Compliance Update
Iowa's New PBM Law [SF 383]
Implications for Plan Sponsors and Broader Market Signals
On Monday, July 21, 2025, the U.S. District Court for the Southern District of Iowa issued a preliminary injunction blocking key provisions of Iowa Senate File 383. This state law aimed to regulate pharmacy benefit managers (PBMs) and health plans. The court found that several of the law’s provisions likely violate federal statutes—specifically, the Employee Retirement Income Security Act of 1974 (ERISA)—and infringe on First Amendment protections related to commercial speech.
The court enjoined several notable provisions:
Accumulator Adjustment Ban:
The ban on accumulator adjustment programs, which would have forced all beneficiary payments—including those made with manufacturer copay cards—to count toward a participant’s deductible, was also blocked. The court concluded that this overstepped the boundaries of ERISA-governed plan design/cost-sharing structures, a core ERISA function.
This is good news for employer groups as accumulator requirements have been proposed in many states (including Utah) and passed in others. This ruling will be helpful as these laws are challenged on ERISA preemption grounds.
Pharmacy Network Restrictions:
The court invalidated several pharmacy network mandates that included anti-discrimination clauses, any-willing-provider requirements, and restrictions on steering participants to preferred pharmacies. The court found that these provisions undermined fiduciary duties by limiting flexibility in plan design and the ability to manage care effectively and cost-efficiently. The fixed $10.68 dispensing fee was also enjoined, as the court considered it inseverable from other invalidated provisions and potentially counterproductive to the legislature’s goal of supporting rural pharmacies.
Rebate Pass Through:
The law required specific rebate contract terms between PBMs and payers. The court ruled this infringed on ERISA fiduciary discretion, even though general rebate pass through was upheld.
The enforcement mechanisms of the Act did not escape scrutiny either. The court blocked provisions that would have allowed plan participants or pharmacies to sue ERISA plans and override contractual terms, ruling that these measures conflicted with ERISA’s exclusive remedial framework. Additionally, certain speech-related elements of the law were found to violate the First Amendment. Specifically, the court enjoined anti-referral restrictions and compelled disclosures, determining they unlawfully curtailed truthful communication about lawful commercial transactions.
However, not all aspects of the law were invalidated. The court upheld the pharmacy appeals process, finding that it merely regulates interactions between PBMs and pharmacies without interfering with ERISA plans. Similarly, transparency provisions requiring PBMs to report and publish pricing data were allowed, as they do not affect the administration of benefit plans. These requirements are immaterial to employers and are already requirements under other laws.
In reaching its decision, the court determined that the plaintiffs—comprising Iowa employers and ERISA-governed plans—had standing to challenge the law, as they faced direct compliance costs and potential liabilities through indemnification clauses. The court emphasized that ERISA preempts state efforts to dictate the core design and administration of employee benefit plans. Applying the Central Hudson test for commercial speech, the court also concluded that the law’s speech restrictions failed to meet constitutional scrutiny, noting that they were overly broad and not sufficiently justified by the state’s interests.
This decision carries significant implications for both state and federal regulatory frameworks. It reinforces the supremacy of ERISA in regulating employee benefit plans and signals caution to states considering expansive PBM regulations. The ruling mirrors previous decisions, such as PCMA v. Mulready in Oklahoma, and may serve as a model for other courts. Additionally, it highlights the importance of safeguarding commercial speech in healthcare, particularly in communications between plans, PBMs, and beneficiaries.
The injunction is limited in scope and applies only to the named plaintiffs and their PBM contractors. Other PBMs and payors not party to the suit remain subject to the law’s enforcement. Plaintiffs are now required to submit a list of their covered PBMs to the court, and the case will continue to be litigated. In the meantime, states may need to revisit the scope and structure of existing PBM laws to ensure compliance with ERISA and constitutional protections.
Joe Tooley, PharmD, MBA VP | National Pharmacy Practice Leader
