Tennessee Enacts Law Prohibiting PBMs from Owning Pharmacies
Tennessee has officially taken a significant step in the regulation of healthcare intermediaries. Governor Bill Lee has signed the Freedom, Access and Integrity in Registered Pharmacy Act, positioning Tennessee as the second state in the nation to prohibit pharmacy benefit managers (PBMs) from owning or operating pharmacies.
This legislative move arrives amid growing scrutiny of the role PBMs play in the pharmaceutical supply chain. By restricting the vertical integration of these entities, the state aims to address concerns regarding conflicts of interest that arise when a single organization manages prescription drug benefits while also owning the pharmacies that dispense the medication.
The Impact of the New Legislation
The law mandates that affected companies must divest or restructure their operations by January 1, 2027. The legislative process was marked by intense debate, with reports indicating that PBMs and their supporters invested significant resources into lobbying efforts to oppose the bill.
The debate highlighted a fundamental disagreement regarding the potential market consequences of the law. CVS Health, which operates both pharmacy locations and the PBM Caremark, expressed concerns that the legislation could lead to the closure of its 134 Tennessee pharmacy locations and the loss of approximately 2,000 jobs. Proponents of the bill, including the Tennessee Pharmacists Association and the National Community Pharmacists Association, have disputed these projections.
Supporting the need for reform, a 2024 audit by the Tennessee Department of Commerce and Insurance identified that CVS Caremark utilized spread pricing—a practice where insurers or plans are charged more for medications than the amount reimbursed to the pharmacies dispensing them.
A Broader Trend in PBM Reform
Tennessee’s action follows a similar precedent set by Arkansas. However, the regulatory landscape remains complex. the Arkansas law is currently the subject of federal litigation, with PBM industry groups challenging it on Commerce Clause grounds. The case is presently before the 8th Circuit Court of Appeals, and legal observers anticipate that Tennessee’s new law will likely face similar judicial scrutiny.
On the federal level, momentum for PBM reform is also accelerating:
- Legislative Action: A bill was reintroduced in Congress on May 13 that would require companies owning health insurers or PBMs to divest their pharmacy businesses.
- Medicare Reform: The Consolidated Appropriations Act of 2026, signed in February, introduced the most significant changes to Medicare Part D in nearly two decades.
Looking Forward
As states and federal lawmakers continue to evaluate the influence of PBMs on drug costs and access, the implementation of the Tennessee law will serve as a key test case for pharmacy ownership regulations. B. Douglas Hoey, CEO of the National Community Pharmacists Association, emphasized the core of the reform: “This legislation simply gives these health care giants a choice — you can be a PBM or you can be a pharmacy but you can’t be both.”
For stakeholders in the healthcare industry, the coming months will be critical as companies navigate the divestiture requirements and potential legal challenges that lie ahead.
Key Takeaways
- Tennessee is the second state to ban PBM ownership of pharmacies.
- Affected companies have until January 1, 2027, to comply with the new law.
- The legislation addresses concerns over vertical integration and conflicts of interest in the pharmacy benefit management sector.
- Similar efforts are underway at the federal level, including proposed divestiture bills and recent Medicare Part D reforms.
Worth a look