Seventh Circuit Holds ERISA Does Not Preempt Arkansas Rule 128’s Pharmacy Dispensing Fee Requirement or Its Incidental Reporting Requirement

Central States, Southeast and Southwest Areas Health and Welfare Fund v. McClain, No. 25-2727, — F.4th —-, 2026 WL 2510865 (7th Cir. Aug. 26, 2026) (Before: Hamilton, Kirsch, and Kolar, Circuit Judges).

Arkansas Insurance Department Rule 128 protects pharmacies operating in Arkansas from being paid below “fair and reasonable” rates for dispensing medications. Two of its requirements were at issue. First, the Dispensing Fee Requirement authorizes the Insurance Commissioner to require health plans to pay additional dispensing fees to pharmacies where the Commissioner determines a plan’s payment program is not fair and reasonable. Second, the Reporting Requirement mandates that health benefit plans submit compensation information to the Commissioner, with the specific data to be reported identified in AID Bulletin #18-2024. Plaintiff, a self-funded multiemployer welfare benefit fund providing health care benefits to approximately 500,000 participants nationwide, and its trustee sued the Commissioner in his official capacity, seeking a declaratory judgment that ERISA preempts Rule 128. The United States District Court for the Northern District of Illinois granted the Commissioner’s motion to dismiss under Rule 12(b)(6), and Plaintiff appealed.

Reviewing the dismissal de novo, the Seventh Circuit affirmed. The court addressed only “impermissible connection” preemption under 29 U.S.C. § 1144(a), Plaintiff having abandoned its “reference to” theory on appeal. As to the Dispensing Fee Requirement, the court applied Rutledge v. Pharmaceutical Care Management Association, 592 U.S. 80 (2020), which held that ERISA does not preempt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage. The court concluded that Plaintiff failed to distinguish the Dispensing Fee Requirement from a permissible cost regulation, finding that the requirement did no more than increase the cost of pharmacy benefits at the Commissioner’s discretion. The court distinguished decisions from the Sixth, Eighth, and Tenth Circuits invalidating other PBM regulations, reasoning that the laws in Mulready, McKee Foods Corp., and Flowers went beyond cost regulation by dictating network structure, mandating a specific benefit structure, or imposing geographic coverage requirements. The court also rejected Plaintiff’s argument that Rule 128’s limitation on how plans pass dispensing costs to participants dictated plan choices, reasoning that specifying how costs are spread, whether as an increased co-pay or a line-item fee, is not a particular scheme of substantive coverage.

Turning to the Reporting Requirement, which the court described as a closer call, the court analyzed the requirement under Gobeille v. Liberty Mutual Insurance Co., 577 U.S. 312 (2016), which held that ERISA preempts state laws compelling plans to report detailed information because reporting is a central and essential feature of ERISA’s uniform system of plan administration. The court held that Rule 128’s Reporting Requirement fell within Gobeille’s exception for state laws the enforcement of which necessitates incidental reporting by ERISA plans. Reading Gobeille in harmony with Rutledge, the court reasoned that reporting requirements both necessitated by and incidental to an unpreempted state law, such as a cost regulation, do not necessarily bear an impermissible connection to ERISA plans. Taking Plaintiff’s own allegations as true, the court found that the Reporting Requirement existed in furtherance of Rule 128’s central purpose of enforcing fair and reasonable reimbursement rates rather than for its own sake, that Plaintiff did not contest that the requirement was necessitated by the Dispensing Fee Requirement, and that Plaintiff made no allegation that compliance would impose a significant burden. The court noted that Congress recently amended ERISA to create new uniform reporting requirements for similar pharmacy-compensation data under 29 U.S.C. § 1185o, but observed that those requirements take effect only for plan years beginning on or after a date 30 months after February 3, 2026, and left for a later day whether the new provision will preempt Rule 128. The court affirmed the district court’s dismissal under Rule 12(b)(6).