the provision restricting differential treatment of pharmacies based on specialty drug designations (i.e., requiring open access to specialty drugs rather than steering patients to specialty pharmacies), and found that, “like the anti-discrimination provision, this requirement prevents plan sponsors from making strategic decisions about provider networks based on legitimate considerations including clinical expertise, patient safety, care coordination capabilities, and cost-effectiveness.” Similarly, the Court found the provisions prohibiting differential treatment based on particular delivery channels (i.e., mandating parity in payment requirements, purchasing conditions and cost-sharing obligations between retail and mail-order pharmacy arrangements) to be preempted by ERISA, “because they impermissibly dictate fundamental aspects of plan design by mandating specific cost-sharing arrangements that eliminate plans’ discretion to structure benefits in ways that serve participants’ interests and control costs.”
· General Enforcement Provision. The Court enjoined the general enforcement provision, which permits participants and pharmacies to bring a cause of action against ERISA plans and their fiduciaries for any violation of the new law. The Court determined that this provision is clearly preempted by ERISA, because it creates alternative enforcement mechanisms that conflict with ERISA’s exclusive remedial scheme.
Inseverable Provisions. The Court enjoined the following provisions as inseverable from the foregoing invalid provisions:
- Dispensing Fee Provision. Although the Court found the fixed $10.68 dispensing fee to be a permissible cost regulation outside of ERISA’s preemptive reach, it ultimately enjoined the provision, finding that it could not survive severance from the preempted anti-discrimination framework of the legislation.
- Supersession Provision. As noted above, the new law requires all PBM-related contracts executed, amended or renewed after the applicable effective date of the new law, to provide for pass-through pricing and establishes other mandatory contractual requirements that directly govern the terms of such contracts, including specific provisions regarding rebate handling and payment distribution mechanisms. The new law also contains a provision stating that the mandatory requirements supersede any contrary provisions within any such contract that the applicable parties may have negotiated. The Court held that ERISA preemption extends to the supersession clause due to its inseverability from the preempted mandatory contractual requirements.
First Amendment Violations. In addition to its preemption rulings, the Court held that the plaintiffs had demonstrated a likelihood of success on their First Amendment claims sufficient to support preliminary injunctive relief. Finding that the new law restricts truthful commercial speech, the Court enjoined the following provisions:
- Anti-Referral Provision. The Court reviewed the provision prohibiting health benefit plans, third-party payors, health carriers, and PBMs from making pharmacy “referrals” (i.e., directing participants to particular pharmacies based on fees, cost-sharing arrangements, or other plan considerations) and found that such speech restrictions exceed constitutional bounds.
- Notice Provision. The Court also reviewed the provision requiring any third-party payor providing reimbursement for prescription drugs to notify all pharmacies within the coverage area of the health plan’s network participation requirements and offer the pharmacies the opportunity to participate. The Court found that the notice requirement compels disclosure to unrelated parties without sufficient justification, thereby failing constitutional review.
Surviving Provisions. As noted above, the Court applied a severability analysis to determine the extent to which the valid and the invalid parts of the statute are independent and separable. The Court declined to enjoin the following provisions:
- Appeals and Disputes Provision. The Court found that the appeals and disputes provision is not preempted by ERISA, because it establishes appeal procedures for PBM-pharmacy relationships that fall outside of ERISA’s regulatory scope and do not interfere with plan administration or beneficiary enforcement rights.
- Reimbursement Provisions. The Court found that the provision prohibiting PBMs from setting reimbursement rates for non-affiliated pharmacies at levels lower than the rates paid to affiliated pharmacies for the same drugs and the provision requiring PBMs to reimburse retail pharmacies at the national average drug acquisition cost (“NADAC”) rate (or at a substitute rate, when the NADAC rate is unavailable) are not preempted by ERISA, because they constitute permissible cost regulations under Rutledge.
- Reporting and Publication Provision. The Court reviewed the quarterly reporting and internet publication provision requiring PBMs to report to the Insurance Commissioner, and to publish on their web sites, certain information on all drugs reimbursed significantly above or below NADAC. The Court held that such provision escapes ERISA preemption, because it targets PBMs alone, not ERISA plans or their sponsors, which remain subject to distinct reporting obligations under the federal regulatory framework.
Impact. Because the Court limited the scope of injunctive relief to the named plaintiffs and their contractors (citing the U.S. Supreme Court’s recent decision in Trump v. CASA), other entities that are similarly impacted but remain subject to enforcement of the new law may be forced to spend their time and resources (as well as the courts’ time and resources) pursuing similar relief.
Broader Implications. The decision of the Iowa District Court, in tandem with the preservation of the holding in Mulready, supports a particular framework for states to follow in their efforts to avoid ERISA preemption while attempting to regulate PBMs.
About the Author. This alert was prepared for Employer Services Group by Barrow Lent LLP, a national law firm with recognized experts on ERISA and the Affordable Care Act. Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.
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