Recently, the Sixth Circuit issued a significant ERISA preemption ruling for employers and pharmacy benefit managers (PBMs). The court held that Tennessee’s PBM laws, which require “any willing” pharmacy access and limiting incentives that steer members to plan‑favored pharmacies, are preempted as applied to self‑funded ERISA plans. The ruling draws a clear line between permissible PBM cost regulation and impermissible interference with plan design and administration.

Background

McKee Foods sponsors a self‑funded ERISA health plan and uses a PBM to administer its prescription drug benefits. McKee designs the plan’s network and cost‑sharing, including preferred pharmacy tiers and lower copays at its own onsite pharmacy. After McKee and its PBM excluded a specific pharmacy from the network over billing issues, Tennessee enacted two laws aimed squarely at PBM practices.

Those laws require PBMs and “covered entities” to admit any licensed pharmacy willing to accept standard terms (any‑willing‑provider provisions), and (2) prohibit higher copays or other financial disadvantages for using certain in‑network pharmacies and prohibit incentives to use PBM‑owned or affiliated pharmacies (incentive/steering provisions). Tennessee expressly stated that these PBM laws apply to ERISA plans.

After multiple administrative complaints were filed under these statutes, McKee sued the Tennessee insurance commissioner, seeking a declaration that ERISA preempts the PBM laws and an injunction against their enforcement.

Threshold Rulings

The Sixth Circuit first confirmed that McKee could bring a pre‑enforcement ERISA claim.

  • McKee is a plan fiduciary under ERISA because it exercises discretionary authority over plan design and administration, including pharmacy network decisions. As a fiduciary, it can seek equitable relief under 29 U.S.C. § 1132(a)(3).
  • McKee had standing: it already engages in conduct the PBM laws prohibit (excluding certain pharmacies, offering lower copays at its own pharmacy), the Commissioner has stated he will enforce the laws against ERISA plans, and multiple complaints have been filed. That combination creates a credible threat of enforcement.
  • The suit was ripe and not barred by sovereign immunity. Under Ex parte Young, McKee could seek prospective declaratory and injunctive relief against the Commissioner for ongoing violations of federal law.

These holdings confirm that plan fiduciaries may challenge state PBM regulations before facing an actual enforcement action.

ERISA Preemption

On the merits, the court analyzed ERISA’s “connection with” preemption. A state law is preempted if it requires or forbids particular plan structures, governs a central matter of plan administration, or undermines nationally uniform administration.

The court distinguished a prior Supreme Court decision, which upheld an Arkansas law regulating PBM reimbursement rates as mere cost regulation. Tennessee’s PBM laws, by contrast, alter the basic architecture of ERISA plans’ pharmacy benefits.

Any‑Willing‑Provider Provisions

The any‑willing‑provider provisions require PBMs and covered entities to allow any licensed pharmacy willing to accept network terms to participate, including in preferred networks, and bar interference with members’ pharmacy choice.

The Sixth Circuit held these provisions:

  • Force plans to structure their pharmacy networks in a particular way by mandating inclusion of all willing pharmacies;
  • Govern a core aspect of plan administration, i.e., who is in the network and on what terms; and
  • Disrupt national uniformity by requiring Tennessee‑specific network rules.

Relying on prior precedent, the court concluded Tennessee’s rules go well beyond indirect cost effects and instead mandate benefit structures, triggering ERISA preemption.

Incentive and Steering Provisions

The incentive provisions prohibit higher copays, additional fees, or penalties when members use certain in‑network pharmacies and ban financial incentives to steer members to PBM‑owned or affiliated pharmacies. They effectively require uniform copays and cost‑sharing across all in‑network pharmacies.

The court held these provisions likewise have an impermissible connection with ERISA plans because they:

  • Eliminate the ability to use tiered copays and other differential cost‑sharing to steer members within the network; and
  • Go beyond cost regulation by dictating a uniform cost‑sharing design, a “key benefit design” choice for ERISA plans.

The court held that forbidding differential cost‑sharing is the same as mandating identical cost‑sharing, in other words, an “acute” impact that “effectively dictate[s] plan choices” and thus is preempted.

Saving Clause and Deemer Clause

The Commissioner argued that ERISA’s saving clause, which preserves state laws that “regulate insurance,” should protect Tennessee’s PBM laws. The Sixth Circuit found that even if the laws regulate insurance, ERISA’s deemer clause prevents states from treating self‑funded ERISA plans as insurers.

Because Tennessee’s PBM definitions sweep self‑funded ERISA plans into the category of regulated entities, the deemer clause makes the saving clause unavailable. As applied to McKee’s self‑funded plan and its PBM, the PBM laws remain preempted.

Our Take

McKee confirms that there are limits to state PBM regulation. States may regulate PBM reimbursement rates and other costs, but when they:

  • Require inclusion of all willing pharmacies in networks, or
  • Prohibit differential copays and other steering mechanisms within networks,

they are dictating ERISA plan structure and administration and risk preemption, at least as applied to self‑funded plans.