Supreme Court action: Good news for employer Rx benefits
The US Supreme Court’s late June denial to review Mulready v. PCMA is an encouraging sign for those who advocate for ERISA preemption of state laws. The denial lets stand a 10th Circuit opinion that preempted several provisions of Oklahoma’s pharmacy benefit manager law. These included network access standards, a prohibition on mail-order and specialty pharmacy steerage, and an any-willing-provider mandate impacting self-funded ERISA plans. For self-funded ERISA plans, the invalidated provisions of Oklahoma's 2019 Patient’s Right to Pharmacy Choice Act no longer apply.
Background
State efforts to pass legislation aimed at lowering rising prescription drug costs kicked into high gear following the Court’s 2020 decision in Rutledge v. PCMA, holding that ERISA did not preempt a state law that regulated PBM reimbursement of pharmacies. Increasingly, state legislatures look to include self-funded ERISA plans within the scope of PBM laws, sometimes leading to litigation. Self-funded plan sponsors and other stakeholders seeking to retain plan design flexibility have been challenged to persuade state lawmakers to exclude self-funded ERISA plans in PBM bills. Common areas of focus include network design, reimbursement practices, rebate allocation and transparency. Some bills have also addressed other contract provisions such as the definition of “specialty drug” and required pricing methodology.
These laws may significantly reduce employer autonomy over their own prescription drug plans and may increase costs. If employers cannot choose their pricing methodology or plan design, their ability to deliver benefits at an identified cost is compromised, making it more difficult to act as a responsible fiduciary.
Employers have begun challenging some of these state laws in court. In addition to Mulready, other notable cases include:
- McKee Foods v. BFP, a March district court decision overturning Tennessee law’s steerage and any-willing-provider requirements
- ERIC v. Minesota Department of Commerce, a pending lawsuit challenging state steerage requirements
- Cases filed in May and June relating to 2025 laws enacted in Arkansas (HB 1150) and Iowa (SF 383)
Looking ahead
That brings us back to Mulready. What is the likely impact of the Supreme Court’s denial? Although the 10th Circuit decision is only binding precedent on those states within its jurisdiction – Colorado, Kansas, New Mexico, Oklahoma, Wyoming, Utah and the portions of Yellowstone National Park located in Montana and Idaho – the decision may influence pending cases in other circuits as well as future legislation.
Still, we expect states to continue to focus on prescription drug costs in the absence of meaningful federal legislation. Even if states pull back on extending their PBM laws to self-funded ERISA plans, new state laws that increase costs and reduce margins in the fully insured space may result in cost shifting to the self-insured space.
Some observers feel that state legislation has been partially precipitated by minimal Federal activity. If Federal oversight progresses, then state activity may slow down. While the recently passed “One Big Beautiful Bill Act” does not include the PBM reforms, we are still waiting on the report from an executive order-initiated work group tasked with reviewing the structure and business model of PBMs and suggesting improvements. The initial report is due in late July.
Regardless of what happens, plan sponsors should continue to focus on how to manage their prescription drug benefits. Many of the state bills have attempted to reduce employer autonomy over their prescription drug benefits, at a time when employers are increasingly concerned about rising costs. A recent Mercer survey found many employers are actively evaluating new approaches for offering or managing their prescription drug benefits. Employers need full control to pursue and implement these options – but less flexibility directly conflicts with this urgent need.
