Amicus Curiae Brief — Leslie Rutledge, Attorney General of Arkansas, Petitioner v. Pharmaceutical Care Management Association

Supreme Court briefMar 2, 2020

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No. 18-540

In the Supreme Court of the United States

LESLIE RUTLEDGE, IN HER OFFICIAL CAPACITY AS ATTORNEY

GENERAL OF THE STATE OF ARKANSAS,

Petitioner,

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION,

Respondent.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

BRIEF FOR CALIFORNIA, 44 OTHER STATES, AND THE

DISTRICT OF COLUMBIA AS AMICI CURIAE

IN SUPPORT OF PETITIONER

XAVIER BECERRA

Attorney General of California

MICHAEL J. MONGAN

Solicitor General

MATTHEW RODRIQUEZ

Chief Assistant

Attorney General

JOSHUA PATASHNIK*

Deputy Solicitor General

March 2, 2020

KATHLEEN BOERGERS

Supervising Deputy

Attorney General

KARLI EISENBERG

Deputy Attorney General

STATE OF CALIFORNIA

DEPARTMENT OF JUSTICE

455 Golden Gate Ave.

Suite 11000

San Francisco, CA 94102

(415) 510-3896

Josh.Patashnik@doj.ca.gov

*Counsel of Record

(Additional counsel listed on signature pages)

QUESTION PRESENTED

Whether Arkansas’s statute regulating drug-reimbursement rates set by pharmacy benefit managers,

which is similar to laws enacted by a substantial majority of the States, is preempted by the Employee Retirement Income Security Act of 1974.

TABLE OF CONTENTS

Page

Interests of amici States.............................................. 1

Introduction ................................................................. 1

Argument ..................................................................... 3

I. States regulate PBMs to protect consumers

and promote access to affordable healthcare ....... 3

A. PBMs play a major role in the modern

healthcare system ........................................... 3

B. PBM business practices have caused

widespread harm ............................................ 5

1. Harm to pharmacies................................. 5

2. Harm to patients ...................................... 9

3. Harm to States ....................................... 13

C. States are actively addressing harmful

PBM business practices ................................ 14

1. Regulation of pharmacy

reimbursement rates .............................. 14

2. Regulation of maximum allowable

cost lists .................................................. 17

3. Prohibitions on gag clauses ................... 19

4. Regulation of conflicts of interest

and self-dealing ...................................... 20

II. ERISA does not preempt Arkansas’s

Act 900 or similar state laws .............................. 21

A. ERISA does not preempt healthcare

regulations with no “reference to” or

“connection with” ERISA plans .................... 22

B. The Arkansas statute challenged here

is not preempted ........................................... 23

iii

TABLE OF CONTENTS

(continued)

Page

C. As a general matter, ERISA does

not preempt typical state PBM

regulations ....................................................30

Conclusion..................................................................34

TABLE OF AUTHORITIES

Page

CASES

Aetna Health Inc. v. Davila

542 U.S. 200 (2004) .............................................. 29

Cal. Div. of Labor Standards Enforcement

v. Dillingham Constr. N.A., Inc.

519 U.S. 316 (1997) ...................................... passim

De Buono v. NYSA-ILA Med. & Clinical

Serv. Fund

520 U.S. 806 (1997) .................................. 23, 27, 29

Egelhoff v. Egelhoff ex rel. Breiner

532 U.S. 141 (2001) ...................................... passim

Fort Halifax Packing Co. v. Coyne

482 U.S. 1 (1987) ............................................ 26, 33

Gerosa v. Savasta & Co.

329 F.3d 317 (2d Cir. 2003).................................. 33

Gobeille v. Liberty Mut. Ins. Co.

136 S. Ct. 936 (2016) .................................... passim

Ingersoll-Rand Co. v. McClendon

498 U.S. 133 (1990) ........................................ 24, 30

Mackey v. Lanier Collection Agency &

Serv., Inc.

486 U.S. 825 (1988) ........................................ 24, 30

TABLE OF AUTHORITIES

(continued)

Page

Medtronic, Inc. v. Lohr

518 U.S. 470 (1996) .......................................... 3, 23

N.Y. State Conf. of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co.

514 U.S. 645 (1995) ...................................... passim

Paulsen v. CNF Inc.

559 F.3d 1061 (9th Cir. 2009) .............................. 33

Pegram v. Herdrich

530 U.S. 211 (2000) .............................................. 33

Shaw v. Delta Air Lines, Inc.

463 U.S. 85 (1983) ................................................ 25

Veix v. Sixth Ward Bldg. & Loan Ass’n

310 U.S. 32 (1940) ................................................ 13

STATUTES

29 U.S.C. § 1144(a) .................................................... 22

42 U.S.C. § 300gg-19b ............................................... 19

Pub. L. No. 115-263, 132 Stat. 3672 ......................... 19

Alaska Stat. Ann. § 21.27.945(a)(4) .......................... 18

Alaska Stat. Ann. § 21.27.950(a) .............................. 15

Alaska Stat. Ann. § 21.27.950(c) ......................... 15, 16

Ariz. Rev. Stat. Ann. § 20-3331(A)(3) ....................... 15

TABLE OF AUTHORITIES

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Page

Ark. Code Ann. § 17-92-507(a)(6)........................ 15, 23

Ark. Code Ann. § 17-92-507(a)(9)........................ 24, 25

Ark. Code Ann. § 17-92-507(c)(2) ........................ 18, 23

Ark. Code Ann. § 17-92-507(c)(4)(A)(i)................ 15, 23

Ark. Code Ann. § 17-92-507(c)(4)(A)(i)(b) ........... 15, 23

Ark. Code Ann. § 17-92-507(c)(4)(C)(i)...................... 24

Ark. Code Ann. § 17-92-507(c)(4)(C)(ii) .................... 24

Ark. Code Ann. § 17-92-507(c)(4)(C)(iii) ............. 16, 24

Ark. Code Ann. § 17-92-507(d)(1).............................. 20

Ark. Code Ann. § 17-92-507(e) ...................... 16, 24, 28

Cal. Bus. & Prof. Code § 4430(j)................................ 30

Cal. Bus. & Prof. Code § 4440(d)............................... 17

Cal. Bus. & Prof. Code § 4440(f) ............................... 15

Cal. Bus. & Prof. Code § 4440(f)(1)(A) ...................... 15

Cal. Bus. & Prof. Code § 4440(f)(4) ........................... 16

Cal. Bus. & Prof. Code § 4441(c) ............................... 21

Cal. Bus. & Prof. Code § 4441(d)............................... 20

vii

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Cal. Bus. & Prof. Code § 4441(k) .............................. 20

Colo. Rev. Stat. Ann. § 10-16-122.7(2)(a).................. 19

Colo. Rev. Stat. Ann. § 10-16-122.7(2)(b).................. 19

Colo. Rev. Stat. Ann. § 10-16-122.7(3)(a).................. 20

Colo. Rev. Stat. Ann. § 25-37-103.5(2) ...................... 17

Colo. Rev. Stat. Ann. § 25-37-103.5(3) ...................... 15

Colo. Rev. Stat. Ann. § 25-37-103.5(3)(d).................. 15

Del. Code Ann. tit. 18, § 3323A(a)............................. 17

Del. Code Ann. tit. 18, § 3323A(b)(3) ........................ 18

Del. Code Ann. tit. 18, § 3324A ................................. 15

Del. Code Ann. tit. 18, § 3324A(d) ............................ 16

D.C. Code Ann. § 48-832.01(b)(1)(C) ................... 20, 21

Fla. Stat. Ann. § 641.314(2)(a) .................................. 18

Ga. Code Ann. § 33-64-9(a)(1) ................................... 18

Ga. Code Ann. § 33-64-9(c) .................................. 17, 18

Ga. Code Ann. § 33-64-9(d) ....................................... 15

Ga. Code Ann. § 33-64-9(e) ........................................ 15

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Ga. Code Ann. § 33-64-9(f)(1) .................................... 16

Ga. Code Ann. § 33-64-11(a)(7) ................................. 20

Haw. Rev. Stat. Ann. § 328-106(d)............................ 18

Haw. Rev. Stat. Ann. § 328-106(f) ............................ 15

Haw. Rev. Stat. Ann. § 328-106(f)(1)(A) ................... 15

Haw. Rev. Stat. Ann. § 328-106(f)(5) ........................ 16

215 Ill. Comp. Stat. Ann. 5/513b1(b)(1) .................... 18

215 Ill. Comp. Stat. Ann. 5/513b1(b)(4) .................... 15

215 Ill. Comp. Stat. Ann. 5/513b1(c) ......................... 18

305 Ill. Comp. Stat. Ann. 5/5-36(d) ........................... 21

Ind. Code Ann. § 27-1-24.8-4 ..................................... 18

Iowa Code Ann. § 510B.4(1) ...................................... 21

Iowa Code Ann. § 510B.4(2) ...................................... 21

Iowa Code Ann. § 510B.8(3) ...................................... 15

Kan. Stat. Ann. § 40-3822(d) ..................................... 30

Kan. Stat. Ann. § 40-3822(e) ..................................... 30

Kan. Stat. Ann. § 40-3830(a) ..................................... 17

TABLE OF AUTHORITIES

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Kan. Stat. Ann. § 40-3830(c) ..................................... 19

Kan. Stat. Ann. § 40-3830(d) ..................................... 18

Kan. Stat. Ann. § 40-3830(f)................................ 15, 16

Kan. Stat. Ann. § 40-3830(f)(3)(C) ............................ 16

Ky. Rev. Stat. Ann. § 304.17A-162(1)(b) ................... 16

Ky. Rev. Stat. Ann. § 304.17A-162(1)(b)(4) .............. 15

Ky. Rev. Stat. Ann. § 304.17A-162(2)(b) ................... 16

Ky. Rev. Stat. Ann. § 304.17A-162(6) ....................... 18

La. Stat. Ann. § 22:1860.3(A) .................................... 20

La. Stat. Ann. § 22:1860.3(B)(1)................................ 16

La. Stat. Ann. § 22:1864(A) ....................................... 18

La. Stat. Ann. § 22:1864B(2) ..................................... 18

La. Stat. Ann. § 22:1865(A) ................................. 15, 16

La. Stat. Ann. § 40:2864(A) ....................................... 21

Me. Rev. Stat. tit. 24-A, § 4350(4)(B) ........................ 19

Me. Rev. Stat. tit. 24-A, § 4350(4)(C) ........................ 18

Me. Rev. Stat., tit. 24-A, § 4350(5)............................ 16

TABLE OF AUTHORITIES

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Me. Rev. Stat. tit. 24-A, § 4350(6)(A) ........................ 16

Me. Rev. Stat. tit. 24-A, § 4350(6)(B) ........................ 15

Md. Code Ann., Ins. § 15-1628.1 (c)(1) ...................... 18

Md. Code Ann., Ins. § 15-1628.1(e) ........................... 18

Md. Code Ann., Ins. § 15-1628.1(f)............................ 16

Md. Code Ann., Ins. § 15-1628.1(f)(4)(ii)................... 15

Md. Code Ann., Ins. § 15-1628.1(f)(5)(i)(1) ............... 16

Minn. Stat. Ann. § 62W.04(a) ................................... 21

Minn. Stat. Ann. § 62W.04(b) ................................... 21

Minn. Stat. Ann. § 62W.08(a)(2) ............................... 18

Minn. Stat. Ann. § 62W.08(a)(5) ............................... 19

Minn. Stat. Ann. § 62W.08(b) ................................... 18

Minn. Stat. Ann. § 62W.08(c) .................................... 16

Minn. Stat. Ann. § 62W.08(c)(3) ............................... 15

Miss. Code Ann. § 73-21-155(2) ................................ 18

Miss. Code Ann. § 73-21-155(5)(a) ............................ 16

Mo. Ann. Stat. § 376.388(3) ....................................... 18

TABLE OF AUTHORITIES

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Mo. Ann. Stat. § 376.388(4) ....................................... 18

Mo. Ann. Stat. § 376.388(6) ....................................... 15

Mo. Ann. Stat. § 376.388(7)(1) .................................. 16

Mont. Code Ann. § 33-22-172(2)(a) ........................... 18

Mont. Code Ann. § 33-22-172(2)(c)............................ 19

Mont. Code Ann. § 33-22-173(1)(a) ........................... 16

Mont. Code Ann. § 33-22-173(3)(c)............................ 16

Mont. Code Ann. § 33-22-174(1).......................... 16, 17

Neb. Rev. Stat. § 71-2484(2)...................................... 19

Nev. Rev. Stat. Ann. § 683A.178(1) .......................... 21

Nev. Rev. Stat. Ann. § 683A.178(2) .......................... 21

N.H. Rev. Stat. Ann. § 402-N:3(I)(b)(3)(B) ............... 15

N.H. Rev. Stat. Ann. § 420-J:8(XV)(a)(2)(D)(ii) ........ 16

N.H. Rev. Stat. Ann. § 420-J:8(a)(2) ......................... 16

N.J. Stat. Ann. § 17B:27F-2(a)(2) ............................. 18

N.J. Stat. Ann. § 17B:27F-3(a) .................................. 18

N.J. Stat. Ann. § 17B:27F-4 ...................................... 16

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N.J. Stat. Ann. § 17B:27F-4(d)(2) ............................. 16

N.M. Stat. Ann. § 59A-61-4(B) .................................. 20

N.M. Stat. Ann. § 59A-61-4(C) .................................. 18

N.M. Stat. Ann. § 59A-61-4(D)(2) ............................. 18

N.M. Stat. Ann. § 59A-61-4(D)(8) ............................. 15

N.M. Stat. Ann. § 59A-61-4(D)(11) ........................... 19

N.Y. Pub. Health Law § 280-a(2) .............................. 16

N.Y. Pub. Health Law § 280-a(2)(c) .......................... 16

N.C. Gen. Stat. Ann. § 58-56A-5(a)........................... 18

N.C. Gen. Stat. Ann. § 58-56A-5(b)........................... 18

N.D. Cent. Code Ann. § 19-02.1-14.2(2)(b) ............... 18

N.D. Cent. Code Ann. § 19-02.1-14.2(2)(c) ................ 19

N.D. Cent. Code Ann. § 19-02.1-14.2(2)(d) ............... 15

N.D. Cent. Code Ann. § 19-02.1-14.2(2)(e)................ 16

N.D. Cent. Code Ann. § 19-02.1-14.2(2)(f) ................ 15

N.D. Cent. Code Ann. § 19-02.1-14.2(3) .................... 18

Ohio Rev. Code Ann. § 3959.111(A)(1)(a) ........... 18, 19

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Ohio Rev. Code Ann. § 3959.111(A)(1)(b)(3) ............. 16

Ohio Rev. Code Ann. § 3959.111(A)(1)(e) ................. 16

Ohio Rev. Code Ann. § 3959.111(A)(3)(d) ................. 15

Ohio Rev. Code Ann. § 3959.01(N)............................ 30

Okla. Stat. Ann. tit. 36, § 6962(B)(3) ........................ 19

Okla. Stat. Ann. tit. 36, § 6962(C)(1)(a) .................... 19

Okla. Stat. Ann. tit. 59, § 360(A)(1) .................... 18, 19

Okla. Stat. Ann. tit. 59, § 360(A)(4) .......................... 16

Okla. Stat. Ann. tit. 59, § 360(A)(5) .......................... 15

Okla. Stat. Ann. tit. 59, § 360(B) .............................. 18

Or. Rev. Stat. Ann. § 735.534(2) ............................... 18

Or. Rev. Stat. Ann. § 735.534(2)(f) ............................ 18

Or. Rev. Stat. Ann. § 735.534(4) ......................... 15, 16

40 Pa. Stat. Ann. § 4531(a)(2) ................................... 18

40 Pa. Stat. Ann. § 4532(a)(2) ................................... 18

40 Pa. Stat. Ann. § 4533(a) ....................................... 16

40 Pa. Stat. Ann. § 4533(c) ........................................ 16

xiv

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R.I. Gen. Laws § 27-29.1-7 ........................................ 21

R.I. Gen. Laws § 27-41-38.2(b)(1) ............................. 18

R.I. Gen. Laws § 27-41-38.2(c) .................................. 18

R.I. Gen. Laws § 27-41-38.2(d) .................................. 16

S.C. Code Ann. § 38-71-2120 ..................................... 18

S.C. Code Ann. § 38-71-2130(2) ................................ 19

S.C. Code Ann. § 38-71-2130(3) ................................ 19

S.C. Code Ann. § 38-71-2140(A) ................................ 16

S.C. Code Ann. § 38-71-2230(A)(3)............................ 20

S.D. Codified Laws § 58-29E-3 .................................. 21

Tenn. Code Ann. § 56-7-3106(a) ................................ 18

Tenn. Code Ann. § 56-7-3107(b)(2) ........................... 19

Tenn. Code Ann. § 56-7-3108(a) ................................ 16

Tenn. Code Ann. § 56-7-3108(e)(1)............................ 16

Tenn. Code Ann. § 56-7-3118(d) ................................ 20

Tex. Ins. Code Ann. § 1369.355(b) ............................ 19

Tex. Ins. Code Ann. § 1369.356 ................................. 19

TABLE OF AUTHORITIES

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Tex. Ins. Code Ann. § 1369.357(a) ............................ 16

Tex. Ins. Code Ann. § 1369.357(c)(1) ........................ 16

Utah Code Ann. § 31A-46-303(4) .............................. 15

Utah Code Ann. § 31A-46-303(5)(c) .......................... 16

Utah Code Ann. § 31A-46-303(5)(d) .......................... 19

Vt. Stat. Ann. tit. 18, § 9472(c)(2) ............................. 21

Vt. Stat. Ann. tit. 18, § 9473(c)(1) ............................. 19

Vt. Stat. Ann. tit. 18, § 9473(c)(2) ............................. 19

Vt. Stat. Ann. tit. 18, § 9473(c)(3) ............................. 16

Wash. Rev. Code Ann. § 19.340.100(2)(a) ................. 18

Wash. Rev. Code Ann. § 19.340.100(2)(f).................. 19

Wash. Rev. Code Ann. § 19.340.100(3) ..................... 16

Wis. Stat. Ann. § 632.865(2)(1) ................................. 19

Wis. Stat. Ann. § 632.865(2)(b) ................................. 16

Wis. Stat. Ann. § 632.865(2)(b)(4) ............................. 15

Wyo. Stat. Ann. § 26-52-104(a) ................................. 18

Wyo. Stat. Ann. § 26-52-104(d)(iv) ............................ 19

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Wyo. Stat. Ann. § 26-52-104(e) ................................. 16

Wyo. Stat. Ann. § 26-52-104(f) .................................. 15

Wyo. Stat. Ann. § 26-52-104(g) ................................. 16

OTHER AUTHORITIES

Abiodun Salako, et al., Issues Confronting

Rural Pharmacies After a Decade of

Medicare Part D, RUPRI Ctr. for Rural

Health Policy Analysis, Rural Policy Brief

No. 2017-3 (Apr. 2017),

https://tinyurl.com/yx3aejjc ............................... 6, 8

Abiodun Salako, et al., Update:

Independently Owned Pharmacy Closures

in Rural America, 2003-2018, RUPRI Ctr.

for Rural Health Policy Analysis, Rural

Policy Brief No. 2018-2 (July 2018),

https://tinyurl.com/rsuj7zd................................. 8, 9

Advisory Council on Employee Welfare and

Pension Benefit Plans, Report to the

Honorable Thomas E. Perez, United

States Secretary of Labor: PBM

Compensation and Fee Disclosure (Nov.

2014), https://tinyurl.com/tvc7spa ............ 6, 11, 30

xvii

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Alex M. Azar II, U.S. Secretary of Health &

Human Services, Fixing Healthcare:

Driving Value Through Smart Purchasing

and Policy (May 16, 2018),

https://tinyurl.com/t4798nu ................................. 11

Altarum Healthcare Value Hub, Pharmacy

Benefit Managers: Can They Return to

Their Client-Centered Origins? (Jan.

2018), https://tinyurl.com/s2rm9e8 ....................... 6

California Assembly Floor Analysis, AB 315

(Aug. 28, 2018),

https://tinyurl.com/wkxbs3g ................................ 20

Centers for Medicare & Medicaid Services

(CMS), NHE Fact Sheet (2018),

https://tinyurl.com/yx3t7d2v................................ 10

CMS Office of the Actuary, Press Release,

2017-2026 Projections of National Health

Expenditures (Feb. 14, 2018),

https://tinyurl.com/y7ucksl5 ................................ 10

Commonwealth Fund, Pharmacy Benefit

Managers and Their Role in Drug

Spending (Apr. 22, 2019),

https://tinyurl.com/y4ytmsls ................................ 10

xviii

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Final Investigative Report: Pharmacy

Benefit Managers in New York, Report

from the New York State Senate,

Committee on Investigations and

Government Operations (May 31, 2019),

https://tinyurl.com/v7pxof8 ...................... 6, 7, 8, 21

Geoffrey Joyce, An Economist’s Change of

Heart: It’s Time to Regulate the

Prescription Drug Middlemen,

MarketWatch (Aug. 20, 2018),

https://tinyurl.com/vc2b2aa ................................. 10

HealthAffairs Health Policy Brief,

Prescription Drug Pricing: Pharmacy

Benefit Managers (Sept. 2017),

https://tinyurl.com/vlf22ng ................................ 4, 7

Helene L. Lipton, et al., Pharmacy Benefit

Management Companies: Dimensions of

Performance, 20 Ann. Rev. Public Health

361 (1999), https://tinyurl.com/sb8zefg ................. 5

Janet Brierton, Pharmacy Benefit Managers,

OLR Research Report (Dec. 24, 2003),

https://tinyurl.com/rw2mvl7 .................................. 5

Karen Van Nuys, et al., Frequency and

Magnitude of Co-Payments Exceeding

Prescription Drug Costs, J. Am. Med.

Ass’n (Dec. 27, 2017),

https://tinyurl.com/r2qlwcm................................. 12

xix

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Kentucky Cabinet for Health and Family

Service et al., Medicaid Pharmacy

Pricing: Opening the Black Box (Feb. 19,

2019), https://tinyurl.com/vynbv67 ...................... 13

Linette Lopez, What CVS is Doing to Momand-Pop Pharmacies in the U.S. Will

Make Your Blood Boil, Business Insider

(Mar. 30, 2018),

https://tinyurl.com/vqph452 ................................... 9

Lisa L. Causey, Nuts and Bolts of Pharmacy

Reimbursement: Why It Should Matter to

You, Health Law Perspectives (June

2009), https://tinyurl.com/yx7zjbxm ...................... 7

Massachusetts Health Policy Commission,

HPC DataPoints, Issue 12: Cracking

Open the Black Box of Pharmacy Benefit

Managers (June 5, 2019),

https://tinyurl.com/uw686gc ................................ 13

MedPAC, Overview: The Drug Development

and Supply Chain (June 2016),

https://tinyurl.com/rcj3tjy ...................................... 4

Minority Staff of the U.S. Senate Committee

on Finance, A Tangled Web: An

Examination of the Drug Supply and

Payment Chains (June 2018),

https://tinyurl.com/yx4y33ke ................................. 4

TABLE OF AUTHORITIES

(continued)

Page

National Conference of State Legislatures,

2018 Enacted States Laws Affecting

Pharmacy Benefit Managers (Jan. 2019),

https://tinyurl.com/uh7lftn................................... 14

National Conference of State Legislatures,

PBM State Legislation (May 16, 2019),

https://tinyurl.com/ra48u8n ........................... 14, 19

National Rural Health Association Policy

Brief, Pharmacy (May 2009),

https://tinyurl.com/sgt9mcq ............................... 6, 7

Office of the Insurance Commissioner of

Washington, Study of the Pharmacy

Chain of Supply (2007),

https://tinyurl.com/whbr7xg .......................... 17, 18

Ohio Auditor of State, Ohio’s Medicaid

Managed Care Pharmacy Services (Aug.

16, 2018), https://tinyurl.com/sqtn6ge ............... 8, 9

Oversight Hearing of the S. Comm. on Bus.,

Professions and Econ. Dev., Pharmacy

Benefit Managers 101 (Cal. Mar. 20,

2017), https://tinyurl.com/uw36tjn .................. 5, 12

Paulina Firozi, The Health 202: Here’s Why

Rural Independent Pharmacies Are

Closing Their Doors, Washington Post

(Aug. 23, 2018), https://tinyurl.

com/wlvh324 ........................................................... 8

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Rabah Kamal et al., What Are the Recent and

Forecasted Trends in Prescription Drug

Spending?, Peterson-KFF Health System

Tracker (Feb. 20, 2019),

https://tinyurl.com/y22zrsdv ................................ 10

Rachel Dolan & Marina Tian, Kaiser Family

Foundation, Pricing and Payment in

Medicaid Prescription Drugs (Jan. 2020),

https://tinyurl.com/s8yrr5e .................................. 13

Steve Brawner, Pharmacists: PBM Laws

Helped, But Underpayments Continue,

Talk Business & Politics (Sept. 2, 2019),

https://tinyurl.com/rlzqwtl ................................... 17

Steven Ross Johnson, Poor Communities Hit

Hard by Pharmacy Closures, Modern

Healthcare (Oct. 21, 2019),

https://tinyurl.com/rublyqq .............................. 6, 14

U.S. Government Accountability Office,

Generic Drugs Under Medicare: Part D

Generic Drug Prices Declined Overall,

But Some Had Extraordinary Price

Increases (Aug. 2016),

https://tinyurl.com/yd9aeky8 ................................. 4

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U.S. Senate Special Committee on Aging,

Sudden Price Spikes in Off-Patent

Prescription Drugs: The Monopoly

Business Model that Harms Patients,

Taxpayers, and the U.S. Health Care

System (Dec. 2016),

https://tinyurl.com/y2nbvehn............................... 12

Wayne Winegarden, It’s Generics Not PBMs

that Keep Pharmaceuticals Affordable,

Forbes (July 12, 2018),

https://tinyurl.com/ tr2ylm8................................. 12

INTERESTS OF AMICI STATES

The States of California, Alabama, Alaska, Colorado, Connecticut, Delaware, Florida, Georgia,

Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts,

Michigan,

Minnesota,

Mississippi,

Montana,

Nebraska, Nevada, New Hampshire, New Jersey,

New Mexico, New York, North Carolina, North

Dakota, Ohio, Oklahoma, Oregon, Pennsylvania,

Rhode Island, South Carolina, South Dakota, Texas,

Utah, Vermont, Virginia, Washington, West Virginia,

and Wisconsin, and the District of Columbia, submit

this brief as amici curiae in support of petitioner.

Amici States have a compelling interest in protecting

the health and welfare of their residents. In furtherance of that interest, many States have enacted laws

regulating pharmacy benefit managers (PBMs), companies that act as intermediaries between pharmacies, health insurance plans, and patients. The

unduly expansive approach to ERISA preemption applied by the court of appeals below and advocated by

respondent here would interfere with States’ traditional authority to regulate the conduct of business entities—including PBMs—for the purpose of protecting

the health of their residents.

INTRODUCTION

In response to troubling business practices that

have harmed patients, independent pharmacies, and

state governments, the vast majority of the States

have adopted statutes regulating pharmacy benefit

managers. These statutes serve important interests

and are consistent with the traditional role of the

States in protecting the health and welfare of their

residents. ERISA does not preempt the Arkansas

statute challenged here or similar statutes in dozens

of other States.

To facilitate the Court’s consideration of this

important case, this brief first addresses the serious

concerns—involving drug costs, access to care, competition, and consumer protection—that have prompted

States to regulate PBMs. In recent years, for example,

PBMs have used their market power to pay pharmacies unsustainably low reimbursement rates; to diminish access to less-profitable drugs; to restrict

pharmacies from informing patients about lower-cost

generic options; and to steer patients away from independent pharmacies and toward pharmacies owned by

PBMs. These practices have contributed to increased

drug prices and a wave of pharmacy closures—especially in rural, inner-city, and other underserved areas—and have harmed patients by increasing the cost

of healthcare and curtailing access to certain drugs.

Nearly every State has adopted legislation responding

to these concerns. Like Arkansas, many States regulate the reimbursement rates that PBMs pay to pharmacies, and effectuate that rate regulation by, for

example, requiring PBMs to update their rates on a

timely basis and to offer an appeal mechanism allowing pharmacies to dispute questionable rates.

Next, we address why ERISA does not preempt the

Arkansas statute challenged here or similar laws

enacted by other States. This Court has adopted

workable standards governing ERISA preemption,

with a view towards avoiding the limitless application

of ERISA’s preemption clause.

State laws are

preempted only if they make “reference to” ERISA

plans or have an impermissible “connection with”

ERISA plans. Arkansas’s statute does not qualify for

preemption under those standards. It regulates the

practices of PBMs, not ERISA plans; and while it

refers to health plans generally, it does not single out

ERISA plans for special treatment or impose any significant administrative burdens on ERISA plans.

Moreover, the Arkansas statute addresses matters

that are outside of the objectives of the ERISA statute,

which is principally concerned with regulating the

administrative practices of ERISA plans. It is implausible that Congress intended ERISA to preclude

States from enacting the type of commonsense

measures challenged by respondent.

ARGUMENT

I. STATES REGULATE PBMS TO PROTECT CONSUMERS AND PROMOTE ACCESS TO AFFORDABLE

HEALTHCARE

Prescription drugs are a critical component of modern healthcare and account for an increasingly large

fraction of overall healthcare spending. Pharmacy

benefit managers play a central role in the financing

and delivery of prescription drugs. In recent years,

certain PBM business practices have contributed to

substantially increased prescription drug prices while

diminishing consumers’ access to vital drugs. As this

Court has emphasized, healthcare is a traditional subject of state regulation. See, e.g., Medtronic, Inc. v.

Lohr, 518 U.S. 470, 485 (1996). And as part of their

obligation to protect the health and well-being of their

residents, the States have adopted sensible legislative

measures to address problems created by PBMs.

A. PBMs Play a Major Role in the Modern

Healthcare System

Some background helps explain why PBMs are

commonly regulated by the States. Before reaching

the patient, prescription drugs make their way

through a web of intermediaries with various and

sometimes competing incentives. Normally, a prescription drug is made by a manufacturer, delivered

by a wholesale distributor to a pharmacy, and then

dispensed at the pharmacy to a patient, according to

terms set by the patient’s health insurer. At the first

stage, the manufacturer sells a drug to a distributor at

a list price set by the manufacturer, which reflects any

discounts that have been negotiated. The distributor

then sells the drug to a pharmacy at a price stemming

from the list price. A patient buys the drug at the

pharmacy after paying any cost-sharing required by

his or her health insurer.1

Although PBMs have existed since the 1970s, they

initially played a modest role in the healthcare system, doing little more than processing claims for

health insurers. 2 That generally entailed verifying

that a patient had coverage, determining whether a

drug was on the plan formulary, and calculating the

appropriate copayment. But the role of PBMs expanded during the 1980s, when healthcare and prescription drugs costs were rising and employers looked

to contain costs by carving out pharmacy benefits for

1 See, e.g., U.S. Government Accountability Office, Generic Drugs

Under Medicare: Part D Generic Drug Prices Declined Overall,

But Some Had Extraordinary Price Increases (Aug. 2016), at 6,

https://tinyurl.com/yd9aeky8; MedPAC, Overview: The Drug Development and Supply Chain (June 2016), at 12, https://

tinyurl.com/rcj3tjy.

2 See, e.g., Minority Staff of the U.S. Senate Committee on Finance, A Tangled Web: An Examination of the Drug Supply and

Payment Chains (June 2018), at 26, https://tinyurl.com/

yx4y33ke; HealthAffairs Health Policy Brief, Prescription Drug

Pricing: Pharmacy Benefit Managers (Sept. 2017), https://

tinyurl.com/vlf22ng.

separate management. 3 In the decades since then,

PBMs have grown in influence and size.

Today, nearly every health insurer contracts with

a PBM, which often manages all aspects of the pharmaceutical-benefit portion of the health plan.4 Modern PBMs act as middlemen between insurers, drug

makers, and pharmacies. They develop drug formularies; contract with pharmacies; negotiate discounts

and rebates with drug manufacturers; conduct drugutilization reviews; assist with disease management;

establish pharmacy and wholesaler networks; and run

mail-order and affiliated pharmacies that often compete with independent pharmacies.5

B. PBM Business Practices Have Caused

Widespread Harm

The expanded role of PBMs, and certain business

practices of modern PBMs, have had profound consequences for pharmacies, patients, and States.

1. Harm to pharmacies

PBMs have affected pharmacies in two primary

ways. First, PBMs often pay excessively low reim-

3 Janet Brierton, Conn. Office of Legislative Research, OLR Research Report: Pharmacy Benefit Managers (Dec. 24, 2003),

https://tinyurl.com/rw2mvl7; Helene L. Lipton, et al., Pharmacy

Benefit Management Companies: Dimensions of Performance, 20

Ann. Rev. Public Health 361, 363-364 (1999), https://tinyurl.com/

sb8zefg.

4 Oversight Hearing of the S. Comm. on Bus., Professions and

Econ. Dev., Pharmacy Benefit Managers 101: Background Paper

(Cal. Mar. 20, 2017), at 2, https://tinyurl.com/uw36tjn.

5 Id.

bursement rates, which sometimes fall below a pharmacy’s cost of acquiring a particular drug.6 These reimbursement practices have contributed to a wave of

pharmacy closures, particularly in rural, inner-city,

and otherwise underserved areas.7

A “significant source” of PBMs’ net revenue is the

“retail spread,” which is the difference between the reimbursement rate that the PBM pays to the pharmacy

and the rate the PBM receives from the health insurer. 8 PBMs create “maximum allowable cost”

(MAC) lists that “designate[] the upper limit a plan

will pay for generic drugs and brand name drugs that

have generic versions available.” 9 In establishing

those lists, PBMs have an obvious economic incentive

6 See, e.g., Altarum Healthcare Value Hub, Research Brief No. 23,

Pharmacy Benefit Managers: Can They Return to Their ClientCentered Origins? (Jan. 2018), https://tinyurl.com/s2rm9e8; Steven Ross Johnson, Poor Communities Hit Hard by Pharmacy Closures, Modern Healthcare (Oct. 21, 2019), https://tinyurl.com/

rublyqq.

7 See, e.g., Johnson, supra note 6; National Rural Health Association Policy Brief, Pharmacy (May 2009), at 1, https://

tinyurl.com/sgt9mcq; Abiodun Salako, et al., Issues Confronting

Rural Pharmacies After a Decade of Medicare Part D, RUPRI

Center for Rural Health Policy Analysis, Rural Policy Brief No.

2017-3 (Apr. 2017), at 1, https://tinyurl.com/yx3aejjc.

8 Advisory

Council on Employee Welfare and Pension Benefit

Plans, Report to the Honorable Thomas E. Perez, United States

Secretary of Labor: PBM Compensation and Fee Disclosure

(Nov. 2014), at 10, https://tinyurl.com/tvc7spa.

9 New York State Senate, Committee on Investigations and Government Operations, Final Investigative Report: Pharmacy Benefit Managers in New York (May 31, 2019), at 10, https://tinyurl.

com/v7pxof8.

to expand the retail spread by paying pharmacies low

reimbursement rates.

Even when these low reimbursement rates

threaten their economic viability, pharmacies often

have no choice but to contract with PBMs. Any pharmacy refusing to do so would likely lose substantial

business, because many customers would be unable to

use their health insurance to obtain prescription

drugs at the pharmacy. Pharmacies thus “have little

negotiation power”—especially if they are independent operations—and they are often provided with a

“take-it-or-leave-it contract.”10

This imbalance in negotiating power is compounded by the significant market power of the major

PBMs. The largest three PBMs combine to serve approximately 80 percent of the market.11 The growth

and consolidation of PBMs “giv[es] them immense

power to affect the price of pharmaceuticals being paid

by consumers and the State.”12 Due to “a lack of transparency, oversight, and accountability,” they “are able

to engage in anticompetitive practices at the detriment of consumers and pharmacists.”13

As a New York State Senate committee report

found, “[b]elow-cost reimbursements significantly con-

10 Lisa L. Causey, Nuts and Bolts of Pharmacy Reimbursement:

Why It Should Matter to You, Health Law Perspectives (June

2009), at 6, https://tinyurl.com/sbbmpdx; see also National Rural

Health Association Policy Brief, supra note 7, at 1.

11 HealthAffairs Health Policy Brief, supra note 2, at 2.

12 Pharmacy Benefit Managers in New York, supra note 9, at 2.

13 Id. at 6.

tribute to declines in an independent pharmacy’s revenue.”14 For example, PBMs charged Ohio Medicaid

managed care organizations $662.7 million for generic

drugs between April 2017 and March 2018, but reimbursed pharmacies only $454.3 million—a spread of

more than 31 percent.15 And closures of independent

pharmacies in Ohio appear to be correlated with increases in the spread between the rates PBMs charge

health plans and their reimbursement rates to pharmacies.16

Pharmacy closures are often felt most acutely by

underserved patients in rural or isolated areas. Between 2003 and 2018, 630 rural communities went

from having one or more retail pharmacy to having

none.17 Unfair PBM reimbursement and list-pricing

practices were a major contributing factor. 18 This

trend is especially troubling because pharmacies are

often the main—or only—healthcare providers available in those areas. Thus, when aggressive reimbursement practices drive rural pharmacies out of business,

14 Id. at 66.

15 Ohio Auditor of State, Ohio’s Medicaid Managed Care Phar-

macy Services, at 12 (Aug. 16, 2018), https://tinyurl.com/sqtn6ge.

16 Id. at 15.

17 Abiodun Salako, et al.,

Update: Independently Owned Pharmacy Closures in Rural America, 2003-2018, RUPRI Center for

Rural Health Policy Analysis, Rural Policy Brief No. 2018-2 (July

2018), at 1, https://tinyurl.com/rsuj7zd; see also Paulina Firozi,

The Health 202: Here’s Why Rural Independent Pharmacies Are

Closing Their Doors, Washington Post (Aug. 23, 2018), https://

tinyurl.com/wlvh324.

18 Salako, supra note 7, at 1.

there are “grave implications for the population’s access to health services.”19

Second, PBMs harm independent pharmacies by

steering patients toward pharmacies that are owned

by, or otherwise affiliated with, the PBMs. That trend

raises obvious concerns about self-dealing. The Ohio

State Auditor noted complaints that PBMs have a

“conflict of interest since they can require their customers to obtain prescriptions only from mail-order

and specialty pharmacies they own.”20 And PBMs often reimburse their own pharmacies at significantly

higher rates than they offer to independent pharmacies. For example, while the PBM operated by CVS

reimburses a CVS pharmacy $400.65 for a fentanyl

patch and $5.86 for Ibuprofen, it reimburses non-CVS

pharmacies only $75.74 for the patch and $1.39 for the

Ibuprofen.21 That puts independent pharmacies at a

substantial competitive disadvantage.

2. Harm to patients

PBM business practices have also harmed patients

by contributing to rising drug prices and curtailing access to certain drugs. Prescription drug costs have increased sharply in the United States in recent years.

Adjusting for inflation, Americans spent around $90

per year on average on prescription drugs in 1960; by

1997, that figure was approximately $400; by 2015, it

19 Salako, supra note 17, at 1.

20 Ohio’s Medicaid Managed Care Pharmacy Services, supra note

15, at 1.

21 Linette Lopez, What CVS is Doing to Mom-and-Pop Pharmacies in the U.S. Will Make Your Blood Boil, Business Insider

(Mar. 30, 2018), https://tinyurl.com/vqph452.

exceeded $1,000.22 Total prescription drug spending

in the United States reached $335 billion in 2018, approximately one-tenth of overall healthcare spending.23 And consumer spending on prescription drugs

is expected to increase by 6.3 percent each year

through 2026, the fastest rate of growth of any major

part of the healthcare sector.24

Evidence indicates that the rebates PBMs negotiate with drug manufacturers have contributed to rising drug prices. For example, manufacturer rebates

to PBMs more than doubled in just four years between

2012 and 2016, increasing from $39.7 billion to $89.5

billion.25 Those rebates have been linked to increased

manufacturer list prices, and they often are not passed

along to customers.26

22 Rabah Kamal et al., What Are the Recent and Forecasted

Trends in Prescription Drug Spending?, Peterson-KFF Health

System Tracker (Feb. 20, 2019), https://tinyurl.com/y22zrsdv.

23 Centers for Medicare & Medicaid Services (CMS), NHE Fact

Sheet (2018), https://tinyurl.com/yx3t7d2v.

24 CMS Office of the Actuary, Press Release, 2017-2026 Projections of National Health Expenditures (Feb. 14, 2018), https://

tinyurl.com/y7ucksl5.

25 Commonwealth Fund, Pharmacy Benefit Managers and Their

Role in Drug Spending (Apr. 22, 2019), https://tinyurl.com/

y4ytmsls.

26 See, e.g., id.; Geoffrey Joyce, An Economist’s Change of Heart:

It’s Time to Regulate the Prescription Drug Middlemen, MarketWatch (Aug. 20, 2018), https://tinyurl.com/vc2b2aa (noting

that “PBM profit margins are much higher than other players in

the supply chain,” such as “manufacturers, wholesalers, pharmacies, and insurers”).

While patients are obviously harmed by increasingly expensive prescription drugs, PBMs frequently

benefit from the trend. As the Secretary of Health and

Human Services recently noted, a “PBM actually wins

when list price goes up.”27 He explained:

Imagine you take a $1,000 drug. The PBM

working for your insurance plan negotiates a 30

percent rebate, $300, which gets sent back to

your employer, minus a percentage cut for the

PBM. Now imagine the list price goes up to

$1,500—now the rebate would be $450, allowing the PBM to keep the added $150, while the

patient pays significantly more in cost-sharing.28

As that example indicates, the rebate structures

PBMs negotiate can skew incentives in a way that is

likely to increase drug costs. Because “[m]anufacturer

rebates to PBMs occur when a drug manufacturer’s

product is included in a formulary and utilized by plan

participants,” PBMs may “have incentives to encourage utilization of certain drugs based on the availability of rebates rather than ultimate cost to the plan.”29

Other PBM practices have also contributed to increased drug costs. Some PBMs, for instance, include

“gag clauses” in their contracts with pharmacies,

which prohibit the pharmacies from informing customers about less expensive alternatives. Gag clauses

27 Alex M. Azar II, U.S. Secretary of Health & Human Services,

Fixing Healthcare: Driving Value Through Smart Purchasing

and Policy (May 16, 2018), https://tinyurl.com/t4798nu.

28 Id.

29 PBM Compensation and Fee Disclosure, supra note 8, at 3, 11.

sometimes even prohibit pharmacies from informing

customers when their copayments exceed the cost of a

drug, with PBMs often pocketing the overpayment.

According to a recent study in the Journal of the American Medical Association, more than 20 percent of generic drug prescriptions in 2013 resulted in

overpayment, costing consumers an aggregate $135

million.30

Apart from contributing to increased drug costs,

PBMs also play a role in restricting patients’ access to

certain drugs. In designing their formularies, PBMs

commonly create a three-tiered system, under which a

“preferential” drug has a lower copayment compared

to other (non-preferred) drugs.31 PBMs negotiate with

manufacturers for larger rebates in return for assigning preferential placement to the manufacturers’

drugs. Those business-driven decisions often create a

barrier between patients and the medications their

doctors have prescribed.32 And that problem is only

exacerbated by the highly concentrated nature of the

PBM market: If a PBM fails to offer sufficiently wide

selection of drugs, patients and health plans often

have no alternative.

30 Karen Van Nuys, et al., Frequency and Magnitude of Co-Payments Exceeding Prescription Drug Costs, J. Am. Med. Ass’n

(Mar. 13, 2018), https://tinyurl.com/rrzqqnr.

U.S. Senate Special Committee on Aging, Sudden Price Spikes

in Off-Patent Prescription Drugs: The Monopoly Business Model

that Harms Patients, Taxpayers, and the U.S. Health Care System (Dec. 2016), at 15, https://tinyurl.com/y2nbvehn; Pharmacy

Benefit Managers 101, supra note 4, at 3.

32 Wayne Winegarden, It’s Generics Not PBMs that Keep Pharmaceuticals Affordable, Forbes (July 12, 2018), https://tinyurl.com/

tr2ylm8.

3. Harm to States

These same PBM business practices have had significant consequences for States. Because of the role

they play in financing health insurance, States are directly affected by increases in prescription drug costs.

As of October 2018, nearly 73 million Americans were

enrolled in Medicaid or the Children’s Health Insurance Program—programs that are funded partly by

States and that account for a significant share of many

state budgets. 33 States have observed that “[p]harmacy costs are the fastest growing budget items.” 34

For example, in Massachusetts, prescription drug

spending has grown twice as fast as the rest of state

healthcare spending in recent years, increasing from

$1.1 billion in 2012 to $1.9 billion in 2017.35

More broadly, States are harmed when PBM practices impair their residents’ ability to access affordable, quality healthcare. States have a “vital interest[]”

in the “health,” “safety,” and “economic needs” of their

residents. Veix v. Sixth Ward Bldg. & Loan Ass’n, 310

U.S. 32, 38-39 (1940). Pharmacy closures resulting

from low reimbursement rates (and other PBM practices) threaten that interest. They exacerbate “the

33 Kentucky Cabinet for Health and Family Service et al., Medicaid Pharmacy Pricing: Opening the Black Box (Feb. 19, 2019),

at 2, https://tinyurl.com/vynbv67.

34 Id.; see also Rachel Dolan & Marina Tian, Kaiser Family Foun-

dation, Pricing and Payment in Medicaid Prescription Drugs

(Jan. 2020), at 4-5, https://tinyurl.com/s8yrr5e (explaining role of

PBMs in the administration of Medicaid pharmacy benefits and

the ways drug prices affect Medicaid spending).

35 Massachusetts Health

Policy Commission, HPC DataPoints,

Issue 12: Cracking Open the Black Box of Pharmacy Benefit

Managers (June 5, 2019), https://tinyurl.com/uw686gc.

wide health gap that exists between poorer and more

affluent communities.”36 As one study found, for example, pharmacy closures were associated with “significant declines” in rates of older patients taking

their prescribed heart medications.37

C. States Are Actively Addressing Harmful

PBM Business Practices

States across the Nation have responded to these

concerns by enacting an array of measures designed to

protect access to affordable prescription drugs. Almost every State regulates PBMs in some way. 38

Within the past five years, at least 44 States have enacted new or amended statutes addressing PBMs. 39

These laws generally fall into four main categories.

1. Regulation of pharmacy reimbursement rates

Several States have adopted statutes like the one

at issue in this case, which seek to curb unsustainably

low reimbursement rates. These laws generally require PBMs to reimburse pharmacies at a rate at least

equal to the pharmacies’ costs of acquiring prescription drugs. Arkansas, for instance, requires PBMs to

reimburse pharmacies at a rate equal to or above “the

amount that a pharmaceutical wholesaler charges for

a pharmaceutical product as listed on the pharmacy’s

36 Johnson, supra note 6.

37 Id.

38 See, e.g., National Conference of State Legislatures, PBM State

Legislation (May 16, 2019), https://tinyurl.com/ra48u8n.

39 National Conference of State Legislatures, 2018 Enacted

States Laws Affecting Pharmacy Benefit Managers (Jan. 2019),

at 2, https://tinyurl.com/uh7lftn.

billing invoice.” Ark. Code Ann. § 17-92-507(a)(6),

(c)(4)(A)(i)(b). California directs that the maximum allowable cost for a drug cannot be “below the cost at

which the drug is available for purchase by similarly

situated pharmacies in the state from a national or regional wholesaler.”

Cal. Bus. & Prof. Code

§ 4440(f)(1)(A). Many other States have similar laws

that directly or indirectly regulate PBM reimbursement rates to pharmacies.40

States also frequently require PBMs to establish

an appeal mechanism for pharmacies that believe a

particular reimbursement is too low. For example, Arkansas specifies that PBMs must provide a “reasonable administrative appeal procedure to allow

pharmacies to challenge maximum allowable cost list

and reimbursements made under a maximum allowable cost list for a specific drug or drugs.” Ark. Code

Ann. § 17-92-507(c)(4)(A)(i). At least 35 other States

require similar procedures.41 Many of these laws provide that if the pharmacy is successful in its appeal,

40 See Alaska Stat. Ann. § 21.27.950(c); Colo. Rev. Stat. Ann. § 2537-103.5(3)(d); Ga. Code Ann. § 33-64-9(e); Haw. Rev. Stat. Ann.

§ 328-106(f)(1)(A); Ky. Rev. Stat. Ann. § 304.17A-162(1)(b)(4); La.

Stat. Ann. § 22:1865(A); Me. Rev. Stat. tit. 24-A, § 4350(6)(B); Md.

Code Ann., Ins. § 15-1628.1(f)(4)(ii); Minn. Stat. Ann.

§ 62W.08(c)(3); Mo. Ann. Stat. § 376.388(6); N.H. Rev. Stat. Ann.

§ 402-N:3(I)(b)(3)(B); N.M. Stat. Ann. § 59A-61-4(D)(8); N.D.

Cent. Code Ann. § 19-02.1-14.2(2)(d), (f); Ohio Rev. Code Ann.

§ 3959.111(A)(3)(d); Okla. Stat. Ann. tit. 59 § 360(A)(5); Or. Rev.

Stat. Ann. § 735.534(4); Utah Code Ann. § 31A-46-303(4); Wis.

Stat. Ann. § 632.865(2)(b)(4); Wyo. Stat. Ann. § 26-52-104(f).

41 See Alaska Stat. Ann. § 21.27.950(a); Ariz. Rev. Stat. Ann. § 20-

3331(A)(3); Cal. Bus. & Prof. Code § 4440(f); Colo. Rev. Stat. Ann.

§ 25-37-103.5(3); Del. Code Ann. tit. 18, § 3324A; Ga. Code Ann.

§ 33-64-9(d); Haw. Rev. Stat. Ann. § 328-106(f); 215 Ill. Comp.

Stat. Ann. 5/513b1(b)(4); Iowa Code Ann. § 510B.8(3); Kan. Stat.

the PBM must “adjust the Maximum Allowable Cost

List and permit the pharmacy to reverse and rebill

each claim affected by” the pricing error. Id. § 17-92507(c)(4)(C)(iii).42

Arkansas and a handful of other States also authorize pharmacies to decline to dispense a drug if the

pharmacy would be reimbursed at a rate below its acquisition cost.43 These laws make clear that a pharmacy has no obligation to provide service if a PBM

Ann. § 40-3830(f); Ky. Rev. Stat. Ann. § 304.17A-162(1)(b); La.

Stat. Ann. § 22:1865(A); Me. Rev. Stat., tit. 24-A, § 4350(5); Md.

Code Ann., Ins. § 15-1628.1(f); Minn. Stat. Ann. § 62W.08(c); Mo.

Ann. Stat. § 376.388(5); Mont. Code Ann. § 33-22-173(1)(a); N.H.

Rev. Stat. Ann. § 420-J:8(a)(2); N.J. Stat. Ann. § 17B:27F-4; N.M.

Stat. Ann. § 59A-61-4(5); N.Y. Pub. Health Law § 280-a(2); N.D.

Cent. Code Ann. § 19-02.1-14.2(2)(e); Ohio Rev. Code Ann.

§ 3959.111(A)(1)(b)(3); Okla. Stat. Ann. tit. 59, § 360(4); Or. Rev.

Stat. Ann. § 735.534(4); 40 Pa. Stat. Ann. § 4533(a); R.I. Gen.

Laws § 27-41-38.2(d); S.C. Code Ann. § 38-71-2140(A); Tenn.

Code Ann. § 56-7-3108(a); Tex. Ins. Code Ann. § 1369.357(a);

Utah Code Ann. § 31A-46-303(5)(c); Vt. Stat. Ann. tit. 18,

§ 9473(c)(3); Wash. Rev. Code Ann. § 19.340.100(3); Wis. Stat.

Ann. § 632.865(2)(b); Wyo. Stat. Ann. § 26-52-104(e).

also Alaska Stat. Ann. § 21.27.950(c); Cal. Bus. & Prof.

Code § 4440(f)(4); Del. Code Ann. tit. 18, § 3324A(d); Ga. Code

Ann. § 33-64-9(f)(1); Haw. Rev. Stat. Ann. § 328-106(f)(5); Kan.

Stat. Ann. § 40-3830(f)(3)(C); Ky. Rev. Stat. Ann. §§ 304.17A162(1)(b)(5), (2)(b); Me. Rev. Stat. tit. 24-A, § 4350(6)(A); Md.

Code Ann., Ins. § 15-1628.1 (f)(5)(i)(1); Mo. Ann. Stat.

§ 376.388(7)(1); Mont. Code Ann. § 33-22-173(3)(c); N.H. Rev.

Stat. Ann. § 420-J:8(XV)(a)(2)(D)(ii); N.J. Stat. Ann. § 17B:27F4(d)(2); N.Y. Pub. Health Law § 280-a(2)(c); Okla. Stat. Ann. tit.

59, § 360(A)(4); Ohio Rev. Code Ann. § 3959.111(A)(1)(e); 40 Pa.

Stat. Ann. § 4533(c); Tenn. Code Ann. § 56-7-3108(e)(1); Tex. Ins.

Code Ann. § 1369.357(c)(1); Wyo. Stat. Ann. § 26-52-104(g).

42 See

See Ark. Code Ann. § 17-92-507(e); La. Stat. Ann.

§ 22:1860.3(B)(1); Miss. Code Ann. § 73-21-155(5)(a); Mont. Code

proposes to pay a reimbursement rate below the minimum set by state law. This type of provision responds

to concerns that PBMs frequently reject appeals and

that the appeal process is onerous and time-consuming. 44 A 2017 Washington state report confirmed

those concerns, concluding that PBMs denied between

77 percent and 94 percent of appeals.45 Providing a

decline-to-dispense option helps to protect pharmacists from the kind of money-losing transactions that

have been driving so many of them out of business.

2. Regulation of maximum allowable cost

lists

Many States also impose restrictions on PBMs that

use maximum allowable cost lists, in order to help ensure that their reimbursement practices are fair and

transparent. Some States restrict which drugs can be

listed. In Kansas, for example, PBMs may “not place

a drug on a MAC list unless there are at least two therapeutically equivalent multi-source generic drugs, or

at least one generic drug available from at least one

manufacturer, generally available for purchase by

network pharmacies from national or regional wholesalers and the drug is not obsolete.” Kan. Stat. Ann.

§ 40-3830(a). Many other States have comparable

laws.46

Ann. § 33-22-174(1).

44 Steve Brawner, Pharmacists:

PBM Laws Helped, But Underpayments Continue, Talk Business & Politics (Sept. 2, 2019),

https://tinyurl.com/rlzqwtl.

45 Office of the Insurance Commissioner of Washington, Study of

the Pharmacy Chain of Supply (2007), at 7, 71, https://tinyurl.

com/whbr7xg.

46 See Cal. Bus. & Prof. Code § 4440(d); Colo. Rev. Stat. Ann. § 25-

37-103.5(2); Del. Code Ann. tit. 18, § 3323A(a); Ga. Code Ann.

A substantial majority of States require PBMs to

update their maximum allowable cost lists in a timely

fashion. “[T]he generic drug market is in a constant

state of flux,” and “[p]rices change as some manufacturers enter the market and others leave.”47 Because

“pharmacy acquisition costs are changing constantly,”

up-to-date price information is critical to “ensure that

MAC reimbursement is fair.” 48 With this in mind,

most States require PBMs to update their maximum

allowable cost lists at least once every ten days, if not

more frequently. 49 A number of States also require

§ 33-64-9(c); Haw. Rev. Stat. Ann. § 328-106(d); 215 Ill. Comp.

Stat. Ann. 5/513b1(c); La. Stat. Ann. § 22:1864(A); Md. Code

Ann., Ins. § 15-1628.1(e); Minn. Stat. Ann. § 62W.08(b); Mo. Ann.

Stat. § 376.388(4); N.J. Stat. Ann. § 17B:27F-3(a); N.M. Stat.

Ann. § 59A-61-4(C); N.C. Gen. Stat. Ann. § 58-56A-5(a); N.D.

Cent. Code Ann. § 19-02.1-14.2(3); Okla. Stat. Ann. tit. 59,

§ 360(B); Or. Rev. Stat. Ann. § 735.534(2); 40 Pa. Stat. Ann.

§ 4531(a)(2); R.I. Gen. Laws § 27-41-38.2(c); S.C. Code Ann. § 3871-2120; Tenn. Code Ann. § 56-7-3106(a); Wash. Rev. Code Ann.

§ 19.340.100(2)(a); Wyo. Stat. Ann. § 26-52-104(a).

47 Study of the Pharmacy Chain of Supply, supra note 45, at 5.

48 Id.

49 See Alaska Stat. Ann. § 21.27.945(a)(4); Ark. Code Ann. § 17-

92-507(c)(2); Del. Code Ann. tit. 18, § 3323A(b)(3); Fla. Stat. Ann.

§ 641.314(2)(a); Ga. Code Ann. § 33-64-9(a)(1); 215 Ill. Comp.

Stat. Ann. 5/513b1(b)(1); Ind. Code Ann. § 27-1-24.8-4; Kan. Stat.

Ann. § 40-3830(d); Ky. Rev. Stat. Ann. § 304.17A-162(6); La. Stat.

Ann. § 22:1864B(2); Me. Rev. Stat. tit. 24-A, § 4350(4)(C); Md.

Code Ann., Ins. § 15-1628.1 (c)(1); Minn. Stat. Ann.

§ 62W.08(a)(2); Miss. Code Ann. § 73-21-155(2); Mo. Ann. Stat.

§ 376.388(3); Mont. Code Ann. § 33-22-172(2)(a); N.M. Stat. Ann.

§ 59A-61-4(D)(2); N.J. Stat. Ann. § 17B:27F-2(a)(2); N.C. Gen.

Stat. Ann. § 58-56A-5(b); N.D. Cent. Code Ann. § 19-02.114.2(2)(b); Ohio Rev. Code Ann. § 3959.111(A)(1)(a); Okla. Stat.

Ann. tit. 59, § 360(A)(1); Or. Rev. Stat. Ann. § 735.534(2)(f); 40

Pa. Stat. Ann. § 4532(a)(2); R.I. Gen. Laws § 27-41-38.2(b)(1);

PBMs to disclose their lists to pharmacies. One typical provision is Minnesota’s requirement that a PBM

“must make the list of the maximum allowable costs

available to a contracted pharmacy in a format that is

readily accessible and usable to the network pharmacy.” Minn. Stat. Ann. § 62W.08(a)(5).50

3. Prohibitions on gag clauses

To ensure that pharmacists and customers may

speak freely about less-costly generic alternatives, at

least 35 States have enacted legislation prohibiting

PBMs from including “gag clauses” in their contracts

with pharmacies.51 As the Colorado Legislature declared, “[c]onsumers have the right to know about options to reduce the amount of money they pay at a

pharmacy for prescription drugs,” and “allowing pharmacists to provide information concerning the cost of

prescription drugs” “will save consumers money.”

Colo. Rev. Stat. Ann. § 10-16-122.7(2)(a), (b). Thus,

S.C. Code Ann. § 38-71-2130(3); Tex. Ins. Code Ann.

§ 1369.355(b); Vt. Stat. Ann. tit. 18, § 9473(c)(2); Wash. Rev. Code

Ann. § 19.340.100(2)(f); Wis. Stat. Ann. § 632.865(2)(1); Wyo.

Stat. Ann. § 26-52-104(d)(iv).

50 See also Kan. Stat. Ann. § 40-3830(c); Me. Rev. Stat. tit. 24-A,

§ 4350(4)(B); Mont. Code Ann. § 33-22-172(2)(c); N.M. Stat. Ann.

§ 59A-61-4(D)(11); N.D. Cent. Code Ann. § 19-02.1-14.2(2)(c);

Ohio Rev. Code Ann. § 3959.111(A)(1)(a); Okla. Stat. Ann. tit. 59,

§ 360(A)(1); S.C. Code Ann. § 38-71-2130(2); Tenn. Code Ann.

§ 56-7-3107(b)(2); Tex. Ins. Code Ann. § 1369.356; Utah Code

Ann. § 31A-46-303(5)(d); Vt. Stat. Ann. tit. 18, § 9473(c)(1).

51 See PBM State Legislation supra note 38 (noting that 33 States

have such provisions but omitting Nebraska and Oklahoma);

Neb. Rev. Stat. § 71-2484(2); Okla. Stat. Ann. tit. 36,

§ 6962(C)(1)(a); cf. Pub. L. No. 115-263, 132 Stat. 3672, codified

at 42 U.S.C. § 300gg-19b (similar federal law enacted in 2018).

Colorado bars PBMs from “[p]rohibit[ing] a pharmacy

or pharmacist from providing a covered person information on the amount of the covered person’s cost

share” for a prescription drug. Id. § 10-16-122.7(3)(a).

The California Legislature similarly concluded that

“requiring more extensive transparency” will allow

consumers to avail themselves of “lower drug costs.”52

In addition to banning gag clauses, see Cal. Bus. &

Prof. Code § 4441(k), California also requires PBMs to

disclose to plan sponsors upon request information

about the PBMs’ rebate agreements, fees, and contracts with pharmaceutical manufacturers, see id.

§ 4441(e).

4. Regulation of conflicts of interest and

self-dealing

Finally, to preserve a level playing field and avoid

market distortions, several States seek to prevent

PBMs from favoring their own affiliated pharmacies

or otherwise engaging in self-dealing. At least seven

States prohibit PBMs from requiring patients to fill

prescriptions at the PBMs’ own affiliated pharmacies,

or reimbursing affiliated pharmacies at higher rates

than independent pharmacies. 53 Others require

PBMs to disclose both direct and indirect conflicts of

interest to health insurance companies, plan sponsors,

or the state government.54 And a number of States explicitly require PBMs to exercise good faith and fair

52 California Assembly Floor Analysis, AB 315 (Aug. 28, 2018), at

9-10, https://tinyurl.com/wkxbs3g.

53 See Ark. Code Ann. § 17-92-507(d)(1); Ga. Code Ann. § 33-6411(a)(7); La. Stat. Ann. § 22:1860.3(A); N.M. Stat. Ann. § 59A-614(B); Okla. Stat. Ann. tit. 36, § 6962(B)(3); S.C. Code Ann. § 3871-2230(A)(3); Tenn. Code Ann. § 56-7-3118(d).

54 See Cal. Bus. & Prof. Code § 4441(d); D.C. Code Ann. § 48-

dealing in their relationships with plan sponsors,

pharmacies, or both.55 State legislatures have determined that these laws are necessary to ensure that

PBMs perform their duties “with care, skill, prudence,

diligence, and professionalism.”56

II. ERISA DOES NOT PREEMPT ARKANSAS’S ACT 900

OR SIMILAR STATE LAWS

Like dozens of other States, Arkansas has exercised its sovereign prerogative to regulate the reimbursement rates PBMs pay to pharmacies. It also

imposes certain procedural obligations on PBMs to

help effectuate that rate regulation. This Court’s

longstanding precedent makes clear that ERISA does

not preempt those provisions. Arkansas’s Act 900 and

similar statutes in other States regulate the conduct

and business relationships of PBMs in order to protect

consumers and facilitate access to prescription

drugs—subjects that ERISA does not address. And

they impose obligations on PBMs, not on ERISA plans.

These statutes reflect States exercising their traditional role in protecting the health and welfare of their

residents, and do not implicate the core concern of

ERISA’s preemption clause: ensuring “nationally uniform [ERISA] plan administration.”

Egelhoff v.

Egelhoff ex rel. Breiner, 532 U.S. 141, 148 (2001).

832.01(b)(1)(C); 305 Ill. Comp. Stat. Ann. 5/5-36(d); Iowa Code

Ann. § 510B.4(2); Minn. Stat. Ann. § 62W.04(b); Nev. Rev. Stat.

Ann. § 683A.178(2); R.I. Gen. Laws § 27-29.1-7; Vt. Stat. Ann. tit.

18, § 9472(c)(2).

See Cal. Bus. & Prof. Code § 4441(c); Iowa Code Ann.

§ 510B.4(1); La. Stat. Ann. § 40:2864(A); Minn. Stat. Ann.

§ 62W.04(a); Nev. Rev. Stat. Ann. § 683A.178(1); S.D. Codified

Laws § 58-29E-3.

56 E.g., Pharmacy Benefit Managers in New York, supra note 9,

at 10.

A. ERISA Does Not Preempt Healthcare

Regulations with No “Reference to” or

“Connection with” ERISA Plans

ERISA preempts “any and all State laws insofar as

they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144(a). As this Court has observed, “‘if ‘relate to’ were taken to extend to the

furthest stretch of its indeterminacy, then for all practical purposes [ERISA] preemption would never run

its course.’” Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct.

936, 943 (2016) (quoting N.Y. State Conf. of Blue Cross

& Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645,

655 (1995)). Because “[t]hat is a result no sensible person could have intended,” the Court has developed

“workable standards” that “reject ‘uncritical literalism’

in applying” ERISA’s preemption clause. Id. (internal

quotation marks omitted). These standards seek to

“avoid[ ] the clause’s susceptibility to limitless application.” Id.

This Court has identified two categories of state

laws that ERISA preempts. The first category includes laws that have an impermissible “‘reference to’

ERISA plans,” meaning that the “law acts immediately and exclusively upon ERISA plans,” or that “the

existence of ERISA plans is essential to the law’s operation.” Gobeille, 136 S. Ct. at 943 (internal quotation marks omitted). The second category includes

laws that have “an impermissible ‘connection with’

ERISA plans,” meaning that the law “governs a central matter of plan administration or interferes with

nationally uniform plan administration.” Id. (alteration and internal quotation marks omitted).

In applying this framework, the Court starts with

the presumption that the “historic police powers of the

States were not to be superseded by [ERISA] unless

that was the clear and manifest purpose of Congress.”

Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 325 (1997).57

“That approach is consistent with both federalism concerns and the historic primacy of state regulation of

matters of health and safety.” Medtronic, 518 U.S. at

485. It is also consistent with ERISA’s text and history, because “nothing in the language of the Act or

the context of its passage indicates that Congress

chose to displace general health care regulation, which

historically has been a matter of local concern.” Travelers, 514 U.S. at 661.

B. The Arkansas Statute Challenged Here Is

Not Preempted

Like many of its sister States, Arkansas has

adopted sensible and focused regulations to respond to

the harms that PBMs can cause to patients, pharmacies, and state governments. As discussed above, Arkansas’s Act 900 prohibits PBMs from reimbursing a

pharmacy at a rate below the pharmacy’s cost of acquiring a drug. Ark. Code Ann. § 17-92-507(a)(6),

(c)(4)(A)(i)(b). It also establishes procedures that

PBMs must follow to ensure compliance with that requirement. PBMs must update their MAC lists to accurately reflect the prices charged by pharmaceutical

wholesalers in the State, id. § 17-92-507(c)(2); they

must provide “a reasonable administrative appeal procedure to allow pharmacies to challenge . . . reimbursements”, id. § 17-92-507(c)(4)(A)(i); if an appeal is

upheld (or if the pharmacy is not able to purchase the

drug from its wholesaler at a rate lower than what it

57 See also, e.g., Egelhoff, 532 U.S. at 151; De Buono v. NYSA-ILA

Med. & Clinical Serv. Fund, 520 U.S. 806, 814 (1997); Travelers,

514 U.S. at 655.

previously paid), the PBM must update its MAC list to

reflect the actual wholesale price of the drug, id. § 1792-507(c)(4)(C)(i), (iii); if an appeal is denied, the PBM

must identify a pharmaceutical wholesaler where the

drug in question is available and “currently in stock at

a price below” the MAC list price, id. § 17-92507(c)(4)(C)(ii). In addition, Act 900 allows a pharmacy to decline to dispense a prescription if the pharmacy would be reimbursed by the PBM at a rate below

its acquisition cost for the drug. Id. § 17-92-507(e).

Under this Court’s precedent on ERISA preemption,

none of these provisions is preempted.

1. Act 900 does not make any “reference to” ERISA

plans. Gobeille, 136 S. Ct. at 943. It does not “act[ ]

immediately and exclusively upon ERISA plans,” nor

are ERISA plans “essential to [its] operation.” Id.

Although Act 900 refers to “plan[s],” Ark. Code Ann.

§ 17-92-507(a)(9), that term is not limited to ERISA

plans. The Act does not specifically mention ERISA

plans and “functions irrespective of[ ] the existence of

an ERISA plan.” Ingersoll-Rand Co. v. McClendon,

498 U.S. 133, 139 (1990). In other words, it applies

the same regardless of whether a health plan is an

ERISA plan or not, rather than “singl[ing] out” ERISA

plans “for different treatment.” Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 830 (1988).

Because Act 900 regulates a group of entities—only

some of which are ERISA plans—in an evenhanded

way, it does not have an impermissible “reference to”

ERISA plans. In Dillingham, for instance, the Court

held that a California law did not make “reference to”

ERISA plans because the regulated entities “need not

necessarily be ERISA plans,” although they might be.

519 U.S. at 325. Likewise, in Travelers, the Court held

that a New York law regulating the prices hospitals

charged to health insurers did not make “reference to”

ERISA plans because it applied the same “regardless

of” whether the insurer was “ultimately secured by an

ERISA plan” or a non-ERISA plan. 514 U.S. at 656.

The same is true of Act 900.58

2. Nor does Act 900 have an impermissible “connection with” ERISA. Recognizing that “‘connection

with’ is scarcely more restrictive” than the statutory

language itself (“relate to”), the Court has “cautioned

against an ‘uncritical literalism’ that would make

preemption turn on ‘infinite connections.’” Egelhoff,

532 U.S. at 147 (quoting Travelers, 514 U.S. at 656).

Instead, the “connection with” inquiry “‘look[s] both to

the objectives of the ERISA statute as a guide to the

scope of the state law that Congress understood would

survive, as well as to the nature of the effect of the

state law on ERISA plans.’” Id. (quoting Dillingham,

519 U.S. at 325); accord Gobeille, 136 S. Ct. at 943.

The objectives of the ERISA statute are “to make

the benefits promised by an employer more secure by

mandating certain oversight systems and other standard procedures.” Gobeille, 136 S. Ct. at 943. ERISA

therefore covers subject matters such as “‘reporting,

disclosure, fiduciary responsibility, and the like,’”

Travelers, 514 U.S. at 661 (quoting Shaw v. Delta Air

Lines, Inc., 463 U.S. 85, 98 & n.19 (1983)), as well as

58 Respondent now appears to argue that Act 900 makes an impermissible “reference to ERISA-covered benefit plans” because

it refers to plans that provide services to individuals who “‘are

employed’” in the State. Supp. Br. 6-7 (quoting Ark. Code Ann.

§ 17-92-507(a)(9)); cf. Opp. 28-30. While that definition encompasses some ERISA plans, it encompasses many non-ERISA

plans as well. See U.S. Invitation Br. 8-9. This Court has never

held a statute to be preempted by ERISA under such circumstances.

“determining the eligibility of claimants, calculating

benefit levels, making disbursements, [and] monitoring the availability of funds for benefit payments,”

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987).

In contrast, the purpose of the challenged provisions

of Act 900 is to regulate the rates at which PBMs reimburse pharmacies for prescription drugs. That is an

“‘area[ ] where ERISA has nothing to say.’” Egelhoff,

532 U.S. at 148 (quoting Dillingham, 519 U.S. at 330).

The Court’s opinion in Travelers is directly on point.

That case concerned a similar New York law regulating hospital rates for inpatient care. 514 U.S. at 649.

The law “require[d] hospitals to collect surcharges

from patients covered by a commercial insurer but not

from patients insured by a Blue Cross/Blue Shield

plan,” and it imposed surcharges on certain health

maintenance organizations. Id. It was undisputed

that the law made “the Blues more attractive . . . as

insurance alternatives” than health maintenance organizations and other types of health plans. Id. at 659.

The Court nonetheless held that the law was not

preempted by ERISA, emphasizing that “ERISA was

not meant to pre-empt basic rate regulation.” Travelers, 514 U.S. at 667 n.6. Although the New York law

had an “indirect economic effect on choices made by

insurance buyers, including ERISA plans,” such an effect did not give rise to ERISA preemption because it

did “not bind plan administrators to any particular

choice and thus function as a regulation of an ERISA

plan itself.” Id. at 659. Nor did the law have such

“acute, albeit indirect, economic effects . . . as to force

an ERISA plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers.” Id. at 668.

What was true of hospital rate regulation in Travelers is true of pharmacy rate regulation here. Just as

the New York law in Travelers may have influenced

some ERISA plans to contract with a Blue Cross entity

rather than a commercial insurer or health maintenance organization, so too Act 900 might theoretically

influence decisions by ERISA plans about whether

and on what terms to contract with a PBM. But Arkansas does not “bind plan administrators to any particular choice,” and the Act’s economic effects are not

so “acute” as to effectively dictate an ERISA plan’s decisions. Travelers, 514 U.S. at 659, 668. Act 900 does

not restrict ERISA plans in their choice of PBMs, force

ERISA plans to use PBMs in a specific way, or so restrict PBMs in carrying out their functions as to limit

the benefits provided by ERISA plans. Arkansas’s law

thus does not have any impermissible “connection

with” ERISA. See U.S. Invitation Br. 10-13.

Any other outcome would be untenable. As the

Court has repeatedly observed, “‘myriad state laws’ of

general applicability . . . impose some burdens on the

administration of ERISA plans but nevertheless do

not ‘relate to’ them within the meaning of the governing statute.” De Buono, 520 U.S. at 815. “Congress

could not possibly have intended to eliminate” such a

broad swath of state laws. Travelers, 514 U.S. at 668;

see id. at 661 (noting other types of “common state actions with indirect economic effects on a plan[ ]”); Dillingham, 519 U.S. at 334 (reasoning that it would “do[ ]

grave violence” to the presumption against preemption to find state laws preempted based on their economic effects on the choices of ERISA plans).

For similar reasons, ERISA does not preempt Arkansas’s provision allowing pharmacists to decline to

dispense prescriptions when a PBM proposes to pay a

reimbursement rate below Arkansas’s regulatory floor.

See Ark. Code Ann. § 17-92-507(e). This law, too,

treats beneficiaries of ERISA and non-ERISA plans

alike and does not implicate any central matter of plan

administration. It merely specifies that a pharmacy

need not perform its obligations under a contract with

a PBM that violates the State’s rate regulation. In

that respect, it is similar to other state contract-law

doctrines—such as unconscionability, mistake, or

frustration—that would allow a pharmacy to void its

network agreement with a PBM, or excuse a pharmacy’s non-performance under that agreement, in certain circumstances. See Pet. Br. 28-29, 46-47. And

many other state laws similarly allow (or require)

pharmacists to decline to dispense prescription drugs

for a variety of reasons. See id. at 47-48.

Respondent has argued that Act 900 is preempted

because it imposes procedural obligations on PBMs,

such as by requiring them to disclose pricing information, update maximum allowable cost lists, and

provide an appeal mechanism. Supp. Br. 6; see id. at

1-2. But those procedural obligations do not provide

any basis for preemption because the statute imposes

them on PBMs, not on ERISA plans using PBMs to

administer their pharmaceutical benefits. And even

assuming that the challenged provisions create certain administrative burdens on ERISA plans, those

burdens are incidental to Act 900’s core purpose of rate

regulation. See Pet. Br. 24-30. This Court has emphasized that laws with “incidental effect[s]” on ERISA

plan administration should be upheld, so long as the

effects are in furtherance of some broader “generally

applicable” state purpose. Egelhoff, 532 U.S. at 147-

148. 59 The procedural requirements of Act 900 fall

into that category. Prescription drug markets often

lack pricing transparency; indeed, that is one of the

concerns giving rise to state PBM regulation in the

first place. The procedural mechanisms required by

Arkansas allow pharmacies to determine at what rate

they are entitled to be reimbursed and to challenge a

PBM’s reimbursement rate when it falls below that

level.

Finally, the “objectives of the ERISA statute” must

be viewed as “a guide to the scope of the state law that

Congress understood would survive.” Gobeille, 136 S.

Ct. at 943 (quoting Egelhoff, 532 U.S. at 148); see supra 25-26. Thus, when ERISA preempts state law,

Congress generally provides a mechanism at the federal level for addressing the problem the state law targets. See, e.g., Gobeille, 136 S. Ct. at 944-945

(discussing the Secretary of Labor’s authority to require recordkeeping and disclosure of the sort Vermont sought); Aetna Health Inc. v. Davila, 542 U.S.

200, 210 (2004) (federal cause of action under ERISA

available where state law cause of action is

preempted). But ERISA does not create any federal

regulatory regime governing PBM reimbursements to

pharmacies or authorize any federal agency to address

the issue by regulation. There is no reason to believe

that Congress sought to preclude Arkansas and other

States from stepping in to fill that void.

59 See also Gobeille, 136 S. Ct. at 946 (distinguishing a preempted

state reporting requirement from a state law of general application that “necessitates incidental reporting by ERISA plans”); De

Buono, 520 U.S. at 815 (state laws may impose “some burdens”

on ERISA plans without triggering preemption).

C. As a General Matter, ERISA Does Not

Preempt Typical State PBM Regulations

Although this case concerns only Arkansas’s Act

900, the Court’s decision may well set a precedent affecting PBM regulations across the Nation. See supra

14-21. While the precise contours of ERISA preemption analysis may vary depending on the law at issue,

as a general matter, ERISA does not preempt typical

state PBM regulations because those laws have no impermissible “reference to” or “connection with” ERISA

plans. Gobeille, 136 S. Ct. at 943.

1. Like Act 900, typical state PBM regulations do

not make “reference to” ERISA because they do not

“act[ ] immediately and exclusively upon ERISA

plans,” nor are ERISA plans “essential” to their operation. Gobeille, 136 S. Ct. at 943. States typically define a PBM as a “person, business, or other entity that

. . . manages the prescription drug coverage” provided

by a health plan. Cal. Bus. & Prof. Code § 4430(j); accord, e.g., Kan. Stat. Ann. § 40-3822(d)-(e); Ohio Rev.

Code Ann. § 3959.01(N). Even if certain state-law definitions of PBMs encompass some ERISA plans that

may manage their own pharmacy benefits in part, a

PBM need not be an ERISA plan, and (as respondent

acknowledges) most are not, see Supp. Br. 4.60 And

while state laws typically refer to health plans with

which PBMs contract, some of which are ERISA plans,

the laws generally do not mention ERISA plans specifically, and they apply in the same way regardless of

whether a health plan is an ERISA plan. See Ingersoll-Rand Co., 498 U.S. at 139; Mackey, 486 U.S. at

830.

60 Moreover, even plans that “may perform some PBM functions

in-house” still “contract out other functions” to external PBMs.

PBM Compensation and Fee Disclosure, supra note 8, at 9.

2. Typical state PBM regulations also do not have

an impermissible “connection with” ERISA. As noted

above, this inquiry looks “both to the objectives of the

ERISA statute” and “the nature of the effect of the

state law on ERISA plans.” Egelhoff, 532 U.S. at 147

(internal quotation marks omitted). Both considerations underscore why ERISA does not preempt state

laws regulating PBMs’ conduct and business relationships in order to protect consumers.

The matters addressed by state PBM regulations

are outside “the objectives of the ERISA statute.”

Egelhoff, 532 U.S. at 147. As noted, ERISA seeks to

make employer benefits more secure by mandating

standard procedures and requirements, including reporting, disclosure, and fiduciary responsibilities. See

supra 25-26; Gobeille, 136 S. Ct. at 943; Travelers, 514

U.S. at 661. The conduct and business relationships

of PBMs, and their effects on consumers and public

health, are far removed from these core ERISA concerns. They are, rather, “‘areas where ERISA has

nothing to say.’” Egelhoff, 532 U.S. at 148 (quoting

Dillingham, 519 U.S. at 330). For example, ERISA

does not remotely seek to address PBM business practices like imposing “gag clauses” that prevent pharmacies from informing customers about lower-priced

prescription drugs, or granting preferential treatment

to PBM-affiliated pharmacies. See supra 19-21.

An analysis of “the nature of the effect of the state

law on ERISA plans,” Egelhoff, 532 U.S. at 147, also

illustrates why ERISA does not generally preempt

state laws regulating PBMs. The Court has explained

that ERISA’s goals include creating “nationally uniform plan administration” and preventing ERISA

plans from being “subject to different legal obligations

in different States.” Id. at 148; see Gobeille, 136 S. Ct.

at 944-945. As the United States has explained, state

PBM regulations do not implicate these concerns

where they “impose[ ] obligations on PBMs, not plans”

and “regulate[ ] PBM administration, not ERISA plan

administration.” U.S. Invitation Br. 14-15. Such laws

“do[ ] not require plans to do anything.” Id. at 14.

That is true of the vast majority of state PBM laws.

For one thing, many (if not most) of these laws regulate the relationship between PBMs and pharmacies,

not between PBMs and health plans. Some States, for

example, require PBMs to exercise good faith and fair

dealing in their contracts with pharmacies, or require

PBMs to disclose certain pricing data or other information to pharmacies. Supra 18-19, 20-21. While

these laws might have some “indirect economic influence” on ERISA plans and beneficiaries, ERISA does

not preempt them because they “do[ ] not bind plan administrators to any particular choice” and thus do not

“function as a regulation of an ERISA plan itself.”

Travelers, 514 U.S. at 659.

Even where state laws do address the relationship

between PBMs and health plans (including ERISA

plans), they generally impose obligations on the

PBMs, not on the plans. For example, some States require PBMs to exercise good faith and fair dealing in

their relationships with plan sponsors. Supra 20-21 &

n.55. While ERISA might well preempt a law seeking

to impose such an obligation on ERISA plans, it does

not preempt state laws imposing the obligation on

PBMs. Likewise, some States obligate PBMs to keep

records and disclose certain information to plan sponsors. Supra 20. While ERISA might preempt such

laws if they were applied to ERISA plans, see Gobeille,

136 S. Ct. at 945, it does not preempt them as applied

to PBMs.

As the Court has emphasized, “Congress preempted state laws relating to plans,” not other types

of entities or their obligations. Fort Halifax, 482 U.S.

at 11. For example, lower courts have repeatedly held

that ERISA does not preempt “state-law malpractice

or negligence claims” brought by ERISA plans or beneficiaries “against non-fiduciary plan advisors, such as

accountants, attorneys, and consultants.” Gerosa v.

Savasta & Co., 329 F.3d 317, 324 (2d Cir. 2003) (collecting cases); see also Paulsen v. CNF Inc., 559 F.3d

1061, 1082-1083 (9th Cir. 2009); cf. Pegram v. Herdrich, 530 U.S. 211, 236-237 (2000) (ERISA does not

preempt state medical malpractice claims). Just as

ERISA does not preempt state laws that regulate the

conduct of such entities in their dealings with health

plans (some of which are ERISA plans), it does not

preempt state regulations that regulate PBMs in their

dealings with health plans.

Respondent has argued that “[a]bsent preemption”

of state PBM regulations, “ERISA plans would have to

comply with a crazy-quilt of conflicting rules governing the administration of prescription drug benefits.”

Supp. Br. 3; see id. at 2 (asserting that a “panoply of

competing state laws” impose “inconsistent obligations”). The claim of conflicting state laws is significantly overstated. While States have taken different

approaches to regulating PBMs, most state laws on

the subject can be placed into a handful of categories

of relatively straightforward requirements, described

above. See supra 14-21. And respondent has not identified any practice required by one State but forbidden

by another State.

In any event, disuniformity of state law is not a

basis for ERISA preemption. “[G]eneral health care

regulation” of this sort “historically has been a matter

of local concern,” and there is “[n]othing in the language of [ERISA] or the context of its passage” indicating that Congress intended to displace state

regulation in this area, even if it varies somewhat

from State to State, and even if it imposes some degree

of burden on regulated entities. Travelers, 514 U.S. at

661. In response to widely recognized concerns about

PBM business practices, States have adopted regulations designed to protect their residents’ access to

affordable prescription drugs. ERISA is not a barrier

to these common and important state laws.

CONCLUSION

The judgment of the court of appeals should be

reversed.

Respectfully submitted,

XAVIER BECERRA

Attorney General of California

MICHAEL J. MONGAN

Solicitor General

MATTHEW RODRIQUEZ

Chief Assistant Attorney General

JOSHUA PATASHNIK

Deputy Solicitor General

KATHLEEN BOERGERS

Supervising Deputy

Attorney General

KARLI EISENBERG

Deputy Attorney General

March 2, 2020

(Counsel listing continues on next page)

STEVE MARSHALL

Attorney General

Alabama

KWAME RAOUL

Attorney General

Illinois

KEVIN G. CLARKSON

Attorney General

Alaska

CURTIS T. HILL, JR.

Attorney General

Indiana

PHILIP J. WEISER

Attorney General

Colorado

TOM MILLER

Attorney General

Iowa

WILLIAM TONG

Attorney General

Connecticut

DEREK SCHMIDT

Attorney General

Kansas

KATHLEEN JENNINGS

Attorney General

Delaware

DANIEL CAMERON

Attorney General

Kentucky

KARL A. RACINE

Attorney General

District of Columbia

JEFF LANDRY

Attorney General

Louisiana

ASHLEY MOODY

Attorney General

Florida

AARON M. FREY

Attorney General

Maine

CHRISTOPHER M. CARR

Attorney General

Georgia

BRIAN E. FROSH

Attorney General

Maryland

CLARE E. CONNORS

Attorney General

Hawaii

MAURA HEALEY

Attorney General

Massachusetts

LAWRENCE G. WASDEN

Attorney General

Idaho

DANA NESSEL

Attorney General

Michigan

KEITH ELLISON

Attorney General

Minnesota

WAYNE STENEHJEM

Attorney General

North Dakota

LYNN FITCH

Attorney General

Mississippi

DAVE YOST

Attorney General

Ohio

TIMOTHY C. FOX

Attorney General

Montana

MIKE HUNTER

Attorney General

Oklahoma

DOUGLAS J. PETERSON

Attorney General

Nebraska

ELLEN F. ROSENBLUM

Attorney General

Oregon

AARON FORD

Attorney General

Nevada

JOSH SHAPIRO

Attorney General

Pennsylvania

GORDON MACDONALD

Attorney General

New Hampshire

PETER F. NERONHA

Attorney General

Rhode Island

GURBIR S. GREWAL

Attorney General

New Jersey

ALAN WILSON

Attorney General

South Carolina

LETITIA JAMES

Attorney General

New York

JASON RAVNSBORG.

Attorney General

South Dakota

HECTOR BALDERAS

Attorney General

New Mexico

KEN PAXTON

Attorney General

Texas

JOSHUA H. STEIN

Attorney General

North Carolina

SEAN D. REYES

Attorney General

Utah

THOMAS J. DONOVAN,

JR.

Attorney General

Vermont

MARK R. HERRING

Attorney General

Virginia

ROBERT W. FERGUSON

Attorney General

Washington

PATRICK MORRISEY

Attorney General

West Virginia

JOSHUA L. KAUL

Attorney General

Wisconsin

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.