What Rutledge Still Means for PBM Regulation
Pharmacy benefit managers are facing renewed scrutiny from state legislatures, Congress and federal agencies. The central legal issue is not whether PBMs can be regulated. It is which kinds of regulation can survive federal preemption rules.
Our new analysis in Pharmaceutical Executive, “The Legacy of Rutledge: What States and Congress Can Still Regulate Pharmacy Benefit Managers,” examines how the legal framework is developing.
Lanton, Lanton & Sosa Law PLLC advises pharmacies, healthcare organizations, employers and regulated businesses on PBM contracts, reimbursement, pharmacy regulation, 340B, government affairs, compliance and healthcare transactions.
The short version
In Rutledge v. Pharmaceutical Care Management Association, the Supreme Court upheld an Arkansas law requiring PBMs to reimburse pharmacies at or above certain acquisition-cost levels and provide an appeals process.
The Court treated the law as regulation of pharmacy costs. It did not view the statute as directing the design or administration of an ERISA health plan.
The Tenth Circuit’s decision in Pharmaceutical Care Management Association v. Mulready identified a different boundary. Provisions affecting pharmacy networks and preferred-network participation may face preemption when they begin to control how an ERISA plan or Medicare Part D benefit is structured and administered.
The two decisions should be read together:
States retain room to regulate reimbursement, payment practices, MAC lists, dispensing fees and appeals.
States face greater risk when laws dictate network design, benefit structure or plan administration.
Congress can address areas that may be difficult for states to regulate, including PBM compensation, fiduciary duties, ownership, kickbacks, audit rights and pharmacy access.
Why this matters to pharmacy executives
The legal analysis is connected to daily operations. A pharmacy should know what it was paid at the point of sale, what fees were later imposed, how the final reimbursement was calculated and whether the contract provides a meaningful appeal or audit process.
Specialty pharmacies should review whether retail-oriented performance measures accurately reflect complex dispensing, patient-support and clinical services.
Covered entities and contract pharmacies should also examine 340B documentation, manufacturer restrictions, duplicate-discount controls, inventory procedures and audit records.
Employers and plan sponsors should identify direct and indirect PBM compensation, affiliated arrangements, spread pricing, formulary incentives and the practical value of their audit rights.
What to review now
A focused review should cover:
PBM reimbursement and reconciliation data.
MAC-list and appeal procedures.
Contract terms governing audits, fees and termination.
Network and specialty-pharmacy provisions.
340B contract-pharmacy and documentation practices.
The effect of new federal reporting and fiduciary requirements.
The policy debate will continue through legislation, litigation, agency action and contract negotiations. The organizations best prepared for the next phase will be the ones that understand their contracts, payment data and operational records before a dispute begins.
Read the full analysis in Pharmaceutical Executive: The Legacy of Rutledge: What States and Congress Can Still Regulate Pharmacy Benefit Managers.
This article is for general informational purposes only and does not constitute legal advice.