Good News for Employers in ERISA Litigation Over State PBM Regulation

Following the Supreme Court’s 2020 decision in Rutledge v. PCMA, which upheld Arkansas’ PBM law against an ERISA preemption challenge, states have increasingly passed aggressive laws targeting perceived anti-competitive PBM practices. This has led to a wave of ERISA preemption lawsuits testing the limits of Rutledge, with PBMs and self-funded plans often succeeding in having portions of these laws struck down.

A recent example is the 6th Circuit’s April decision in McKee Foods Corp. v. BFP Inc., which challenged Tennessee’s PBM law. Rather than invalidating the entire law, the court focused on specific provisions (the Any-Willing-Provider (AWP) requirements and anti-steering/anti-incentive rules) and found them preempted. The court concluded these provisions interfered with plan structure and restricted plan design choices, going beyond the cost-related regulations permitted under Rutledge.

For employers, the decision reinforces the ability of self-funded plans and PBMs to use tools like preferred networks and tiered cost-sharing, even in states attempting to limit them. However, states are likely to continue enacting PBM regulations, and given the slow and unpredictable nature of ERISA preemption litigation, employers will need to monitor ongoing developments closely.

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