By: HUB’s EB Compliance Team

For the past several years, state regulations of Pharmacy Benefit Managers (“PBMs”) have expanded considerably. Arkansas, Florida and Oklahoma are just a few of the states that have enacted new laws to regulate PBMs. While states generally have the authority to regulate PBMs within their state, such regulations may potentially cross the line created by ERISA in regulating self-insured health plans. In this article we’ll discuss a recent court case involving state PBM regulation, and Arkansas’ recent foray into regulating pharmacies that are owned by PBMs. 

A Review of ERISA Preemption

Employer-sponsored plans that are fully-insured are governed by state law, while self-insured plans are governed by ERISA. This is why state benefits mandates apply to fully-insured plans, but not self-insured plans. Under ERISA §514, state regulations that relate (directly or indirectly) to self-insured plans are expressly preempted.

Determining what states can and cannot do with regard to ERISA then is quite nuanced. In Rutledge vs. Pharmaceutical Case Management Association, the Supreme Court attempted to add clarity to these boundaries. They began by stating, “ERISA does not pre-empt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.” Then they noted, “ERISA is therefore primarily concerned with preempting laws that require providers to structure benefit plans in particular ways, such as by requiring payment of specific benefits, or by binding plan administrators to specific rules for determining beneficiary status.” In summary then, the Rutledge decision held that the applicable Arkansas statute was not preempted by ERISA.

Tennessee’s PBM Law

Rutledge itself was recently cited by the District Court in McKee Foods Corp. v. BFP Inc. d/b/a/ Thrifty Med Plus Pharmacy. This case involved Tennessee’s “any willing pharmacy” law, which requires PBMs and covered entities (including self-insured plans) to include all pharmacies as providers if the pharmacy agrees to the terms and conditions of the plan.

Tennessee argued that Rutledge repealed an earlier case, Kentucky Association of Health Plans, Inc. v. Nichols, which held that “statutes requiring ERISA plans to admit “any willing provider” to their networks have an impermissible connection with ERISA plans and are therefore preempted.” The court in McKee did not agree with Tennessee’s argument and instead drew a distinction between the statute in Rutledge, which impacted costs to plans, and the situation presented in McKee, which directly spoke to a self-insured plan’s ability to utilize a specific network. Specifically, the court said, “the scope of an ERISA plan’s provider network (in this case a pharmacy network) is a key aspect of plan administration.”

In summary then, the court concluded that the Tennessee statute was preempted. However, this was only a district court level decision. The state may appeal this up to the Sixth Circuit Court of Appeals, and eventually the Supreme Court. This decision should generally not be interpreted then to mean that all “any willing provider” laws are preempted.

Arkansas PBM Ownership of Pharmacies

Arkansas recently enacted HB1150, which prohibits PBMs from obtaining the permits necessary to operate a pharmacy in the state. Without the ability to obtain the necessary permits, beginning January 1, 2026, PBMs can no longer operate pharmacies in Arkansas. This bill applies to both physical pharmacies as well as mail-order pharmacies.

The bill specifically notes that it hopes to, “support[ing] patient access to prescription drugs and pharmacy services at fair prices in a market that supports optimal patient care”, and that therefore it desires “to minimize conflicts of interest by stopping the pharmacy benefits managers acting as a "fox guarding the hen house" by being both a price setter and price taker." Although the bill may soon be challenged, the state is moving forward with the process and identifying PBM-owned pharmacies as noted in the bill.

Conclusion

McKee and HB1150 are but the latest developments of many regarding state regulation of PBMs. More developments in this area are all but guaranteed. Employers with employees in multiple states should be aware that this is a developing area which may impact their health plans, if not already.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory. 

NOTICE OF DISCLAIMER 

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.