Health Law Daily Wrap Up, PRESCRIPTION DRUGS—7th Cir.: Seventh Circuit upholds Arkansas pharmacy payment and reporting rule against ERISA challenge, (Aug 31, 2026)

By Patricia K. Ruiz, J.D.

The court found the reimbursement measure to be a permissible cost regulation and that reporting obligations are incidental to its enforcement.

The U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of an ERISA preemption challenge to an Arkansas insurance regulation requiring fair and reasonable pharmacy reimbursement and related reporting by health plans. The court held that the rule's dispensing-fee provisions are a form of cost regulation permitted under Supreme Court precedent and therefore are not preempted by ERISA. It also concluded that the rule's reporting requirements, as alleged in the case, are incidental to enforcing the reimbursement scheme and do not impermissibly interfere with uniform plan administration (Central States v. McClain, No. 25-2727 (7th Cir. Aug. 26, 2026)).

Background. The plaintiffs, Central States, Southeast and Southwest Areas Health and Welfare Fund and trustee Charles A. Whobrey, challenged Arkansas Insurance Department Rule 128, which applies to health plans operating in Arkansas. The rule authorizes the Arkansas insurance commissioner to require additional dispensing fees for pharmacies when a plan's payment program is deemed not "fair and reasonable" and requires health plans to submit compensation-related information to the state. The plaintiffs argued that both components are preempted by the Employee Retirement Income Security Act of 1974. The district court granted dismissal under Rule 12(b)(6), concluding that neither the dispensing-fee requirement nor the reporting requirement bears an impermissible connection to ERISA plans.

Arkansas rule. The opinion explained that Rule 128 arose from Arkansas's efforts to regulate pharmacy benefit managers and maintain adequate pharmacy networks. In 2024, Arkansas adopted an emergency rule, later restyled as Rule 128, intended to ensure that reimbursements for pharmacy services paid by pharmacy benefit managers to pharmacies are "fair and reasonable." The rule contains two provisions central to the litigation: the dispensing-fee requirement and the reporting requirement that supplies information used to evaluate reimbursement practices.

Under a related bulletin issued by the insurance commissioner, health plans must provide data including reimbursement information, average dispensing fees, claim volumes, and other cost-related information.

Dispensing-fee requirement survives preemption challenge. Addressing the dispensing-fee provision, the court relied heavily on the U.S. Supreme Court's decision in Rutledge v. Pharmaceutical Care Management Association. The court said the plaintiffs failed to distinguish Rule 128's dispensing-fee requirement from the type of cost regulation that Rutledge held is not preempted by ERISA.

According to the court, the plaintiffs did not allege that the requirement does more than increase the cost of pharmacy benefits. The opinion emphasized that Rule 128 does not regulate pharmacy networks, require specific network structures, dictate preferred-pharmacy arrangements, or restrict how pharmacy benefit managers design benefit programs. Instead, it regulates only the cost of pharmacy benefits.

The court distinguished decisions from the Tenth, Sixth and Eighth Circuits that found other state pharmacy benefit manager regulations preempted by ERISA. Those laws, the court said, imposed requirements affecting pharmacy networks, benefit structures, or coverage arrangements rather than merely regulating costs. Rule 128, by contrast, operates only as a cost regulation.

The court also rejected the plaintiffs' argument that Rule 128 effectively dictates plan choices by limiting how plans pass dispensing costs to participants. The opinion stated that the rule does not prohibit plans from passing costs on to participants but instead specifies that such costs must be incorporated through co-pays, co-insurance or deductibles rather than separate line-item charges.

Reporting provisions present closer question. The court described the reporting requirement as a closer case because the U.S. Supreme Court's decision in Gobeille v. Liberty Mutual Insurance Co. recognized reporting, disclosure and recordkeeping as central aspects of ERISA plan administration and held that burdensome state reporting mandates may be preempted.

The court, however, determined that Gobeille must be read alongside Rutledge. It reasoned that state laws regulating healthcare costs often require some reporting and recordkeeping to be enforced. Reading Gobeille to preempt all state reporting obligations would undermine states' ability to implement cost regulations that Rutledge permits.

The opinion focused on language in Gobeille recognizing that some state laws may require "incidental reporting" by ERISA plans. The court interpreted that exception as extending beyond tax statutes and covering reporting requirements that are necessitated by and subordinate to otherwise valid state regulations.

Court finds reporting obligations incidental. Applying that framework, the court concluded that the plaintiffs' own allegations established that the reporting requirement exists to further Rule 128's central objective of ensuring fair and reasonable reimbursement rates. The opinion noted that the complaint itself alleged that the reporting obligation was included "in furtherance" of that purpose.

The court further observed that the plaintiffs did not allege the reporting requirements exceeded what was necessary to implement Rule 128 or that compliance would impose a significant burden. Indeed, the plaintiffs asserted that Rule 128 would have no operative effect without the required data submissions.

Given those allegations, the court concluded that the reporting provisions were incidental to enforcement of the reimbursement scheme and therefore did not plausibly support an ERISA preemption claim.

Future implications left unresolved. The court noted that Congress recently amended ERISA to create new nationwide reporting requirements involving similar pharmacy-compensation information. Those federal requirements do not take effect until future plan years, however, and the plaintiffs did not argue that they should have preemptive effect before their operative date. The court therefore declined to address whether the new federal reporting regime may eventually preempt Rule 128's reporting provisions.

The case is No. 25-2727.

Judge: Kolar, J.

Attorneys: Charles Hoon Lee, Central States Funds Law Department, for Central States Southeast and Southwest Areas Health and Welfare Fund. Ryan C. Hale, Office of the Attorney General, for Alan McClain.

Companies: Central States Southeast and Southwest Areas Health and Welfare Fund

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