Background
Arkansas Insurance Department Rule 128 authorizes the state insurance commissioner to require health plans to pay additional dispensing fees when pharmacy compensation is not “fair and reasonable.” It also requires plans to report pharmacy-compensation data that enables the commissioner to assess reimbursement rates.
Central States, a self-funded multiemployer welfare benefit fund covered by ERISA, sued Commissioner Alan McClain in his official capacity. The Fund sought a declaration that ERISA preempted both components of Rule 128. The district court dismissed the complaint under Federal Rule of Civil Procedure 12(b)(6), and the Fund appealed.
The Court’s Holding
The Seventh Circuit affirmed. Under Rutledge v. Pharmaceutical Care Management Association, the dispensing-fee provision was a permissible cost regulation because it could increase the Fund’s costs but did not compel any particular benefits, pharmacy-network design, or scheme of substantive coverage. The restriction on charging dispensing costs separately did not prevent the Fund from passing costs to participants through copayments, coinsurance, or deductibles, and the complaint did not allege economic effects acute enough to dictate plan choices.
The reporting provision presented a closer question under Gobeille v. Liberty Mutual Insurance Co., but the Fund did not plausibly allege preemption. The complaint characterized the reporting as necessary and subordinate to enforcing Rule 128’s permissible reimbursement regulation, and it did not allege that the required submissions were unnecessarily exhaustive or significantly burdensome. The court therefore treated the reporting as incidental to a valid cost regulation while leaving open whether new federal pharmacy-compensation reporting requirements, once effective, could change the preemption analysis.
Key Takeaways
- ERISA does not preempt a state pharmacy-payment rule merely because it increases plan costs or limits the form in which those costs may be passed to participants.
- State reporting requirements may escape preemption when they are necessary and incidental to enforcing an otherwise valid cost regulation.
- The court left unresolved whether newly enacted federal pharmacy-compensation reporting requirements will eventually preempt Rule 128’s reporting provision.
Why It Matters
The decision applies Rutledge broadly enough to permit states to regulate pharmacy dispensing compensation without dictating ERISA plan design. It also identifies a pleading-sensitive path for defending related state reporting requirements despite Gobeille’s protection of nationally uniform ERISA administration.
For plan sponsors and administrators, the ruling means that compliance duties tied to state pharmacy-cost regulation may survive ERISA preemption when they are limited, necessary, and not independently burdensome. That conclusion may need to be revisited once ERISA’s new federal reporting regime becomes operative.