Indiana’s New Pharmacy Benefit Manager Law

Highlights

• Overview: Indiana’s PBM law (SB 140) affects PBM contracts and administration with group health plans. The law goes into effect for new and existing PBM policies or contracts that are issued or renewed after December 31, 2025. This alert is relevant for employers sponsoring prescription drug plans that cover Indiana residents
• Key Provisions: The Indiana PBM law mainly affects pharmacy network adequacy and choice, as well as pharmacy reimbursement practices. Those provisions do have the potential to impact employer-sponsored plans.
• Employer Action Items: Employers sponsoring medical plans providing prescription drug benefits to Indiana residents and employees should:
  • Review PBM contracts covering Indiana residents and employees; and
  • If sponsoring a self-insured ERISA plan, consult with appropriate advisors and determine whether to make any plan amendments and disclose changes to participants.
• Insurance carriers will likely make any necessary plan changes without employer input. PBMs for self-insured, non-ERISA plans may make or recommend changes.

Pharmacy benefit manager (PBM) legislation continues to be a major focus in 2025, and Indiana joined the growing list of other states who have passed Senate Bill 140 (SB 140), which was signed into law on May 6, 2025.

This alert summarizes the provisions of SB 140 that will impact employer group health plans and provides action items for affected employers. This alert is relevant for employers sponsoring prescription drug plans that cover Indiana residents.

Summary of the Law

With SB 140, Indiana lawmakers focused on the following main areas of regulation:

• Network adequacy
• Pharmacy reimbursement practices
• Pharmacy choice

The law will go into effect for new and existing policies/contracts that are issued or renewed after December 31, 2025.

Key Provisions Affecting Group Health Plans

As with the other state PBM laws we have seen recently, many of the provisions of SB 140 are limited to internal PBM operations and solely govern interactions with pharmacies, although there will be at least some effects on employer-sponsored prescription drug benefits. Key provisions affecting group health plans include the following:

• Network access and design: The law requires a health plan’s pharmacy network to be “reasonably adequate and accessible,” which means that, at a minimum, the network must:
  • Offer an adequate number of accessible non-mail order pharmacies; and
  • Provide access to non-mail pharmacies within 30 miles from each insured’s residence (to the extent pharmacies are available).
• Annual reporting: An annual report describes the plan’s network is required to be filed by the insurer, PBM, or other administrator of pharmacy benefits, with the Indiana insurance commissioner.
• Reimbursement restrictions: Plans and PBMs are prohibited from reimbursing pharmacies an amount that is less than the greater of:
  • The amount the PBM, insurer, or other administrator reimburses itself for the same drug,
  • The actual acquisition cost plus a fair and reasonable dispensing fee, or
  • The national average acquisition cost plus the dispensing fee charged to Medicaid.
• Quantity limits: Plans or PBMs cannot impose quantity or refill frequency limits for any pharmacy that are more restrictive than those limits that apply to pharmacies affiliated with the PBM.
• Pharmacy choice: Covered individuals cannot be required to obtain services (including specialty drugs) from a pharmacy affiliated with the PBM. The plan/PBM is also prohibited from providing more favorable cost sharing for use of PBM-affiliated pharmacies than for nonaffiliated pharmacies. This restriction does not apply to mail order pharmacies.
• PBM choice: Third party administrators (TPAs) cannot require a plan sponsor with 100+ employees to enter into contract with a participating PBM or charge a different fee based on the plan sponsor’s selection of a particular PBM.

Note: SB 140 does not regulate self-insured health plans of hospitals or health systems with their own pharmacies, but does include other self-insured plans including those sponsored by governmental entities, church plans, or MEWAs.

ERISA Preemption

As noted above, it appears that Indiana intends the SB 140 provisions described in this alert to apply to almost all self-insured coverage, including self-insured ERISA plans. In general, ERISA preempts (i.e., blocks enforcement of) state laws that regulate self-insured ERISA plans.¹ However, over the last few years, there have been several legal challenges to state PBM laws in the federal courts regarding the applicability of ERISA preemption to these laws.

We hoped the U.S. Supreme Court would review a decision from the 10th Circuit Court of Appeals on Oklahoma’s PBM law (Mulready)² and provide clear guidance addressing when ERISA preempts state PBM laws, but in late June the Supreme Court declined to hear the appeal and let the 10th Circuit’s decision stand.

The Supreme Court’s action suggests: (i) it generally supports the 10th Circuit’s Mulready opinion; and/or (ii) it did not feel the need to correct anything in the 10th Circuit’s ruling. If correct, the limits on steering described above appear vulnerable to a claim of ERISA preemption by a self-insured ERISA plan, but the other provisions are more likely to survive a challenge.

While the Mulready decision is only binding on states in the 10th Circuit,³ it should influence other states that have passed or plan to adopt similar PBM laws.

Employer Action Items

In communications to MMA and its clients, many of the major PBMs take the broad position that ERISA preempts most or all state PBM law provisions when the PBM is servicing a self-insured ERISA plan and choose not to comply with them. We agree that ERISA preempts provisions affecting plan design and administration, but this does not appear to include provisions affecting reimbursement rate regulations, spread pricing, or requiring the pass-through of rebates. PBMs have reviewed and begun adapting to the 2023 Mulready decision, particularly those within the 10th Circuit’s jurisdiction, but this does not mean their responses are consistent.

In general, the PBM should be the party liable for compliance with a particular state’s PBM law and not the employer/plan sponsor. SB 140 does not appear to provide for any direct penalties against the employers sponsoring the group health plans administered by the PBMs, although the commissioner may order reimbursement to any person who has incurred a monetary loss as a result of violations, so an enforcement action by Indiana against a PBM could cause disruption to group health plans it administers. A plan sponsor may also have plan fiduciary risk for knowingly engaging with a PBM that refuses to comply with state PBM law provisions not preempted by ERISA.

SB 140 applies to policies and contracts issued, amended, delivered, or renewed after December 31, 2025. For self-insured plans, this refers to the PBM contract. We recommend employers sponsoring medical plans providing prescription drug benefits to Indiana residents and employees seek the assistance of appropriate advisors to assist with the action items described below, which may include broker and/or consulting firm pharmacy benefit subject matter experts and legal counsel.

1. If necessary, review current and upcoming PBM contracts for compliance with SB 140.
2. Insurance carriers will determine whether SB 140 applies and likely make any necessary changes with no input from employers.
3. If sponsoring a self-insured ERISA plan, determine whether to make any prescription drug benefit amendments and timely disclose these changes to plan participants. If sponsoring a self-insured, non-ERISA plan, determine whether and how SB 140 applies. PBMs will likely make recommendations.

When reviewing PBM contracts, please pay close attention to the following: (i) network composition, (ii) pricing models, and (iii) restrictions, penalties, or incentives related to participant choice of certain pharmacies.

PBM Holdouts: We expect many PBMs will take the position that Indiana’s PBM law does not apply when they service self-insured ERISA plans. Employers may wish to discuss the matter with their own legal counsel. We realize an employer may have limited options if the PBM refuses to comply.

1 29 USC §1144(a)(2)
2 Pharmaceutical Care Management Association v. Mulready, 78 F.4th 1183 (10th Cir. 2023).
3 Oklahoma, Kansas, New Mexico, Colorado, Wyoming, Utah, and portions of the Yellowstone National Park extending into Montana and Idaho