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.
In 2020, the Supreme Court's latest addition to its ERISA preemption jurisprudence, Rutledge v. Pharmaceutical Care Management Association (PCMA), opened the floodgates for state PBM reform laws that purport to apply to ERISA self‑funded plans contracting with PBMs. For plan sponsors that operate in multiple states, adhering to various state laws can create a patchwork of plan administration, which ERISA was originally designed to avoid.
Background
In Rutledge v. PCMA, the Supreme Court unanimously upheld an Arkansas law that regulated PBMs. The Arkansas law requires PBMs to reimburse pharmacies at a rate equal to or greater than what the pharmacy paid to acquire the drug. The law also requires PBMs to provide administrative appeal procedures for pharmacies to challenge reimbursement prices that are below the pharmacies' acquisition costs. The law further authorized pharmacies to decline to dispense drugs when a PBM would provide a below‑cost reimbursement. Unlike other PBM state laws at the time, the Arkansas law applied to all transactions between PBMs and pharmacies, including transactions where the PBM was acting on behalf of a self‑insured ERISA plan.
In reviewing this law, the Supreme Court found that ERISA preemption does not apply because the law does not force plans to change their administrative practices. Instead, the Court held that the Arkansas law is simply a form of cost regulation with a secondary effect of requiring plans to pay more for prescription drugs. The Court's decision opened the door for states to try to push the limits on PBM regulation. Parties in favor of limiting ERISA preemption point to states' sovereignty and protecting residents, while those in favor of ERISA preemption point to the need for uniformity and flexibility for multistate plan sponsors.
Opaque ERISA Preemption Standard
In November 2021, the U.S. Court of Appeals for the Eighth Circuit became the first federal court of appeals to apply the ERISA preemption analysis outlined in Rutledge. Similar to Rutledge, the Eighth Circuit's decision in PCMA v. Wehbi addressed two North Dakota laws regulating PBM conduct and evaluated their legality in relation to ERISA preemption. The North Dakota laws imposed numerous requirements on PBMs, including a ban on their holding ownership interests in certain entities, limits to copayment charges, regulations on benefits provisions and plan structures, additional disclosure requirements, and prohibitions on contract gag clauses. Wehbi went up to the Supreme Court, but the Court remanded the case to the Eighth Circuit. At that point,the Eighth Circuit applied Rutledge and held that ERISA does not preempt the North Dakota laws. The Eighth Circuit stated that the North Dakota laws constituted, at most, a regulation of a noncentral matter of plan administration that did not bind plan administrators to specific rules regarding benefits or beneficiary status. The Eighth Circuit also found that the laws did not have an impermissible reference to ERISA plans because their provisions regulate PBMs, regardless of whether the plans they service are covered by ERISA. The Wehbi decision further catalyzed the growing nationwide efforts to regulate PBMs through state legislation.
In this post-Rutledge era, Oklahoma had also passed a PBM‑regulating law. In 2022, after PCMA sued Oklahoma in PCMA v. Mulready, alleging ERISA preemption, the U.S. District Court for the Western District of Oklahoma ruled in favor of the state. The district court held that the Oklahoma law was not preempted by ERISA.
Yet, in August 2023, the U.S. Court of Appeals for the Tenth Circuit reversed the district court's decision. Similar to the laws at issue in Rutledge and Wehbi, the Tenth Circuit found that the Oklahoma law does not directly regulate ERISA plans, only PBMs. However, in contrast to the other decisions, the Tenth Circuit held that ERISA preempted the Oklahoma law as it impermissibly impacted or related to ERISA plans by interfering with plan administrators' ability to administer their plans uniformly. In coming to its decision, the Tenth Circuit recognized that ERISA‑covered plans are virtually compelled to use PBMs to administer their prescription drug benefits. On June 30, 2025, the Supreme Court denied review of Mulready and let the Tenth Circuit decision stand. As a result, the applicable provisions of the Oklahoma law are preempted for self‑funded ERISA plans.
By denying review of the Mulready decision, the Supreme Court fostered uncertainty that is resulting in nationwide ramifications. In 2024, more than 20 states passed bills regulating PBMs. All 50 states have introduced legislation for PBM reform thus far in 2025. Further, advocates against PBM regulation have already challenged PBM laws in Minnesota, Tennessee, Iowa, Oklahoma and Arkansas—the state originally at issue in Rutledge, the casethat sparked the cascade of PBM state regulation.
In April 2025, Arkansas became the first state in the nation to prohibit PBMs from simultaneously owning pharmacies. CVS Health and Cigna, two of the nation's three largest PBMs, immediately pushed back with suits against the state. The two PBMs brought similar complaints, claiming that the Arkansas law violates the Constitution's Dormant Commerce Clause and Equal Protection rights by discriminating against out-of-state pharmacies to offer a boon to the state's local pharmacies. CVS Health further alleges that the law is preempted by ERISA and the Medicare Prescription Drug Improvement and Modernization Act of 2003. PCMA, the PBM lobbying group involved in Rutledge, Wehbi andMulready, also filed suit in June 2025, claiming that Arkansas's law is unconstitutional. Similar to Rutledge, the outcome of these lawsuits will have significant ripple effects across the country and may influence broader discussions in Congress.
Conclusion
Many stakeholders saw the Rutledge decision as significantly weakening ERISA preemption of state PBM laws, which would give states the broad ability to regulate in the space. However, the Mulready decision affirms that ERISA preemption still sets the stage for state regulation of PBMs. While the jurisprudence surrounding state PBM regulation and ERISA preemption continues to build, PBMs and plan sponsors will need to reevaluate their activities in light of Wehbi, Mulready and the differing regulatory regimes within the states in which they operate. Irrespective of the outcomes within the courts, the past two years have shown that PBM scrutiny and reform will likely continue to occupy the forefront of healthcare legislative priorities at both the federal and state levels.
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