The U.S. Court of Appeals for the Seventh Circuit ruled on August 26, 2026, that Arkansas's pharmacy regulations do not conflict with federal law under the Employee Retirement Income Security Act (ERISA). This decision affects health plans and pharmacies operating in Arkansas, clarifying how state regulations can coexist with federal laws governing employee benefits.
The case, Central States Southeast and Southwest Areas Health and Welfare Fund v. Alan McClain (Docket No. 25-2727), centers on Arkansas Insurance Department Rule 128. This rule aims to ensure that pharmacies in Arkansas receive fair compensation for dispensing medications. The ruling is significant because it addresses the ongoing tension between state regulations and federal laws that govern employee benefit plans.
The parties involved in the case include the Central States Southeast and Southwest Areas Health and Welfare Fund, which provides health care benefits to around 500,000 participants, and Alan McClain, the Insurance Commissioner of Arkansas. The Fund argued that Rule 128, which includes a dispensing fee requirement and reporting requirements, is preempted by ERISA. They claimed that the rule interferes with the uniformity intended by Congress under ERISA.
The dispute began when the Fund filed a lawsuit against McClain after Arkansas implemented Rule 128. The Fund contended that the rule imposed additional costs and reporting requirements that conflicted with ERISA's objectives. The district court dismissed the Fund's claims, leading to the appeal to the Seventh Circuit.
In its ruling, the Seventh Circuit affirmed the district court's decision, stating that the dispensing fee requirement is a permissible cost regulation under the precedent set by the Supreme Court in Rutledge v. Pharmaceutical Care Management Association. The court noted, "Rule 128’s Dispensing Fee is a 'cost regulation' that ERISA does not preempt." This means that while the rule may increase costs for health plans, it does not dictate specific coverage requirements, which would be a violation of ERISA.
The court also addressed the reporting requirements under Rule 128. Although the Fund argued that these requirements could interfere with ERISA's uniform reporting regime, the court found that they fit within an exception outlined in Gobeille v. Liberty Mutual Insurance Co. The court stated, "the Reporting Requirement fits within Gobeille’s exception for 'state law[s] ... the enforcement of which necessitates incidental reporting by ERISA plans.'" This indicates that while the reporting requirements are related to ERISA plans, they do not fundamentally alter the administration of those plans.
The ruling has significant implications for both health plans and pharmacies in Arkansas. It allows the state to enforce regulations that ensure pharmacies are compensated fairly, which could help maintain a network of pharmacies that can provide services to plan participants. This decision may also encourage other states to implement similar regulations without fear of federal preemption.
Moving forward, the ruling sets a precedent that state laws aimed at regulating costs and ensuring fair compensation for pharmacies can coexist with federal laws governing employee benefits. This could lead to more robust state-level regulations in the healthcare sector, particularly in how pharmacies are compensated for their services.
As for what’s next, the Fund may consider appealing the decision to the U.S. Supreme Court, although it has not indicated any plans to do so at this time. Additionally, there may be related cases pending that could further clarify the relationship between state regulations and federal law under ERISA.