While multiple states have passed laws that regulate and reform policies of pharmacy benefit managers (PBMs), these laws have faced a recent deluge of legal challenges in federal court by industry groups and some plan sponsors. At the same time, Congress has imposed new transparency requirements that affect the compliance duties of sponsors of Employee Retirement Income Security Act (ERISA)-covered group health plans. These developments have led to differing rules for plan sponsors to follow depending on the jurisdiction and the type of law involved.
In 2020, the U.S. Supreme Court decided Rutledge v. Pharmaceutical Care Management Association, holding that ERISA does not preempt state laws regulating PBM reimbursement rates paid to pharmacies. Since that decision, lower courts have found Rutledge inapplicable when holding that ERISA preempts other PBM regulatory laws. For instance, in 2023, the U.S. Court of Appeals for the Tenth Circuit ruled that ERISA preempted several provisions of an Oklahoma PBM law, including those targeting network access standards and “any-willing-pharmacy” requirements, as applied to self-funded plans. The U.S. Supreme Court declined to review the ruling in Pharmaceutical Care Management Association v. Mulready, leaving it in effect for courts in the Tenth Circuit.
Earlier this year, the U.S. Court of Appeals for the Sixth Circuit affirmed in McKee Foods Corp. v. BFP Inc. that ERISA preempts certain portions of Tennessee’s PBM law. That court ruled that, in contrast with Rutledge, ERISA preempts the Tennessee law restricting financial incentives or steering patients to certain pharmacies, as well as “any-willing-pharmacy” access, as impermissible interference with ERISA plans.
Likewise, litigation over state PBM laws continues in Illinois, where the Pharmaceutical Care Management Association has filed a federal challenge to the state’s Prescription Drug Affordability Act. In its complaint, plaintiff claims that ERISA preempts provisions of the Act related to reporting requirements, restrictions on network design, and limitations on steering because they mandate plan sponsors to adopt plans tailored to meet each state’s requirements. Similarly, the Arkansas PBM law addressing ownership and vertical integration is the subject of legal challenges under ERISA, the Dormant Commerce Clause, and the Equal Protection Clause.
Congress has contributed to the steadily shifting PBM landscape by adding transparency requirements. Under the Consolidated Appropriations Act of 2026 (CAA), PBMs affiliated with ERISA-governed group health plans qualify as covered service providers under ERISA. As a result, the CAA requires PBMs to pass through 100% of rebates, fees, discounts, and other payments to the plan, with some limited exceptions for bona fide service fees. The CAA also put new disclosure and reporting requirements that apply to contracts entered into or renewed on or after August 2028, with an ultimate implementation date of January 1, 2029, for many plans. Finally, the CAA creates audit rights for fiduciaries and “innocent fiduciary” protection in some situations.
The U.S. Department of Labor (DOL) also issued a January 2026 proposed rule that would require PBMs to disclose detailed information, including pricing, compensation, and fee reporting. According to the proposed rule, these disclosures are tied to ERISA fiduciary responsibilities when measuring whether service providers’ compensation is reasonable.
Court decisions and ongoing litigation over state PBM laws, as well as new federal transparency requirements, are creating compliance rules that differ from one jurisdiction to the next. Although the Rutledge decision continues to protect some PBM pricing and reimbursement provisions from ERISA preemption, courts in some jurisdictions have found that ERISA preempts other provisions. As a result, multi-state employers must tread carefully to ensure compliance with a patchwork of state and federal laws and rules governing PBMs.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
