State Regulation Uncertainty For Pharmacy Benefit Managers

Pharmacy benefit managers (PBMs) play a role in the health care system by negotiating drug prices, determining formulary placements and administering utilization management programs and claims on behalf of health plans. Recently, numerous states have enacted laws that impose wide‑ranging reforms on PBMs in an effort to regulate PBM business practices. A key legal challenge to these state laws is whether the Employee Retirement Income Security Act (ERISA) preempts them—in other words, blocks them from enforcement.

Under ERISA, state legislatures have historically been barred from regulating ERISA‑covered plans. ERISA preempts state laws that "relate to" ERISA‑covered plans, with an exception for state laws with an indirect impact, such as state insurance law as applied to insurers. However, over the years, the U.S. Supreme Court has progressively narrowed the scope of ERISA preemption.