State Regulation of PBMs Subject to Robust Legal Challenges

There have been two major recent developments in the ongoing national struggle over the state regulation of pharmacy benefit managers (PBMs). 

Eighth Circuit Limits Scope of Arkansas PBM Law

On June 29, 2026, the Eighth Circuit Court of Appeals ruled in Flowers v. Caremark PCS Health, No. 25-3068, that a key element of an Arkansas statute designed to regulate PBMs is preempted by federal law. Specifically, the Eighth Circuit held that the “Geographic Coverage Requirements” of the Arkansas law were preempted by ERISA. These "Geographic Coverage Requirements" mandated that PBMs servicing a health plan ensure that a high percentage of covered individuals (90% for urban or suburban plans, 70% for rural) live within a relatively short distance from a network pharmacy (two miles for urban, five miles for suburban, and fifteen miles for rural). (As a technical matter, these “Geographic Coverage Requirements” were implementing regulations of the law’s “Network Adequacy Provision” that were issued by Arkansas’s insurance commissioner.)

The Eighth Circuit ruled that the practical effect of the “Geographic Coverage Requirements” was to “requir[e] PBMs to tailor and retailor their networks — and perhaps even build new brick-and-mortar pharmacies — to comply with a set of exacting particularities.” According to the Court, this law therefore “bulldoze[d] through [Congressional] objectives” under ERISA, and thus caused the Arkansas law to be preempted. The Court adopted a broad view of ERISA preemption in the context of state regulation of PBMs, noting that “interference with plan administration uniformity” — as reflected in the Arkansas regulations mandating particular geographic access to pharmacies — constitutes grounds for preemption. This reasoning (albeit limited to the Eighth Circuit for now) imposes significant limitations on state regulation of PBMs, as similar geographic requirements in other states’ laws would likely be voided as well. 

It should also be noted that there have been several other successful challenges to different state PBM laws that are currently on appeal to the Eighth Circuit. Such cases include Express Scripts, Inc. v. Richmond, No. 25-2529, a pending appeal to a decision preliminarily enjoining a separate Arkansas law regulating PBMs. The law at issue here sought to restrict PBMs from owning or operating pharmacies in Arkansas. In the underlying decision, a federal district court preliminarily enjoined the law from taking effect because of a likely constitutional violation of the Commerce Clause (as impermissibly regulating interstate commerce), and as federally preempted by TRICARE (a federal law governing health insurance plans for members of the US military and their families). Also pending before the Eighth Circuit is Iowa Ass’n of Business and Indus. v. Iowa Ins. Commissioner, Nos. 25-2494, 25-2591, in which the State of Iowa seeks to reverse a lower court decision that preliminarily enjoined significant portions of an Iowa law regulating PBMs (restricting certain business practices, including network compositions and cost-sharing arrangements) on the basis of ERISA preemption and the First Amendment. 

Tennessee’s Fair RX Act Under Attack from PBMs  

Three lawsuits have been filed in the United States District Court for the Middle District of Tennessee challenging Tennessee’s recently enacted Fair RX Act, a statute aimed squarely at curbing PBM ownership and control of pharmacies. The Fair RX Act, passed in May, prohibits PBMs from owning pharmacies. Although sweeping in scope, the statute includes a narrow carve out for military and federal contracts, an exception that Tennessee lawmakers added with an eye towards litigation in other states (including the successful constitutional challenge to the Arkansas statute in Express Scripts v. Richmond).

These three separate lawsuits — filed independently by CVS’s Caremark, Cigna’s Express Scripts, and the Pharmaceutical Care Management Association (PCMA) — feature similar arguments, articulating a number of independent grounds for striking down the Tennessee law. In particular, each lawsuit raises extensive federal preemption arguments. The lawsuits claim that federal programs like Medicare, TRICARE, and ERISA preempt Tennessee’s attempt to regulate PBM ownership structures. According to the plaintiffs, PBMs operate within existing federal frameworks that already dictate how pharmacy networks, reimbursement structures, and contracting relationships must function. By imposing ownership restrictions, the plaintiffs argue, Tennessee intrudes into areas Congress has occupied, creating conflicts with federal requirements and undermining uniform administration of national healthcare programs.

The three lawsuits also articulate other challenges to the law. Perhaps most notably, each contends that the law violates the dormant Commerce Clause by unfairly discriminating against out-of-state pharmacies. Additionally, one of the lawsuits also argues that the law is unconstitutional as violating the Takings Clause by effectively compelling divestiture of PBMs’ longstanding business units and highly integrated pharmacy operations, many of which have existed for decades. 

The Tennessee law was specifically drafted to take account of the difficulties encountered by other states — including the successful constitutional challenge to the Arkansas law in Express Scripts v. Richmond — in implementing state regulations of PBMs. For example, the Fair RX Act specifically exempted military and federal contracts in an effort to avoid TRICARE preemption, and refrained from including legislative findings or statutory language suggesting that the law was intended to protect local pharmacies — statements that the federal district court in Express Scripts v. Richmond found constitutionally problematic. 

Impact on the National Landscape Seeking PBM Regulation and Reform 

These recent developments demonstrate the significant legal challenges confronting state legislatures as they seek to regulate PBMs. The Eighth Circuit’s decision in Flowers signals that geographic coverage requirements are likely to be overturned based upon ERISA. And the Tennessee litigation — following the successful playbook in Express Scripts v. Richmond — suggests that efforts to stymie PBM ownership of pharmacies are likely to run afoul of the US Constitution, whether by the dormant Commerce Clause or federal preemption. 

Nonetheless, efforts by states are likely to continue, whether through new legislation or by law enforcement activity by state attorneys-general, based upon the increasing concern expressed by public figures that consolidation within the pharmaceutical supply chain contributes to rising drug costs and reduced consumer choice. (For example, there was a recent probe announced by the Attorney-General of Florida.) But these efforts will now be undertaken in the knowledge that the federal courts have expressed significant reservations as to the legal foundation of these regulatory strategies.  
 

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