What Happened: In McKee Foods Corp. v. BFP Inc., decided April 7, 2026, the Sixth Circuit affirmed that ERISA preempts two Tennessee laws intended to prevent pharmacy benefit managers (PBMs) from steering patients to affiliated pharmacies. The court reasoned that the laws constituted impermissible interference with ERISA plan design and administration, a conclusion it reached by distinguishing the Tennessee statutes from the state laws the US Supreme Court found permissible in Rutledge v. PCMA (2020).
Why it Matters: This case raises questions about the enforceability of the growing body of state legislation regulating PBMs. Many states have enacted or are considering laws similar to those at issue here, which aim to prevent PBMs from steering pharmacy business to their affiliates and to protect independent pharmacies.
The Details: The following is a brief summary of the McKee Foods case and the reasoning of the Sixth Circuit.
Background and Tennessee PBM Law
McKee Foods Corporation, the Tennessee-headquartered maker of Little Debbie snack cakes, sponsors a self-funded ERISA plan and contracts with a PBM for certain pharmacy benefit management services. As is typical of many employer plan benefit designs, McKee’s prescription drug benefit offered plan participants more favorable benefits, copays, and coinsurance when using in-network pharmacies, including McKee’s own in-house pharmacy. The dispute underlying this case arose when McKee and its PBM expelled Thrifty MedPlus Pharmacy from the plan’s pharmacy network after an audit revealed billing irregularities, and Thrifty Med sought reinstatement.
As the dispute between McKee and Thrifty Med continued, Tennessee enacted two rounds of PBM legislation (the Tennessee PBM Laws). Public Chapter 569 (effective in 2021) barred PBMs and other covered entities from interfering with a patient’s choice of pharmacy, including through steering or financial incentives, and prohibited differential copays at contracted pharmacies. Public Chapter 1070 (effective January 2023) went further, expanding the statutory definitions to explicitly cover ERISA plans and adding any-willing-provider requirements compelling PBMs to admit any licensed pharmacy willing to accept the same network terms as those offered to other network pharmacies.
McKee filed suit seeking a declaration that ERISA preempted the Tennessee PBM Laws and an injunction barring their enforcement, eventually adding the state of Tennessee and the Commissioner of Commerce and Insurance as defendants. The district court permanently enjoined the Commissioner from enforcing the Tennessee PBM Laws against McKee’s plan. The Commissioner appealed to the Sixth Circuit.
Sixth Circuit Decision
AWP Provisions and Incentive Provisions
Following the district court’s approach, the Sixth Circuit grouped the challenged provisions into two categories. The first category — the any-willing-provider (AWP) provisions — prohibit PBMs and other covered entities from denying any licensed pharmacy the right to participate in a network on the same terms offered to other providers, and from preventing beneficiaries from selecting any licensed pharmacy of their choice. The second category — the incentive provisions — bar those entities from using financial incentives to steer patients toward affiliated pharmacies, including by varying cost-sharing obligations across network pharmacies.
Threshold Issues
The Commissioner raised several threshold arguments aimed at McKee’s ability to bring the suit, all of which were rejected by the court. The court confirmed that McKee had a private right of action as a plan fiduciary and McKee had standing to bring the suit based on a credible threat of enforcement. The court likewise quickly dispatched ripeness and sovereign immunity challenges.
One interesting threshold argument came from amici, who contended that McKee lacked standing because the Tennessee laws regulate PBMs not plan sponsors like McKee and that McKee was therefore asserting third-party standing. The court rejected this framing, holding that both PBMs and plan sponsors like McKee are “objects” of Tennessee’s regulations because the laws impose requirements on the entities that design and administer pharmacy benefit networks.
ERISA Preemption Analysis
The Rutledge Precedent: The Supreme Court’s 2020 decision in Rutledge v. PCMA served as important precedent in this case. In Rutledge, the Court upheld an Arkansas law that regulated the reimbursement rates PBMs offered to pharmacies, required PBMs to establish administrative appeal procedures for pharmacies to challenge those rates, and allowed pharmacies to decline to dispense a drug to a plan beneficiary if the plan’s reimbursement fell below the pharmacy’s acquisition cost. The Rutledge Court characterized these requirements as a “form of cost regulation” that did not go so far as to effectively restrict plan design.
AWP Provisions Are Preempted: The Sixth Circuit held that Tennessee’s AWP provisions crossed the line Rutledge drew. Unlike the Arkansas law, the AWP provisions do not simply regulate costs. By requiring PBMs and other covered entities to admit all willing pharmacies to their pharmacy networks, the provisions mandate a particular plan structure, govern a central matter of plan administration (the scope and extent of a pharmacy network), and interfere with nationally uniform plan administration by requiring Tennessee-specific tailoring.
Incentive Provisions Are Preempted: The court also held that ERISA preempts the incentive provisions. These provisions bar ERISA plans from steering participants toward or away from certain pharmacies through differential cost-sharing. The court reasoned that this restriction effectively dictates how plans must structure their benefits, noting that cost-sharing arrangements are an integral component of pharmacy network design.
Conclusion
While the Sixth Circuit’s decision in this case presents an obstacle to Tennessee’s ability to prevent PBMs and plans from steering patients to designated pharmacies, the state may yet find other ways to regulate PBM pharmacy networks. State legislatures across the country are pursuing new and different approaches to regulating PBM behavior, including patient steering to PBM-affiliated pharmacies. As we discussed here and here, Tennessee recently followed its neighbor Arkansas’ lead by introducing legislation that would prohibit PBMs from owning or operating in-state pharmacies. The state may glean some benefit from watching the Arkansas law work its way through the courts and incorporating any lessons learned there into its own legislative efforts. We will continue to monitor how those efforts play out and provide updates on our blog.
Further contributions to this article by Sarah Trautz
