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An Illinois federal district court has ruled that the Employee Retirement Income Security Act (ERISA) does not preempt an Arkansas Insurance Department ("the Department") rule that regulates pharmacy benefit managers (PBMs). The case is Central States, Southeast and Southwest Areas Health and Wellness Fund et al. vs. McClain.
Rule 128 requires ERISA-governed plans to report certain information about compensation paid to their PBMs to determine whether it is "fair and reasonable." If the Department finds the program to be unfair or unreasonable, then it may require the plan to pay an additional pharmacy dispensing fee.
The plans argued that since Rule 128 places a direct obligation on ERISA-governed plans in the form of reporting and dispensing fee requirements, ERISA preempts it. However, the court disagreed, dismissing the preemption claim. The court noted that the rule applies to all plans, not just plans that fall under ERISA. As a result, the court further reasoned, the operation of the rule does not depend on the existence of ERISA plans.
One critic of the decision pointed out that Rule 128 expressly refers to self-funded plans and establishes reporting requirements similar to the PBM rule that the Supreme Court found to be preempted by ERISA in Gobeille v. Liberty Mut. Ins. Co., 577 U.S. 312 (2016).
While the case may be favorable to state measures regulating PBMs, it is also representative of the large number of legal challenges to state PBM rules under ERISA. Almost all states have passed some variation on a law that seeks to reform and regulate PBMs. The challenges have resulted in a split among federal courts over whether the ERISA preemption doctrine applies to state PBM laws.
As a result, employers should not automatically assume that a state PBM regulation doesn't apply to self-funded plans. Employers must remain aware of legal developments with the state PBM laws that apply to their prescription drug plans, including future appeals. Due to the potential for further development, plan sponsors should consider whether to minimally comply with Rule 128 or forego reporting and wait for a future decision by a higher court finding that ERISA preempts the rule.
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