Court: ERISA Preempts Tennessee Pharmacy Benefit Laws
April 09, 2025
On March 31, 2025, in McKee Foods Corporation v. BFP, Inc., the U.S. District Court for the Eastern District of Tennessee ruled that ERISA preempts key provisions of Tennessee laws that require employers to include “any willing pharmacy” in their group benefit plan networks. The court’s ruling is a positive development for sponsors of self-insured ERISA plans.
Background
ERISA, as federal law, generally preempts (i.e., supersedes) conflicting state laws that regulate employer-sponsored employee benefit plans. ERISA aimed to promote centralized, uniform benefit administration so employers operating in multiple states could design and administer their plans without having to comply with various state laws. However, whether a particular state law regulates an ERISA plan is often highly debated, particularly in the context of state pharmacy benefit laws.
In this case, plaintiff McKee sponsors a self-insured ERISA group health and prescription drug plan (the plan) for its employees and their dependents, who are located across the U.S. Defendant BFP, Inc. doing business as Thrifty Med Plus Pharmacy (Thrifty Med), was removed from the plan’s pharmacy network for misconduct following an audit by McKee’s PBM. Thrifty Med filed complaints against the PBM and sought reinstatement in the network, relying upon a Tennessee law, Public Chapter 569, which prohibited PBMs and plans from interfering with a participant’s right to choose a contracted pharmacy (pursuant to the state’s any-willing-pharmacy statute), including by incentivizing or disincentivizing the use of certain pharmacies.
McKee then sued Thrifty Med, seeking a declaration that Public Chapter 569 is preempted by ERISA and an injunction precluding Thrifty Med from seeking reinstatement to its pharmacy network. As the litigation progressed, the state enacted Public Chapter 1070, which further amended the any-willing-pharmacy statute to expressly apply to ERISA plans and require PBMs to admit any willing pharmacy to their networks without showing preference for one pharmacy over another. (Please see our April 9, 2024 article for more information on the case history.)
The Court’s Analysis and Decision
On remand from the Sixth Circuit Court of Appeals, the central question before the court was whether ERISA preempts Public Chapters 569 and 1070, to the extent these state laws attempt to govern self-insured ERISA plans. McKee also amended its complaint to add the state’s insurance commissioner, Carter Lawrence, who enforces the laws, as a defendant.
The court began its analysis by explaining that, based on U.S. Supreme Court precedents, ERISA can preempt a state law that has a “connection with” the benefit plan. “Connection with” preemption arises when 1) a state law requires providers to structure benefit plans in particular ways and 2) when acute, although indirect economic effects of the state law force an ERISA plan to adopt a certain scheme of substantive coverage.
First, the court noted that the Sixth Circuit’s prior decision in Kentucky Association of Health Plans, Inc. v. Nichols held that statutes requiring ERISA plans to admit “any willing provider” to their networks have an impermissible connection with ERISA plans and are preempted. The court found the facts in this case distinguishable from the situation in Rutledge v. Pharmacy Care Management Association, where the Supreme Court held that an Arkansas law requiring PBMs to reimburse pharmacies for drugs at no less than cost was not preempted by ERISA. Specifically, the court noted that the Arkansas law in Rutledge did not mandate benefit structures. By contrast, the Tennessee laws at issue eliminated a plan sponsor’s discretion to design the pharmacy benefits for their own workforce and to consider available price discounts for directing participants to fewer pharmacies. Accordingly, the court determined that the state’s any-willing-provider requirements are preempted by ERISA.
Next, the court reviewed the incentive and disincentive provisions of the Tennessee laws, which prohibited McKee and its PBM from encouraging participants to use specific pharmacies through either “the carrot of lower copays and other incentives or the stick of higher copays and additional fees.” The court determined these provisions interfered with a sponsor’s ability to structure plan benefits by mandating that ERISA plans charge participants the same copays and/or fees at all pharmacies in a network and, therefore, were also preempted by ERISA.
The court granted summary judgment to McKee regarding its claims against the commissioner and enjoined the commissioner from enforcing the challenged laws against McKee. The court dismissed McKee’s claims against Thrifty Med, finding these had become moot.
Employer Takeaway
The court’s ruling is welcome news for sponsors of self-insured plans (particularly those offering pharmacy benefits to participants in Tennessee), who will not need to comply with these particular state law requirements. The court made clear that the state’s laws interfered with employers’ ability to design and administer plans that reflect the needs of their employees. The decision recognizes that employers are in the best position to determine the design and structure of their provider and pharmacy networks.
Importantly, the opinion reinforces the scope of ERISA preemption. State laws that conflict with uniform, centralized ERISA plan administration, like any-willing-pharmacy laws, can be harmful to plans and participants. Such laws can also impact an employer’s ability to fulfill their ERISA fiduciary obligations and administer plans prudently and in the best interests of participants.
Of course, the commissioner could seek to appeal the adverse ruling. Additionally, challenges to similar pharmacy benefit laws enacted by other states may face different outcomes in other courts. Accordingly, employers should be aware of the decision and monitor developments in this unsettled area of the law. For specific advice regarding the impact of state laws on their plan’s pharmacy benefits, employers should consult with legal counsel.
McKee Foods Corporation v. BFP, Inc. dba Thrifty Med Plus Pharmacy, et al.