The System They Built

Pharmacy Benefit Managers occupy a peculiar position in American healthcare. They are not insurers. They are not pharmacies. They are not drug manufacturers. They are intermediaries who negotiate prices between all three, extracting fees and rebates at every stage. Express Scripts and Prime Therapeutics, two of the largest PBMs in the country, administer prescription drug benefits for millions of Americans through private employers, unions, and federal employee health plans.

When the State of Ohio sued them in 2023, the complaint painted a picture of a rigged system. According to Ohio Attorney General Dave Yost, the PBMs forced pharmaceutical manufacturers to raise list prices by demanding higher rebates tied to those inflated prices. The rebates, which were supposed to be passed on to health plans and patients, were instead retained by the PBMs as profit. Pharmacies, meanwhile, were subjected to retroactive fees and clawbacks on prescriptions already dispensed. The result was higher out-of-pocket costs for patients and higher premiums for everyone.

Ohio filed the case in state court, alleging violations of state antitrust law, consumer protection statutes, and common law fraud. The lawsuit sought damages and injunctive relief to stop the alleged price manipulation. Express Scripts and Prime Therapeutics responded by invoking a legal mechanism most Americans have never heard of: the federal officer removal statute, 28 U.S.C. § 1442(a)(1).

The Federal Shield

The federal officer removal statute dates back to the Civil War era. Its original purpose was to protect federal revenue agents from being prosecuted in hostile state courts for actions taken in the course of their federal duties. If a U.S. marshal enforcing federal law in a Confederate state faced state charges, he could remove the case to federal court, where federal defenses would be recognized and federal authority respected.

In 2026, that same statute is being used by private corporations to dodge state accountability. The PBMs argued that because they negotiate prescription drug prices on behalf of federal employee health plans administered by the Office of Personnel Management and TRICARE military health plans administered by the Department of Defense, they are “persons acting under” federal officers. This classification, they claimed, entitled them to remove Ohio’s lawsuit from state court to federal court.

The Sixth Circuit Court of Appeals agreed. In a January 27, 2026 decision authored by Chief Judge Jeffrey Sutton, the court held that the PBMs satisfy all three prongs of the federal officer removal statute: they act under federal officers, the lawsuit relates to conduct undertaken under color of federal office, and they possess colorable federal defenses.

“When the PBMs negotiate with drug manufacturers, they play a key role in the Office of Personnel Management’s effort to carry out its FEHBA duties of providing prescription-drug benefits. When the PBMs negotiate with drug manufacturers, put differently, they perform a task that the government itself would otherwise have to perform.”

The Indivisibility Argument

Ohio tried to thread a legal needle. In its motion to remand the case back to state court, the state explicitly disclaimed any intent to challenge the PBMs’ conduct with respect to federal employee health plans. The lawsuit, Ohio insisted, targeted only the PBMs’ work for private commercial clients. Because the federal government has no duty to regulate those private transactions, Ohio reasoned, federal jurisdiction did not apply.

The Sixth Circuit rejected this argument by crediting the PBMs’ theory of the case. Express Scripts and Prime Therapeutics maintained that they conduct a single unified negotiation process on behalf of all their clients, federal and private alike. Splitting those negotiations into separate federal and non-federal components, the PBMs argued, would undermine their leverage with drug manufacturers and pharmacies, potentially raising prices and reducing rebates.

The court found this argument persuasive. Because Ohio’s complaint seeks backward-looking money damages for conduct that has already occurred, and because that conduct consisted of unified negotiations, the court held that Ohio’s lawsuit “necessarily targets federally controlled conduct.” Ohio could not disclaim federal liability simply by filing a document stating it does not seek to impose liability for federal conduct. Such a disclaimer, the court reasoned, would allow state courts to decide whether the federal government had authorized the PBMs’ actions—a determination that must be made in federal court.

“Ohio could not have reestablished jurisdiction merely by filing a document to the effect that ‘we do not seek to punish Davis for conduct undertaken under color of his office as deputy collector of internal revenue.’ Else, the officer removal statute would not have provided any protection at all.”

This logic expands the scope of federal officer removal far beyond traditional government contractors. The PBMs are not performing a discrete task for a single federal agency under tight supervision. They are operating a nationwide commercial enterprise that happens to include some federal clients. Yet because those federal clients are part of an operationally unified business model, the entire enterprise becomes eligible for federal jurisdiction.

The Non-Financial Ledger

Behind the legal abstractions are real people paying real prices. The complaint Ohio filed describes patients forced to choose between medication and rent because their copays have tripled. It describes pharmacists who filled prescriptions in good faith, only to be hit weeks later with retroactive clawbacks that wiped out their margins. It describes families rationing insulin because the list price climbed faster than their insurance coverage.

None of that matters to the jurisdictional question. The Sixth Circuit’s decision does not adjudicate whether the PBMs actually inflated drug prices or pocketed rebates. It simply decides which court gets to hear the case. But the practical effect is profound. By removing the case to federal court, the PBMs gain access to federal preemption defenses that do not exist in state court. They can argue that federal statutes governing employee health benefits and military health plans override Ohio’s antitrust and consumer protection laws.

For patients, this means the most aggressive legal tool available to state attorneys general—the state antitrust lawsuit seeking treble damages and injunctive relief—has been neutralized. Federal courts are not necessarily more sympathetic to corporate defendants, but federal preemption doctrines create barriers to liability that state courts cannot impose. The PBMs do not need to win the case. They just need to make it harder for Ohio to win.

And they have succeeded. The district court remanded the case back to state court, but the Sixth Circuit reversed. The case now returns to federal court, where the PBMs will assert their FEHBA and TRICARE preemption defenses. Ohio will be forced to litigate on a battlefield designed by Congress to protect federal contractors, not to hold private middlemen accountable for price manipulation.

Legal Receipts

The Sixth Circuit’s opinion provides verbatim language revealing the scope of the ruling. These are not paraphrases. These are the court’s exact words.

“The PBMs ‘act[ed] under’ a federal officer. 28 U.S.C. § 1442. The Federal Employee Health Benefits Act creates a ‘comprehensive program of health insurance for federal employees’ and ‘assigns to OPM [Office of Personnel Management] broad administrative and rulemaking authority over’ that program.”

“The Office mandates many of the terms in those subcontracts and controls the PBMs’ conduct as a result. It caps the amount that PBMs may charge carriers for their services. It forbids PBMs from setting prices for carriers based on industry benchmarks (which are higher) and instead ties reimbursement to the PBM’s acquisition cost plus a dispensing fee. It forces the PBMs to pass all ‘negotiated discounts, rebates, credits, or other financial benefits’ on to the carrier.”

“When the PBMs bargain with drug manufacturers and pharmacies, they conduct a single negotiation on behalf of all of their clients. Alleged liability arising from this negotiation process necessarily includes federal conduct.”

“Ohio conceded at oral argument, two other circuits and a concurrence by Judge Ikuta have come to the same conclusion in this precise scenario, and no circuits have gone the other way.”

“Conduct with only a ‘tenuous, remote, or peripheral’ relationship to federal activity does not ‘relate to’ it. Ohio’s complaint targets the PBMs’ negotiations on behalf of federal clients, and that conduct bears a far more than ‘peripheral’ relationship to acts under color of federal office.”

Societal Impact Mapping

Economic Inequality

The Sixth Circuit’s decision entrenches a two-tier system of corporate accountability. Small businesses and individual professionals remain subject to the full force of state consumer protection and antitrust enforcement. Corporations with federal contracts, by contrast, can invoke federal jurisdiction to access preemption defenses unavailable in state court. This legal asymmetry mirrors economic asymmetry. The largest PBMs in the country—Express Scripts (owned by Cigna), CVS Caremark (owned by CVS Health), and Prime Therapeutics (owned by a consortium of Blue Cross Blue Shield plans)—control approximately 80 percent of the prescription drug market. Their size gives them leverage to secure federal contracts, and those federal contracts now give them leverage to escape state prosecution.

For patients, the result is a hidden tax. When PBMs inflate list prices to generate higher rebates, patients with high-deductible health plans and coinsurance pay a percentage of the inflated price out of pocket. The rebates that offset those higher prices are retained by the PBMs or passed to insurers, not returned to the patients who paid the markup. This system functions as a wealth transfer from sick individuals to corporate shareholders.

Public Health

Prescription drug pricing directly affects medication adherence. Studies consistently show that when out-of-pocket costs rise, patients skip doses, split pills, or abandon prescriptions entirely. The complaint Ohio filed alleges that the PBMs’ rebate scheme has driven list prices upward across entire therapeutic categories, including insulin, biologics, and specialty drugs for chronic conditions. These are not lifestyle medications. They are maintenance therapies for diabetes, autoimmune disorders, and cardiovascular disease.

By shielding PBMs from state accountability, the Sixth Circuit’s ruling removes one of the few tools available to combat drug pricing strategies that prioritize corporate revenue over public health. Federal agencies like the Federal Trade Commission have broad investigatory powers but limited enforcement budgets and competing priorities. State attorneys general, by contrast, can bring antitrust cases on behalf of their residents with state funding and state-specific evidence. Ohio’s complaint was based on years of investigative work and testimony from Ohio pharmacists and patients. That work is now subject to federal preemption defenses that could render it moot.

Environmental Degradation

This case does not directly implicate environmental harm, but the jurisdictional framework it establishes applies broadly. Federal officer removal is available to any private contractor performing services for a federal agency. Defense contractors, infrastructure firms, and environmental remediation companies with federal contracts can all invoke the same statute. If those contractors cause pollution, toxic exposure, or habitat destruction in the course of their federal work, they can remove state environmental lawsuits to federal court and assert federal preemption defenses.

The Sixth Circuit’s expansive interpretation of “acting under” a federal officer and “relating to” federal conduct means that even conduct undertaken primarily for private commercial purposes can be shielded by a federal contract if the contractor claims the conduct is operationally unified. This creates a roadmap for corporate defendants in environmental litigation to federalize cases and access preemption doctrines that limit state regulatory authority.

What Now?

The Sixth Circuit’s decision is binding precedent in Ohio, Michigan, Kentucky, and Tennessee. Similar cases are pending in other circuits. State attorneys general in California, West Virginia, and Puerto Rico have filed parallel lawsuits against PBMs, and those cases have produced split rulings on federal officer removal. The issue may eventually reach the Supreme Court.

In the meantime, state legislatures have begun enacting PBM transparency laws requiring disclosure of rebate amounts, fee structures, and pricing methodologies. These laws face their own preemption challenges, but they operate independently of antitrust litigation. Patients and providers can also file individual lawsuits under state consumer protection statutes, though those cases lack the scale and resources of state attorney general enforcement actions.

Watchlist: Federal Trade Commission (FTC), State Attorneys General Network, National Association of State Legislatures (NCSL) for PBM transparency legislation tracking.

Resistance Strategy: Contact your state legislators and demand passage of PBM transparency laws requiring public disclosure of rebate agreements and fee schedules. Support mutual aid prescription assistance funds that help patients afford medications without relying on insurance middlemen. Organize coalogs among independent pharmacists to document clawback practices and report them to state regulators. Federal courts may shield PBMs from antitrust liability, but state regulatory authority over pharmacy licensure and consumer protection remains intact.