Sixth Circuit Reinstates ERISA Preemption Challenge to State PBM Law

On March 24, 2024, in McKee Foods Corporation v. BFP, Inc. dba Thrifty Med Plus Pharmacy, the Sixth Circuit US Court of Appeals (Sixth Circuit) held that McKee Foods’ claims that Tennessee’s “any willing pharmacy” (“any-willing-pharmacy”) laws are preempted by ERISA, and that state law does not require it to include Thrifty Med in its approved network of pharmacies, were not rendered moot following changes to the underlying state laws and other factual developments in the case. The Sixth Circuit reversed and remanded the case for further proceedings.

McKee Foods is a commercial bakery in Tennessee that offers a health benefits plan (Health Plan), governed by ERISA, for its eligible employees and their eligible dependents. Part of that plan is their Prescription Drug Program (PDP) that offers favorable benefits to participants for using in-network pharmacies. Thrifty Med is an independent pharmacy in Tennessee and was a member of PDP’s network of pharmacies until July 2019 when McKee Foods and its pharmacy benefit manager (PBM) removed Thrifty Med from the network. For the next three years, Thrifty Med actively pursued getting reinstated into PDP’s network by meeting with McKee multiple times, circulating petitions among McKee employees, paying for billboards, and paying an attorney to contact McKee to argue that Tennessee’s any-willing-pharmacy statute required McKee to admit Thrifty Med to the network. Thrifty Med also lobbied the Tennessee legislature for passage of an amendment to the any-willing-pharmacy statute, which previously applied only to insured plans. The new statute, which took effect on July 1, 2021, extended the any-willing-pharmacy law to self-insured entities.

Soon after passage of the statute, Thrifty Med began submitting claims for payment to PDP, and when the claims were denied, Thrifty Med filed three administrative complaints with the Tennessee Department of Commerce and Insurance (TDCI). The complaints were dismissed by the TDCI but not before McKee filed this action in mid-November 2021 seeking, 1) a declaratory judgment that the any-willing-pharmacy statute is preempted by ERISA, 2) an order enjoining Thrifty Med from pursuing any legal or administrative action to enforce the state’s any-willing-pharmacy laws against McKee or otherwise to force McKee to include Thrifty Med in its PDP, and 3) instruction from the court as to the scope of its fiduciary duties in determining which pharmacies to include in the Health Plan and whether the Health Plan is subject to the statute.

In April 2022, the Tennessee Legislature passed yet another amendment to the any-willing-pharmacy statute, changing the application to specifically include ERISA plans. About a month later, McKee moved for summary judgment. The next day, Thrifty Med filed a competing motion to dismiss for lack of subject matter jurisdiction or, in the alternative, for summary judgment. In Thrifty Med’s filing in support of its motion, the president of Thrifty Med stipulated that Thrifty Med would “no longer pursue reinstatement to McKee’s Prescription Drug program under the [first amendment to the any-willing-pharmacy]” but also that “it remain[ed] to be determined whether Thrifty Med w[ould] pursue reinstatement under” the April 2022 amendment to the statute.

After a hearing on the pending motions, the district court held that the case was moot because 1) the TDCI dismissed Thrifty Med’s administrative complaints, 2) Thrifty Med had taken no further legal action, and 3) Thrifty Med had stipulated that it had no current plans or intentions to pursue reinstatement, so McKee’s alleged “harm” was too speculative to demonstrate the existence of a live case or controversy over which the court could exercise jurisdiction.

The Sixth Circuit addressed the issue of whether the case was moot, first finding that the April 2022 amendment to the any-willing-pharmacy statute did not render McKee’s claims moot because the new law did not substantially and materially amend the pertinent statutory language of the first amendment to the statute. Next, Thrifty Med’s qualification of its intent to continue to pursue reinstatement to the PDP network does not meet the “heavy burden” of persuading the Sixth Circuit that it is unlikely to resume its pursuit of reinstatement in the future. Thus, Thrifty Med has not demonstrated with absolute clarity that McKee will not have to defend against a renewed pursuit of reinstatement from Thrifty Med.

The case will return to the district court for further proceedings on McKee’s original complaint. The ultimate question is whether any-willing-pharmacy statutes passed by states are preempted by ERISA. If the state laws are preempted by ERISA, self-funded ERISA plans would not have to comply with them. The US Supreme Court has already ruled (under different facts) that ERISA did not preempt a state regulation of PBMs that required the PBMs to pay pharmacies regulated by the state for drugs at a price equal to or greater than wholesale cost (see Compliance Corner, December 24, 2020, article). But the Tenth Circuit Court of Appeals ruled in August 2023 that a similar any-willing-pharmacy statute in Oklahoma was preempted by ERISA (see Compliance Corner, August 31, 2023, article). We are seeing states passing laws that are worded to regulate PBMs, and not healthcare plans, in an attempt to avoid preemption. Health plan sponsors will want to follow the outcomes of these laws that could affect their prescription drug plans.

McKee Foods Corporation v. BFP, Inc. dba Thrifty Med Plus Pharmacy