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House committee hears bill to clarify state authority over pharmacy benefit managers amid ERISA debate
Summary
A hearing on House Bill 1584 drew testimony from state lawmakers, legal experts and industry representatives about expanding enforcement authority over pharmacy benefit managers (PBMs) and how ERISA preemption could limit state action. Committee members signaled interest in technical amendments but took no final vote.
The House Industry, Business and Labor Committee in Bismarck held a hearing on House Bill 1584, which would clarify the insurance commissioner’s authority to regulate pharmacy benefit managers and add enforcement penalties.
The bill’s sponsor, Representative Jim Casper, R-Fargo, told the committee PBMs “are the middlemen between the drug manufacturers, the pharmacies, the health insurance plans, and the insurance companies,” and said the proposal aims to update 20-year-old state law to match marketplace changes and withstand legal challenges.
Why it matters: PBMs administer pharmacy networks, process claims and negotiate rebates for prescription drugs; proponents say clearer state enforcement is needed to protect pharmacies and health plans, while opponents warn the changes could run into federal preemption under the Employee Retirement Income Security Act of 1974 (ERISA) and affect self‑funded employer plans.
Representative Casper and outside witnesses cited investigations and enforcement actions elsewhere to justify the proposal. Casper pointed to recent national examples, saying states and federal agencies have pursued matters involving PBM pricing and rebate retention. Attorney Robert Smith, testifying remotely, told the committee that recent U.S. Supreme Court and Eighth Circuit decisions have affirmed significant state regulatory authority. “The states possess robust authority to regulate PBMs even when those PBMs are serving plans subject to regulation under ERISA,” Smith said, and recommended technical definition changes that would remove an explicit ERISA exemption from the statute and instead clarify that a PBM is a third party acting under contract with a covered entity.
Supporters from the pharmacy community and allied groups urged the committee to adopt the definition changes and to broaden enforcement authority. Mike Schwab of the North Dakota Pharmacists Association said the market has shifted and that
