On June 11, 2025, Iowa enacted Senate File 383 (the Act), a comprehensive bill aimed at regulating pharmacy benefit managers (PBMs) with the stated goals of increasing transparency, supporting independent pharmacies, and reducing prescription drug costs. However, on June 30, 2025, just one day before the Act’s effective date, the U.S. District Court for the Southern District of Iowa issued a temporary restraining order (TRO), enjoining enforcement of the Act against the lawsuit’s named plaintiffs. The court found that the plaintiffs, a coalition of Iowa employers and ERISA-governed health plans, demonstrated a likelihood of success on the merits of their claims that the Act is preempted by the Employee Retirement Income Security Act of 1974 (ERISA) and violates the First Amendment. The lawsuit aligns with other recent challenges against similar comprehensive legislation and further demonstrates the long-lasting conflict between PBM reform legislation and preemption by federal law.

Overview of Senate File 383

The Act represents a sweeping attempt by the Iowa legislature to reshape the regulatory landscape for PBMs and their interactions with pharmacies, health plans, and patients. Key provisions include:

• Rebate Pass-Through. The Act mandates that all rebates received by PBMs must be passed through to health plans or plan sponsors. 
• Accumulator Ban. The Act prohibits the use of copay accumulator programs by requiring third-party payments to count toward the individual's deductible and out-of-pocket maximum. 
• Reimbursement Mandate. The Act requires PBMs to reimburse retail pharmacies at or above the National Average Drug Acquisition Cost (NADAC), or if NADAC is unavailable, the Wholesale Acquisition Cost (WAC), plus a fixed dispensing fee of $10.68 per prescription. 
• Network Restrictions. The Act prohibits PBMs and health plans from steering patients toward preferred pharmacies (including mail-order pharmacies) through cost-sharing incentives, referrals, or promotional messaging. 
• Appeals Process. The Act grants pharmacies broad appeal rights when a pharmacy disputes a reimbursement rate. 
• Transparency Requirements. The Act requires PBMs to publicly report, on a quarterly basis, any reimbursements that are 10% or more above or below NADAC. These reports must be posted on the PBM’s website and retained for at least 24 months. 

Legal Challenge and Court’s Reasoning

On June 23, 2025, a coalition of Iowa employers and ERISA-governed health plans filed suit in federal court, alleging that the Act is preempted by ERISA, which governs the design and administration of more than 21% of Iowa’s population, and infringes on commercial speech protected by the First Amendment, by prohibiting health plans and PBMs from communicating cost-saving options to plan participants.

On June 30, 2025, the U.S. District Court for the Southern District of Iowa granted a 14-day TRO, halting enforcement of the law. The court agreed that several provisions of the Act likely interfere with core aspects of ERISA plan design and administration, including network composition, cost-sharing structures, and fiduciary duties. The court also found that the Act’s restrictions on promotional messaging and pharmacy referrals likely violates the First Amendment by impermissibly restricting truthful commercial speech.

The court declined to sever the challenged provisions from the rest of the law, citing the complexity of the statute and the risk of judicial overreach. A preliminary injunction hearing is scheduled for July 14. Importantly, the court limited the TRO to apply only to the named plaintiffs in the case, citing the recent U.S. Supreme Court decision in Trump v. Casa, which significantly narrowed the scope of injunctive relief that federal courts may issue. Specifically, the court emphasized the Supreme Court’s directive that district courts may not issue relief “broader than necessary to provide complete relief to each plaintiff with standing to sue.”

Implications for Stakeholders

The Act and its subsequent litigation represent the latest chapter in a growing national conflict between state efforts to regulate PBMs and the federal framework established by ERISA. As more states pursue similar legislation, courts across the country will increasingly be called upon to determine the limits of state authority as they encroach on ERISA-related matters. The TRO in this case signals that courts may be inclined to scrutinize state laws that impose structural mandates on ERISA-plans. Most recently, the Supreme Court declined to hear a challenge to a Tenth Circuit ruling in PCMA v. Mulready, where the federal court ruled that portions of an Oklahoma PBM reform bill, similar to Iowa’s Act, were preempted by both ERISA and Medicare Part D. We previously discussed the developments in Mulready in the Fall 2024 edition of the Mintz PBM Policy and Legislative Update. Despite the Court’s decision to decline review in Mulready, the outcome of this Iowa litigation could renew interest in the issue, particularly if the Eighth Circuit reaches a similar conclusion. Such a development may prompt the Court to revisit the question and could signal to states that future PBM legislation must be crafted with greater sensitivity to ERISA’s broad preemptive scope.