On September 2, 2025, the United States District Court for the Northern District of Illinois granted the Arkansas’s motion to dismiss a lawsuit challenging Arkansas Insurance Department Rule 128, which regulates pharmacy reimbursements. The plaintiffs, Central States, Southeast and Southwest Areas Health and Welfare Fund and its trustee Charles A. Whobrey, argued that Rule 128 was pre-empted by the Employee Retirement Income Security Act of 1974 (ERISA).
Background
Rule 128 requires all health benefit plans and healthcare payors in Arkansas, including those governed by ERISA, to report pharmacy compensation data to the state Insurance Commissioner. If the Commissioner finds that a plan’s pharmacy reimbursement is not “fair and reasonable,” the plan may be required to pay an additional dispensing fee to ensure adequate pharmacy network access.
Plaintiffs’ Arguments
The plaintiffs claimed that Rule 128 is pre-empted by ERISA for two reasons:
- Reference to ERISA Plans: They argued the rule imposes requirements directly on ERISA plans, not just on Pharmacy Benefit Managers (PBMs).
- Impermissible Connection: They asserted that the reporting and dispensing fee requirements interfere with ERISA plan administration by dictating plan design and imposing additional administrative burdens.
Court’s Analysis and Decision
The court rejected both arguments:
- No Exclusive Reference to ERISA Plans: The court found that Rule 128 applies broadly to all health benefit plans and payors, not just ERISA plans. The rule’s operation does not depend on the existence of an ERISA plan, and its text makes clear it covers a wide range of plans, including non-ERISA plans.
- No Impermissible Connection with ERISA: The court distinguished Rule 128 from state laws that are pre-empted because they govern central matters of ERISA plan administration, such as reporting and recordkeeping. Here, the reporting requirement is incidental to the rule’s main purpose—ensuring fair pharmacy reimbursement—and does not interfere with uniform plan administration. The dispensing fee requirement is a form of cost regulation, similar to the Arkansas law upheld by the Supreme Court in Rutledge v. Pharmaceutical Care Management Association. The court noted that ERISA does not pre-empt state laws that merely affect plan costs or incentives without mandating specific coverage schemes.
- Plan Design Not Dictated: The court also found that Rule 128 does not dictate plan design or prevent plans from adjusting co-pays, co-insurance, or deductibles to account for any increased dispensing fees.
Conclusion
The court concluded that Rule 128 is not pre-empted by ERISA and dismissed the case. The claims against the Arkansas Insurance Department were dismissed without prejudice due to Eleventh Amendment immunity.
Key Takeaway: State laws regulating pharmacy reimbursement, even when they apply to ERISA plans, are not pre-empted unless they act exclusively on ERISA plans or interfere with core aspects of plan administration. Rule 128’s requirements were found to be general cost regulations, not impermissible intrusions into ERISA plan management.
Implications for Other States
This decision provides a roadmap for other states seeking to regulate pharmacy reimbursements. By crafting rules that apply broadly to all health benefit plans and focusing on cost regulation rather than plan administration, states can avoid ERISA pre-emption challenges. The court’s reasoning suggests that as long as state laws do not single out ERISA plans or interfere with uniform plan administration, they are likely to withstand similar legal scrutiny.
This outcome could embolden other states to enact similar “fair reimbursement” rules targeting PBMs and health plans. If multiple states adopt slightly different reporting and reimbursement frameworks, ERISA plans may face a patchwork of compliance obligations. While these may be characterized as incidental burdens under current case law, the cumulative effect could create administrative inefficiencies and cost uncertainty for multiemployer and self-funded plans that operate nationally.
Such developments may eventually force a policy inflection point. If state-level experimentation expands significantly, pressure may grow for Congress to clarify ERISA’s pre-emptive reach or to create a uniform federal regulatory scheme for PBMs. Alternatively, federal agencies like the Department of Labor could issue guidance to balance state cost-regulation efforts with ERISA’s goal of nationwide uniformity.
For now, the ruling signals judicial tolerance for state-driven innovation in pharmacy regulation, provided it is framed as cost oversight rather than direct control of ERISA plan administration. Stakeholders such as employers, unions, PBMs, and pharmacies should anticipate more litigation as other states test the boundaries of ERISA preemption in the healthcare cost arena.
How Frier Levitt Can Help
Frier Levitt represents numerous pharmacies across the United States assisting them in challenging PBM audits, network access, reimbursement practices (including DIR fees and MAC reimbursement) and providing extensive knowledge on all aspects of the pharmacy-PBM relationship. Contact us to speak with an attorney about how your pharmacy can leverage the various laws and protections afforded to pharmacies, including Arkansas’s PBM laws.
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