A federal district court has ruled that an any-willing provider statute virtually identical to legislation currently proposed in Texas is pre-empted by ERISA. The U.S. Sixth Circuit Court of Appeals had previously reversed the court’s dismissal of the employer’s challenge to the statute on mootness grounds and directed the court to consider the merits of the challenge.
McKee Foods Corporation v. BFP, Inc. d/b/a Thrifty Med Plus Pharmacy, et al. (No. 1:21-cv-279; E.D. Tennessee, 3/31/25) arose from an enforcement action by the Tennessee Department of Commerce and Insurance against McKee and its health plan for dropping Thrifty from its pharmacy network after an audit discovered fraudulent billing practices. In response to the action, McKee filed an action against Thrifty seeking a declaration that 2021 legislation requiring health plans to accept into its network any willing provider of pharmacy benefits violated ERISA pre-emption. The State of Tennessee intervened to defend its decision to enforce the statute against ERISA plans. During the pendency of the litigation, the Tennessee legislature enacted additional amendments prohibiting a PBM or covered entity from interfering with an enrollee’s right to choose a pharmacy or offer any incentives to an enrollee for using a pharmacy “owned by or financially beneficial to the” PBM or covered entity. That legislation also expressly covered ERISA plans and required PBMs “to admit any willing pharmacy to their networks without showing preference for one pharmacy over another.”
Thrifty subsequently moved to dismiss McKee’s lawsuit, arguing that it became moot when Thrifty dropped its effort to obtain reinstatement to McKee’s plan’s network. The district court agreed and dismissed the case, but the Sixth Circuit reversed and remanded. On remand, McKee requested and the court granted leave to amend its complaint to challenge the amended statute as well and to add the state and insurance commissioner as defendants. After the court dismissed the state from the case but allowed McKee’s case to proceed against the commissioner in his official capacity, all parties moved for summary judgment.
The commissioner argued that McKee lacked standing to sue on the basis that no further dispute existed between McKee and Thrifty on the reinstatement effort. The court disagreed, concluding that the any-willing provider provision, together with the amendments prohibiting McKee and its health plan from using incentives for preferred pharmacies, produced an injury in fact for which McKee has standing to pursue a remedy against a credible threat of prosecution under the statute. Applying the four factor test adopted by the Sixth Circuit, the court found that: (1) McKee already had four complaints against its PBM based on the statute; and (2) that any member of the public may file a complaint against McKee’s PBM, making enforcement easier or more likely. These findings outweighed the fact that the commission had yet to notify McKee of an enforcement action. Additionally, because McKee owns and operates its own pharmacy at which enrollees may fill prescriptions at a substantially lower co-pay and has a pending complaint against it based on the amended statute, there is no question that McKee “intends to act—and indeed is already acting—in a manner prescribed by the challenged laws” (citations omitted).
The next issue was whether McKee stated a claim upon which relief can be granted under the federal Declaratory Judgment Act and 29 U.S.C. § 1132(a)(3), which allows an ERISA plan to bring a civil action to enjoin an act or practice that violtes ERISA or a term of its health plan. Again, the commissioner argued that since he had no ongoing enforcement action against McKee, a court could not grant McKee any relief for an ERISA violation that had not occurred. Rejecting this argument as “without merit,” the court observed that “this ability to challenge laws before violating them would be eviscerated in the ERISA pre-emption context if the Court were to adopt the Commissioner’s position that a plaintiff must show actual enforcement activity to state a § 1132(a)(3) claim. . . . ERISA plan fiduciaries like McKee are permitted to bring actions seeking to establish that state statutes are preempted by Erisa, and the Court cannot find that McKee has failed to state a [] claim merely because there has yet to be a successful enforcement action against it.”
The court next rebuffed the commissioner’s argument that even if the court had jurisdiction, it should nevertheless decline to exercise it. Again applying a multi-factor test, the court determined that a finding of ERISA pre-emption would settle the case, clarify McKee’s legal obligations, and be unlikely to “increase friction between the federal and state courts.” The court found further that it could not identify “a better or more effective remedy for determining whether state law is preempted by federal law than a declaratory judgment by a federal court.”
Finally reaching the merits, the court applied SCOTUS precedent in Rutledge, Gobeille, and other decisions to hold that ERISA pre-empted the Tennessee statute. The commissioner argued that the any-willing provider did not require McKee’s plan to “adopt any particular scheme of coverage,” relying on the Rutledge court’s holding that an Arkansas statute requiring PBMs to reimburse pharmacies at a price equal to or greater than what pharmacies paid to purchase the drug did not violate ERISA because it merely increased cost. As the court observed, however, the Tennessee statute requires an ERISA plan to admit any pharmacy to its network, not simply reimburse pharmacies in its preferred network at a certain rate. “Th[e commissioner’s] argument,” wrote the court, “ignores thte fact that the scope of an ERISA plan’s provider network (in this case a pharmacy network) is a key aspect of plan administration: how the plan structures and designs its benefits” (citing Pharm. Care Mgmt. Ass’n v. Mulready, 78 F.4th 1183, 1188 (10th Cir. 2023, pet. cert. filed, No. 23-1213 (May 10, 2024)). The court went on to note that “[a]ny-willing-provider requirements eliminate this choice [of providers], forcing ERISA plans to accept, as the name suggests, any willing provider. In doing so, these provisions ‘require providers to structure benefit plans in [a] particular way[],” eliminating the plans’ discretion to shape benefits as they see fit” (citing Rutledge and Mulready).
The court held further than the statute’s incentive and disincentive provisions are likewise preempted because they “forbid McKee and its PBM from encouraging plan participants to use specific pharmacies through either the carrot of lower copays and other incentives or the stick of higher copays and additional fees.” In short, the statute’s provisions “functionally mandate that ERISA plans charge plan participants the same copays and/or fees for all pharmacies in a given network,” thus “prevent[ing] an ERISA plan from designing and providing benefits in a way that the plan determines best serves participants.” Specific to this case, the court noted, the statute would block McKee’s plan for giving participants an option to use its own pharmacy at a lower cost. That goes directly to plan design. The court granted McKee’s motion for summary judgment and permanently enjoined the commissioner from enforcing the challenged statute.
Four bills have been filed this session to do exactly the same thing Tennessee tried to do: SB 1122, SB 1156, HB 3943, and HB 4102. SB 1122, which requires PBMs, including those operating under employer-sponsored ERISA plans, to comply with Subchapters L and M, Chapter 1369, Insurance Code, which, among other things, prohibit PBMs from administering a plan that treats the plan’s affiliated pharmacists differently than non-affiliated pharmacists (i.e., A PBM must accept any willing provider). The remaining bills add other mandates requiring PBMs to reimburse affiliated and unaffiliated pharmacies at the same rate and prohibiting other “discriminatory” practices against non-affiliated providers. SB 1122 has emerged from Senate committee, despite the vehement opposition of dozens of business associations and employers that maintain ERISA plans.
It would seem that the better part of discretion would be for the Legislature simply to wait until the U.S. Supreme Court decided what to do about the Mulready case before enacting a statute that goes down precisely the same road. To do otherwise would not only invite costly litigation, it would also utterly discourage employers from offering their employees health benefits over which they have no discretion to design to fit the company’s needs. In view of the fact that a substantial majority of Texas employees are covered by ERISA plans, passing a statute dealing their employers a potentially crippling blow and significantly increasing the cost of prescription drugs to real people will do little to advance access to health care or contain health care costs. The irony of this issue is that the proposed legislation doesn’t do anything to PBMs, the purported target. Instead, it drops a hammer on employers who try to do the right thing by their employees. That’s hard to swallow in a state that prides itself on a robust business climate.
