On Reconsideration, Eighth Circuit Concludes That ERISA Does Not Preempt State Law Regulating PBMs

The Eighth Circuit, reconsidering a prior ruling on remand from the U.S. Supreme Court, has concluded that ERISA does not preempt a North Dakota law regulating the relationship between pharmacies and pharmacy benefit managers (PBMs). Among other things, the challenged law regulates the fees PBMs may charge pharmacies, limits the copayments PBMs may charge, and requires certain disclosures. The court previously ruled that the North Dakota law was preempted by ERISA and, therefore, unenforceable (see our Checkpoint article). But the Supreme Court subsequently held, in Rutledge v. Pharm. Care Mgmt. Ass’n., that ERISA did not preempt another state’s similar PBM law (see our Checkpoint article), and directed the Eighth Circuit to further consider the North Dakota law in light of that ruling.

In general, ERISA preempts state laws that have an impermissible “connection with” or “reference to” an ERISA plan. The Eighth Circuit explained that the “connection with” prong of the preemption analysis is primarily concerned with state laws that would require plans to provide specific benefits or coverage or structure their benefits in a particular way. Analyzing each provision of the North Dakota PBM law, the court concluded that it did not regulate a central matter of plan administration, interfere with nationally uniform plan administration, or have an acute economic effect on benefit plans—thus there was no “connection with” ERISA plans. Nor was the “reference to” prong met, as the law did not apply exclusively to ERISA plans. Accordingly, the PBM law was not preempted by ERISA.

EBIA Comment: This was a fairly straightforward application of the Supreme Court’s Rutledge ruling, which held that ERISA does not preempt state laws that merely increase costs or alter incentives for ERISA plans. While these cases involved PBM laws, this line of reasoning could apply to other state laws governing entities or processes that have some relationship to ERISA plans, such as laws regulating TPAs and other service providers. For more information, see EBIA’s ERISA Compliance manual at Sections XXXIX.C (“State Laws That ‘Relate to’ ERISA Plans Are Generally Preempted”) and XXXIX.H.8.c (“Pharmacy Benefit Managers (PBMs)”). See also EBIA’s Self-Insured Health Plans manual at Section V.E (“ERISA Preemption and the Application of State Mandates”).

Contributing Editors: EBIA Staff.