United States: The Solicitor General Weighs In On ERISA Preemption Battle Over PBM State Statutes

In Rutledge v. Pharmaceutical Care Management Association, No. 18-540, the United States Supreme Court invited the Solicitor General to provide the position of the United States through what is often referred to as a "Call for the Views of the Solicitor General" or "CVSG." The Supreme Court's request for a CVSG could signal the Supreme Court's interest in Arkansas' petition for certiorari. However, a CVSG is not unusual for cases implicating the interests of the federal government or cases involving complex regulatory or statutory schemes, such as ERISA. Indeed, in recent months, the Supreme Court invited the Solicitor General to submit a CVSG in two other potentially significant ERISA-related petitions for certiorari. See Thole v. U.S. Bank, N.S., 139 S. Ct. 306, 202 L. Ed. 2d 16 (2018) and Putnam Investments, LLC v. Brotherston, No. 18-926, 2019 WL 1756671 (U.S. Apr. 22, 2019).

On December 4, 2019, the Solicitor General submitted his brief, which recommends that the Supreme Court accept the Attorney General of Arkansas' petition for certiorari, and recommends that the Court overturn the appeals court decision.

At issue in Rutledge is whether an Arkansas statute that regulates the rates charged by Pharmacy Benefit Managers (PBMs), is preempted by the Employee Retirement Income Security Act (ERISA). Among other requirements, the Arkansas law required PBMs to reimburse pharmacies for generic drugs at a price at least equal to what the pharmacy had paid for the drug.

ERISA expressly preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" which is not specifically exempted under other sections. 29 U.S.C. 1144(a). The Supreme Court has construed ERISA's express preemption as "relating to" an employee benefit plan if it "has a connection with or reference to such a plan." The Supreme Court has further defined "connection with" and "reference to." A state law has an "impermissible connection with" an employee benefit plan if it "governs . . . a central matter of plan administration or interferes with a nationally uniform plan administration." A state law has a "reference" to ERISA if it "acts immediately and exclusively upon ERISA plans" or if "the existence of ERISA plans is essential to the law's operation."

The Eight Circuit Court of Appeals in Rutledge held that the Arkansas law included PBMs that cover ERISA plans, so the law "relate[d] to and has a connection with employee benefit plans," and was therefore preempted, declaring the law unenforceable as applied to PBMs in their administration and management of an ERISA plan.

In its petition for certiorari, Arkansas relied heavily on the "reference to" preemption theory: "If a law regulates a class of third-party administrators or claims processors whose customers merely include ERISA plans, it logically follows that the law does not act immediately and exclusively upon ERISA plans, and that the existence of ERISA plans is not essential to the law's operation." Pet. at 18 (emphasis in original).

The Pharmaceutical Care Management Association (PCMA), a PBM industry group, urged the Supreme Court to reject the petition as the case was a "poor vehicle" for the justices to address any questions surrounding the issues of ERISA preemption, and that there was no error in the lower court decision. PCMA further argued that the question presented in Arkansas' petition relies upon the "connection with" theory of preemption and the appeals court relied upon both "related to" and "connection with" in determining that the Arkansas statute was preempted by ERISA.

The Solicitor General's brief argues that the Rutledge decision erred in holding ERISA preemption under both the "reference to" and "connection with" theories of preemption. The Solicitor General also rejected PCMA's contention that the case was not a suitable matter for the Court's review under the view that all provisions of Arkansas' statute are at issue and both theories of preemption are implicated with the petitions' question presented.

It is fairly certain that the Solicitor General's recommendation for accepting Arkansas' petition for certiorari will be granted significant weight by the Supreme Court in determining whether to grant the petition. If the Supreme Court reviews Rutledge, it will likely affect the operation of PBMs, further define the scope of ERISA preemption, and affect the other thirty-six states that have passed legislation regulating the rates charged by PBMs.

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