After hearing arguments in April 2026, a Seventh Circuit panel declined to overturn a lower court ruling dismissing a union fund’s challenge to an Arkansas rule affecting pharmacy benefit managers (PBMs). The case is Central States Southeast & Southwest Areas Health & Welfare Fund et al. v. McClain, Case Number 25-2727, U.S. Court of Appeals for the Seventh Circuit.
Central States, a multiemployer fund supporting union workers, sued the Arkansas Insurance Department and state insurance commissioner in April 2025 over Arkansas Department of Insurance Rule 128. That rule requires health plans to disclose pharmacy compensation and pay drug-dispensing fees if a PBM or other intermediary shortchanges the pharmacy. The fund argued that the Employee Retirement Income Security Act (ERISA) preempted the state rule.
The Seventh Circuit panel found that a 2020 U.S. Supreme Court case supported the dismissal. In Rutledge v. Pharmaceutical Care Management Association, the Supreme Court held that states could enact cost regulations on PBMs without violating ERISA. That case concerned an Arkansas rule that set a minimum pharmacy compensation rate.
In its decision, the panel found that neither disputed portion of the rule was preempted by ERISA. The panel found the dispensing fee to be a permissible cost regulation under Rutledge. Although the reporting requirement is not a cost regulation, the panel nonetheless found that it qualified as an exception to ERISA preemption under the U.S. Supreme Court’s 2016 decision in Gobeille v. Liberty Mutual Insurance Co. In that case, the Supreme Court held that ERISA preempted a Vermont law requiring health plans to make disclosures for a state database. However, the justices also outlined an exception for certain state laws that do not govern central matters of plan administration.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
