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ERISA Preemption: Supreme Court's Decision on PCMA v. Mulready and Its Impact on PBMs

On June 30, 2025, the U.S. Supreme Court announced its decline to review the decision in Pharmaceutical Care Management Association (PCMA) v. Mulready, a ruling by the U.S. Court of Appeals for the 10th Circuit involving a state’s regulation of pharmacy benefit managers (PBMs). The decision to leave Mulready as-is re-enforces ERISA preemption and the corresponding limitations of a state’s ability to impact employer-sponsored health plans. However, while this decision preserves an ERISA plan sponsor’s control over benefit design and network structure, states will likely continue their pursuit of PBM legislation and regulation.

In the Mulready case, the 10th Circuit held that several provisions in an Oklahoma statute intended to regulate PBMs were preempted by ERISA:

• A provision which prohibits denying, limiting, or terminating a pharmacy’s contract based on the probation status of a licensed pharmacist employed by the provider;
• A provision which prohibits restriction of an individual’s choice of in-network provider, and prohibits using financial incentives to promote the use of in-network pharmacies by beneficiaries;
• A network adequacy provision which requires PBM pharmacy networks to have preferred pharmacies within a particular distance of a percentage of beneficiaries; and
• The “any willing provider” provision, which prohibits denying a provider the opportunity to participate in any pharmacy network at preferred participation status if the provider is willing to accept the terms and conditions that the PBM has established for other providers as a condition of preferred network participation status. This provision was held to be preempted by both ERISA and Medicare Part D.

BACKGROUND

ERISA is the federal law that governs employer-provided health and pension benefits. The law has a “preemption” provision, which prohibits the states from enacting laws that “relate to” employer-sponsored health plans. Generally speaking, states can regulate the insurers that they license, and they can regulate the employers within their jurisdiction, but they can do little to regulate employer health plans. ERISA preemption serves an important purpose: it prevents an unwieldy patchwork of state laws governing employer plans, allowing multistate employers to provide benefits to their employees under one uniform set of rules.

In 2020, the U.S. Supreme Court delivered a decision in Rutledge v. PCMA that narrowed ERISA preemption and opened the door to state regulation of PBMs that contract with self-funded ERISA plans. In Rutledge, the Pharmacy Care Management Association challenged an Arkansas statute that set a floor for PBMs to reimburse pharmacies for covered prescription drugs. In its decision upholding the Arkansas statute, the Supreme Court noted that provisions in state law that merely regulate costs do not have an impermissible connection with ERISA plans. It did, however, note that “laws that require providers to structure benefit plans in particular ways, such as by requiring payment of specific benefits or by binding plan administrators to specific rules for determining beneficiary status,” and laws whose “acute, albeit indirect, economic effects . . . force an ERISA plan to adopt a certain scheme of substantive coverage” would still be preempted by ERISA. The Ruttledge decision cleared the path for states to regulate the ways in which PBMs do business on behalf of fully-insured plans, self-funded plans or both. As a result of Rutledge, hundreds of PBM bills have been proposed and/or passed by states, and cases challenging these laws have been working their way through the courts.

DEVELOPING RULES GUIDING STATE LEGISLATION

While Rutledge opened the door, the Court’s decision to leave the 10th Circuit decision as the final word in Mulready can be seen as the beginning of a jurisprudence on how open the door should be. In invalidating the Oklahoma statutory provisions, the 10th Circuit found them to be an impermissible infringement on ERISA plans’ ability to structure network and benefit design, one which forced ERISA plans to adopt a certain scheme of substantive coverage.

Observers have noted that with its decision to decline review, the Court has taken its first post-Rutledge step to clarify the ways in which states can regulate PBMs without running afoul of federal law. While the Mulready decision only governs the jurisdictions within the 10th circuit (Utah, Wyoming, Oklahoma, Colorado, New Mexico, Kansas, and portions of Montana and Idaho), it is instructive to other circuit courts and lawmakers seeking to regulate PBMs in other states. The following states have provisions similar to those struck down by the 10th Circuit:

CALIFORNIA LEGISLATION

With the passage of AB 116, California has become the latest state to require state licensure and reporting for PBMs. The Assembly is still considering SB 41, a bill which would:

• Limit PBM compensation from plans to a flat pharmacy benefit management fee for the services the PBM performs;
• Require PBMs to use pass-through pricing on claims;
• Ban spread pricing;
• Require 100% rebate pass-through;
• Limit exclusivity arrangements between PBMs and manufacturers;
• Establish a floor for pharmacy reimbursement;
• Prohibit clawbacks;
• Prohibit PBMs from discriminating against non-affiliated pharmacies; and
• Place limits on member cost-sharing for prescription drugs.

The bill also makes clear that it is intended to apply to self-funded plans unless prohibited by federal law. We anticipate that if the bill were to become law in its current form, it would quickly be challenged in court. The bill will be heard in the Assembly Judiciary Committee on July 15, 2025.

Clearly, this is not the last word on PBM regulation. As state legislatures, Congress, and the courts continue to weigh in, we will continue to update clients on state limits placed on PBM business practices and the potential impact on employer-sponsored health plans.

Keenan is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Clients are advised to consult with their own attorney for a determination of their legal rights, responsibilities, and liabilities, including the interpretation of any statute or regulation, or its application to the clients’ business activities.