Background
Kevin Flowers participates in an employee benefits plan governed by ERISA, receiving prescription drug coverage administered by Caremark, a pharmacy benefits manager. Caremark maintains networks of pharmacies where plan members fill prescriptions.
Flowers alleged that Caremark violates Arkansas law by restricting maintenance prescriptions—medications taken regularly for more than 90 days—to only CVS retail pharmacies or mail-order delivery. He claimed these restrictions violated two Arkansas statutes: the Mail Order Provision (prohibiting PBMs from requiring prescriptions through home delivery services only) and the Network Adequacy Provision (requiring PBMs to maintain reasonably adequate and accessible networks with convenient pharmacy access within reasonable distances).
The district court granted Caremark’s motion to dismiss, and Flowers appealed, arguing that Caremark’s network restrictions violated Arkansas’s pharmacy adequacy standards and caused unjust enrichment.
The Court’s Holding
The Eighth Circuit affirmed dismissal on two grounds. First, Flowers failed to plausibly plead a Mail Order Provision violation because that statute prohibits requiring prescriptions exclusively through home delivery, but Caremark permits either CVS retail pharmacies or mail—offering plan members two options rather than restricting them to home delivery alone.
Second, the court held that ERISA preempts Arkansas’s “Geographic Coverage Requirements”—regulations implementing the Network Adequacy Provision that mandate PBMs ensure specific percentages of plan members live within set distances of retail community pharmacies (90% within 2 miles in urban areas, 90% within 5 miles in suburban areas, 70% within 15 miles in rural areas). The court reasoned that these requirements force PBMs to tailor and retailor pharmacy networks to meet exacting particularities whenever members relocate or circumstances change, substantially interfering with the uniform plan administration that Congress intended ERISA to protect.
Although the court had previously upheld PBM accreditation requirements in Wehbi v. Caremark, it distinguished that case as involving only modest interference with plan uniformity. The Geographic Coverage Requirements, by contrast, impose far more substantial administrative burdens by forcing network redesigns to comply with specific distance parameters, directly contrary to ERISA’s objective of minimizing conflicts and preventing plans from tailoring benefits to multiple jurisdictions’ particularities.
Key Takeaways
- ERISA preempts state laws imposing specific geographic distance requirements on PBM pharmacy networks, even when framed as network adequacy standards.
- Regulations forcing PBMs to maintain particular percentages of plan members within defined distances constitute impermissible “structuring” of benefit plans under ERISA preemption doctrine.
- State requirements that substantially interfere with nationwide uniform plan administration are preempted, regardless of whether they directly mandate specific benefits or beneficiary rules.
- Prior case law upholding certain PBM regulations (like accreditation standards) does not protect state laws imposing substantial network design mandates.
Why It Matters
This decision significantly limits states’ regulatory authority over pharmacy networks in ERISA-governed plans. It provides federal preemption protection for PBM network design decisions, even when state law seeks to ensure patient access to local pharmacies. The ruling constrains class action litigation challenging pharmacy network adequacy and signals that state geographic requirements—a common regulatory tool—cannot survive ERISA preemption scrutiny when they force material changes to network configuration across state lines.
For plan sponsors and PBMs, the decision confirms broad discretion to design pharmacy networks without complying with state distance-based adequacy standards. For states and patient advocates, it narrows available legal mechanisms to mandate local pharmacy access within employee benefit plans, leaving such protections largely dependent on state regulation of fully-insured plans and state employee plans outside ERISA’s reach.