Kentucky’s Opioid Case Against Express Scripts and Optum Belongs in Federal Court

Before anyone can ask whether pharmacy benefit managers helped drive Kentucky’s opioid crisis, a court has to decide where the question gets asked. On September 18, 2026, the U.S. Court of Appeals for the Sixth Circuit ruled that the answer is federal court, reversing a district court order that had sent the case back to state court.

The Commonwealth of Kentucky, through Attorney General Russell Coleman, alleges that Express Scripts and OptumRx flooded its prescription drug market with opioids. The mechanism, Kentucky says, was negotiating with drug manufacturers to give opioids preferred placement on national formularies in exchange for rebates, fees, and other payments. Kentucky argued the case should stay in state court because its complaint effectively disclaimed liability for anything the companies did at the behest of a federal officer.

The Sixth Circuit held that the disclaimer could not do the work Kentucky needed it to do.

The reason is one structural fact. According to the court, the PBMs conduct a single negotiation with drug manufacturers on behalf of all their clients, federal and commercial alike. Those negotiations are the conduct Kentucky puts at the center of its complaint. They are also the negotiations the PBMs conduct as contractors for federal health programs. Kentucky’s position amounted to suing over the commercial half of a negotiation that, on the court’s account, is not conducted in halves.

The Facts

The Middlemen

A pharmacy benefit manager, or PBM, sits between the companies that make drugs and the health plans that pay for them. PBMs administer prescription drug benefits for their clients, which include federal and commercial plan sponsors. They help clients build formularies, which are the lists of drugs a plan covers, and they negotiate discounts from drug companies that want their products on those lists. Those discounts often take the form of rebates.

Two of the defendants in Kentucky’s suit are PBMs: Express Scripts and Optum. The appellants before the Sixth Circuit were Express Scripts, Inc.; ESI Mail Pharmacy Service, Inc.; Express Scripts Pharmacy, Inc.; and OptumRx, Inc. The opinion notes that Kentucky sued the PBMs and several related companies.

The opinion identifies three federal relationships. Express Scripts serves plan sponsors that insure federal workers under the Federal Employees Health Benefits Act (FEHBA). It also provides PBM and mail-order pharmacy services for the Department of Defense’s TRICARE program. Optum contracts with the Veterans Health Administration to provide pharmacy benefit services to veterans and their families.

The Lawsuit

Kentucky sued in state court. The opinion’s opening summarizes the complaint as alleging that a group of healthcare firms contributed to the state’s opioid crisis by conspiring with drug manufacturers to increase the supply of prescription opioids. Kentucky claims the conduct violated state consumer protection law and created a public nuisance. It seeks a declaration that the PBMs willfully violated state law, civil monetary penalties, a permanent injunction, and a court order requiring abatement of a public nuisance.

The Path to the Sixth Circuit

The opinion does not give dates for the early steps, so the sequence below is ordered by the opinion’s own account rather than by calendar.

Checkpoint: nothing in this chronology involves a finding about what the PBMs did with opioids. Every step concerns which court hears the case.

What Federal Officer Removal Lets a Defendant Do

Kentucky filed in state court. The defendants relied on a federal statute that lets a person sued over acts connected to federal work move the case to federal court. Quoting Yost, the opinion describes a key premise of the statute as permitting federal defenses to be tried in federal court.

The statute asks three questions:

• Was the defendant a federal officer or a person “acting under” one, meaning it helped carry out the federal government’s own duties under federal guidance or control?
• Does the lawsuit target conduct “for or relating to” an act under color of federal office?
• Has the defendant raised a colorable federal defense?

The bar for the third question is deliberately low. The opinion says a defendant does not have to win its case before it can remove it. It only has to raise a colorable federal defense.

The standard of review matters too. The court reviewed the remand order fresh, without deferring to the district court, and credited the removing defendants’ plausible factual allegations. So the opinion’s descriptions of the PBMs’ federal contracts reflect what the court accepted at the removal stage. They are not findings from a trial.

Three Contracts, Three Federal Agencies

On the first question, the court held that both PBMs acted under federal officers. It reached that conclusion program by program.

Express Scripts and the Federal Employee Health Program

FEHBA charges the Office of Personnel Management (OPM) with administering a health insurance program for federal employees. OPM contracts with commercial insurance carriers and instructs them to subcontract with PBMs to secure coverage. The court reasoned that if PBMs stopped negotiating prescription drug coverage, the government would have to do that negotiating itself. It also pointed to OPM regulations that set parameters for the contracts between PBMs and federal health plans, and to OPM oversight of PBM negotiations through audits and mandatory disclosure schemes.

Express Scripts and TRICARE

The TRICARE statute requires the Defense Secretary to “establish an effective, efficient, integrated pharmacy benefits program.” The Department of Defense contracts with Express Scripts to provide pharmacy benefit services for TRICARE members. The court, relying on Yost, described a contract that subjects Express Scripts to the department’s guidance and control in administering TRICARE’s uniform formulary, maintaining a nationwide retail pharmacy network, managing members’ prescription benefits, and dispensing medications through its mail-order pharmacies.

Optum and the Veterans Health Administration

Optum provides PBM services to the VHA and administers the agency’s formulary. The court described a contract that sets specifications for performance and requires weekly communication between the company and agency representatives. The agency monitors performance, oversees compliance with the contract’s requirements and restrictions, and conducts inspections to evaluate outcomes.

Checkpoint: the first question is about control. The court treated these arrangements as federal supervision of private companies performing work the government would otherwise have to perform. That gets the PBMs through the first door. It says nothing yet about Kentucky’s claims.

One Negotiation, Two Kinds of Clients

The second question is where the case turned. Kentucky alleges that the PBMs used their position in the prescription drug supply chain to give opioids preferred formulary treatment in exchange for lucrative rebates and fees. Kentucky’s answer to the removal was that its complaint effectively disclaimed any liability for conduct done at a federal officer’s direction.

The statute reaches conduct “for or relating to” an act under federal office. The court read “relating to” broadly. A lawsuit can qualify even when the defendant’s federal duties neither “specifically required” nor “strictly caused” the challenged conduct. The connection only has to be more than “tenuous, remote, or peripheral.” And under Yost, a plaintiff does not sever the connection by disavowing any attempt to recover based on the defendant’s indivisible federal conduct.

“As the PBMs point out, there is little to no daylight between their federal and non-federal conduct as it pertains to negotiations with drug manufacturers.”

Sixth Circuit opinion, Part II

The court then described how the negotiations work. Quoting Yost, it said the PBMs deliberately conduct a single negotiation for all of their clients without distinguishing between federal and non-federal plans. The resulting agreements govern all rebates that drug manufacturers pay to the PBMs. The terms of the discount and fee arrangements do not depend on whether the plan sponsor is federal.

That left Kentucky’s disclaimer with nothing to separate. Its complaint attacks rebate-for-placement negotiations. On the court’s account, there is no separate federal version of those negotiations to carve out, so there was nothing for a disclaimer to disclaim. The court said Kentucky seeks to impose liability based on the PBMs’ indivisible federal conduct, “just as Ohio did in Yost.”

Checkpoint: the distinction is narrow and important. The opinion does not say that federal officials directed the PBMs to favor opioids, and nothing in it suggests that. The connection the court found runs between the negotiating process and the PBMs’ federal duties. The court’s own reading of the statute did not require that the federal duties caused the challenged conduct.

The Federal Defenses That Cleared a Low Bar

The third question asks whether the PBMs raised a “colorable” federal defense. In plain English, that means a defense plausible enough to be argued. The court did not test whether the defenses would succeed. It found that the PBMs advanced two.

Immunity

The PBMs first claim, under the Supreme Court’s 1988 decision in Boyle v. United Technologies Corp., that they are immune from state tort liability for acts performed in furtherance of their FEHBA, TRICARE, and VHA contracts. Whether that immunity reaches beyond military procurement contracts is, the court said, an open question in the Sixth Circuit. Earlier circuit precedent in Bennett v. MIS Corp. said it is plausible that it might. The court held that was enough.

Preemption

Preemption is the principle that federal law can displace state law. The court identified several colorable arguments:

• FEHBA. Contract terms of federal employee plans that relate to the nature, provision, or extent of coverage or benefits displace state law relating to health insurance or plans. Prescription drugs, including opioids, count as a benefit, so laws regulating how PBMs negotiate formulary placement “arguably” connect to those benefits.
• TRICARE. A federal statute provides that state laws relating to health insurance or health care delivery or financing do not apply to contracts entered into under TRICARE. The court found a colorable argument that Kentucky’s laws relate to health insurance.
• ERISA (Optum). The federal Employee Retirement Income Security Act preempts state laws that improperly connect with or refer to an employee benefit plan. The court found a colorable argument because Kentucky’s claims take aim at how Optum structures its “standard formulary offerings” for ERISA plans. It cited the Tenth Circuit’s decision holding Oklahoma’s PBM regulations ERISA-preempted on similar grounds.
• Medicare Part D (Optum). To the extent Kentucky law conflicts with federal standards for plans covered by Part D, Optum has a colorable argument that those standards preempt Kentucky’s claims.

Checkpoint: “colorable” is not “correct.” The court did not rule that FEHBA, TRICARE, ERISA, or Part D bars any Kentucky claim, or that Boyle immunity applies. Those defenses now get argued in federal court.

Where the Other Circuits Stand

The Sixth Circuit was not writing on a blank slate. It counted five circuits that have concluded a complaint targeting PBM services performed holistically for federal and non-federal clients necessarily targets federal conduct. It counted five circuits that have rejected a government’s effort to sidestep the statute by disclaiming the federally controlled aspects of that conduct. And it counted two, the Second and the Eighth, that have embraced all of these conclusions in government opioid lawsuits targeting rebate negotiations and formulary placement.

Kentucky’s Two Fallback Arguments

Kentucky did not dispute much of the removal analysis. Its main argument on appeal was procedural. Because Yost came out after the district court’s decision, it asked the Sixth Circuit to send the case back so the district court could apply Yost first. The panel acknowledged that this is often what it does. But where a dispute turns principally on a question of legal theory rather than historical fact, it saw little point in sending the case back to a factfinder with no facts left to find.

Kentucky’s second argument was that its complaint reaches conduct Yost did not examine. The opinion’s example is the PBMs’ alleged failure to implement diversion controls for opioids dispensed through their mail-order pharmacies. The opinion does not elaborate on the term. In ordinary usage it refers to safeguards meant to keep dispensed opioids from being diverted. Kentucky suggested it could amend its complaint to solve its Yost problem on remand.

The court left the door open. Kentucky remains free, with the district court’s leave, to cut from its complaint any claims that give rise to federal jurisdiction. But as the complaint stands today, the court held it targets conduct that supports removal jurisdiction as to each of the relevant claims. The possibility of a future amendment, and the fact that the current complaint discusses other conduct, made no difference to the analysis.

Checkpoint: the court did not decide whether an amended complaint focused only on non-federal conduct would defeat removal. It said only that Kentucky could try, and that the possibility does not change the analysis of the complaint before it.

What the Court Did Not Decide

A removal ruling is easy to misread as a ruling on the case. It is not. The opinion leaves every merits question open.

What Kentucky Alleged and Requested

Kentucky, acting through its Attorney General, brings claims under state consumer protection law and public nuisance law. The core theory, as the opinion describes it, is that the PBMs used their place in the drug supply chain to give opioids preferred formulary treatment in return for rebates and fees from manufacturers. The opinion also notes allegations reaching beyond that theory, including the alleged failure to implement diversion controls at mail-order pharmacies.

The complaint’s own language, as quoted in the opinion, frames the formulary decisions as a question of what drove them:

Kentucky asks for a declaration that the PBMs willfully violated state law, civil monetary penalties, a permanent injunction, and an order requiring abatement of a public nuisance. The opinion states no penalty amounts and reports no ruling on any of these remedies. As far as this record shows, the case is still at the question-of-forum stage. Kentucky’s complaint remains a set of allegations.

What a Legitimate Fix Looks Like

This ruling decides a courtroom, not a remedy. But the opinion exposes structural features that any serious fix would have to address. PBM negotiations, on the court’s account, are run as one integrated process for federal and commercial clients. Federal oversight of the federal side runs through contract terms, audits, disclosure requirements, and inspections. And whether federal immunity and preemption defenses reach state opioid claims is, by the court’s own description, unsettled. The recommendations below are editorial. They are not findings of the court, and none assumes that any current practice is unlawful.

Regulatory Track

• OPM, the Department of Defense, and the VHA already oversee PBM performance through the mechanisms the opinion describes. They could require PBMs to document, and report in aggregate, how rebates and fees are weighed against clinical safety and efficacy in formulary decisions for high-risk drugs, opioids included.
• Because Kentucky alleges failures in mail-order opioid dispensing safeguards, and the opinion shows the government already writes performance specifications into these contracts, agencies could spell out dispensing-safeguard expectations and audit against them.

Legislative Track

• The opinion says the reach of Boyle immunity is open in the circuit and that FEHBA, TRICARE, ERISA, and Part D preemption arguments are colorable. Congress could state plainly whether those provisions reach state claims about formulary placement, so that each case does not begin with a fight over the threshold.
• Lawmakers who want the accountability question answered on the merits could set clear federal standards for how PBMs handle formulary placement of drugs with abuse potential, so the outcome does not depend on where a case is filed.

Corporate Governance Track

• If the PBMs’ negotiations truly apply the same terms to every client, the companies can document the criteria behind opioid formulary placement across all clients and publish how rebates figure into those decisions.
• PBM boards could commission independent reviews of opioid dispensing safeguards at their mail-order pharmacies and disclose the results. That would give the public information the litigation has not yet produced.

None of these steps would guarantee a different outcome. They would replace a fight about which court decides with evidence about what actually happened.

What to Watch

What Remains Open

The Sixth Circuit answered a narrow question: whether Kentucky’s suit against Express Scripts and OptumRx can stay in state court despite the complaint’s disclaimer of federal conduct. It cannot. On the court’s account, the PBMs’ rebate negotiations are a single process serving federal and commercial clients alike, and Kentucky’s claims are aimed squarely at that process.

Two questions remain, and no court has answered either in this opinion. The first is factual: whether preferred opioid placement on national formularies was driven by rebates and fees rather than by “the safety and efficacy of the drugs,” as Kentucky alleges. The second is legal: if it was, whether Kentucky’s state-law claims can reach that conduct, or whether federal immunity and preemption displace them. The court found those defenses plausible enough to argue. It did not say they will work.

Kentucky has also left open its own next move. It told the court it could amend its complaint, and the court told Kentucky it remained free to try. Whether it does, and what remains of the case if it does, is the next document to watch.