ERISA Preemption and State PBM Laws: What Pharmacies Can Enforce

State laws that cap how often a pharmacy benefit manager (PBM) can audit a pharmacy, bar retroactive extrapolation, or restrict a network termination do not automatically reach every claim a pharmacy fills. When a patient's coverage comes through a self-funded employer health plan, the Employee Retirement Income Security Act (ERISA) can preempt the very state law a pharmacy is counting on. Two federal rulings mark where that line falls: the U.S. Supreme Court's 2020 decision in Rutledge v. Pharmaceutical Care Management Association, and the Tenth Circuit's 2023 decision in PCMA v. Mulready, which the Supreme Court declined to review in 2025.

ERISA Preemption and the PBM Audit

ERISA preempts a state law that relates to a covered employee benefit plan, meaning the law has a connection with or reference to the plan. That test governs every fight over whether a state's PBM audit protections apply to a self-funded ERISA plan. It asks two narrower questions: does the law govern a central matter of plan administration or interfere with nationally uniform plan administration, and does the law refer to ERISA plans by name or operate only because ERISA plans exist. A state law that survives both questions applies to a self-funded PBM audit. A law that fails either one does not, regardless of what the state legislature intended.

Rutledge: Pricing Regulation Survives Preemption

In Rutledge v. Pharmaceutical Care Management Association, the Supreme Court reviewed Arkansas's Act 900, which required PBMs to reimburse pharmacies at or above the pharmacy's own acquisition cost and gave pharmacies an administrative appeal when a PBM's maximum allowable cost list fell below that floor. The Pharmaceutical Care Management Association argued ERISA preempted the law because it affected what self-funded plans ultimately paid. On December 10, 2020, the Court held, 8-0, that Act 900 is not preempted. Rate regulations that merely increase costs or alter incentives for ERISA plans, the Court wrote, do not force plans to adopt any particular scheme of benefits. Act 900 regulated what a PBM owed a pharmacy, not what the plan owed its members, and ERISA left it standing.

Mulready: Network Rules Fall to Preemption

Oklahoma's Patient's Right to Pharmacy Choice Act took a different approach. Beyond reimbursement, it set retail pharmacy network access standards, required PBMs to admit any pharmacy willing to meet their preferred-network terms, barred PBMs from using cost-sharing discounts to steer patients toward preferred in-network pharmacies, and limited PBMs from excluding pharmacies on probation. The Pharmaceutical Care Management Association sued again, and on August 15, 2023, the Tenth Circuit held that ERISA preempts all four provisions as applied to ERISA plans, and that Medicare Part D separately preempts the any-willing-provider provision as applied to Part D plans. The panel found the network rules functionally mandate how a plan structures its pharmacy benefit, the same central matter of plan administration Rutledge said ERISA protects from state interference. The Supreme Court denied Oklahoma's petition for review on June 30, 2025, leaving the Tenth Circuit's ruling as the controlling law in that circuit.

What a Pharmacy Can Rely On

The practical divide tracks what a state law actually regulates, not what it is called. A recoupment cap, an audit-frequency limit, or a reimbursement floor functions like Act 900 and has a better chance of applying to a PBM administering a self-funded plan. A state law that dictates which pharmacies a plan must include in its network, or restricts how a plan structures cost-sharing, functions like the Oklahoma provisions Mulready struck down, particularly within the Tenth Circuit. A pharmacy weighing whether to invoke a state protection during a PBM audit, or preserving its appeal rights after one, needs to know which category the law falls into and which plan type is involved before building a defense on it.

Rutledge upheld Arkansas's pricing rule because it left plan design alone; Mulready struck down Oklahoma's network rules because they did not.

Health Law Alliance's attorneys have overseen 2,000+ audits and handled 5,000+ matters, with 25+ years of experience.

Why Early Legal Counsel Is Critical

Pharmacies should retain healthcare defense counsel as soon as a PBM audit raises a preemption question. Counsel can identify whether the patient's coverage is a self-funded ERISA plan, assess which state protections survive that fact, and preserve appeal rights that a mishandled early response can forfeit.

How Health Law Alliance Can Help

Health Law Alliance defends pharmacies through PBM audits where ERISA preemption is in dispute, from the initial audit notice through appeal. If a PBM is applying or resisting a state protection, our attorneys can tell you whether it reaches your claims. Contact us today for a free, confidential consultation on your PBM audit defense.