State PBM Laws

State legislatures have been the most active regulatory force in PBM oversight, with over 40 states enacting some form of PBM-specific legislation. These laws vary significantly in scope and strength, creating a patchwork of requirements that affects PBM operations and employer plan design.

Common Legislative Approaches

PBM licensing and registration. Many states now require PBMs to register with a state agency, typically the Department of Insurance, and meet minimum operational standards. Licensing requirements create a regulatory framework for oversight and enforcement that did not previously exist in most states.

Spread pricing prohibitions. Several states have banned spread pricing in Medicaid managed care, requiring PBMs to pass through the actual pharmacy reimbursement amount plus a transparent administrative fee. A smaller number of states have extended spread pricing restrictions to commercial plans.

MAC pricing regulations. Most state PBM laws include provisions governing Maximum Allowable Cost pricing, typically requiring PBMs to update MAC lists when acquisition costs change, provide pharmacy appeal processes when MAC reimbursement is below acquisition cost, and disclose the methodology used to set MAC prices.

Gag clause prohibitions. Federal legislation and most state laws now prohibit PBM contract provisions that prevent pharmacists from telling patients when paying cash would be cheaper than using their insurance benefit.

ERISA Preemption

A significant limitation on state PBM regulation is ERISA preemption. The Employee Retirement Income Security Act of 1974 generally preempts state laws that "relate to" employee benefit plans. Because most large employers operate self-funded health plans governed by ERISA, state PBM laws may not apply to these plans. This creates a regulatory gap where the employers most likely to benefit from PBM transparency requirements are least likely to be covered by them.