NASHVILLE, Tenn. (WTVF) — Gov. Bill Lee has signed legislation that will prohibit pharmacy benefit managers, or PBMs, from owning pharmacies in Tennessee, marking a major shift in the state’s pharmacy industry and setting up a likely legal battle with companies like CVS Health, which filed a federal lawsuit Friday challenging the law’s constitutionality.
The new law, known as the FAIR Rx Act, prevents PBMs from holding pharmacy licenses in Tennessee and requires those companies to divest pharmacy ownership by July 1, 2028. CVS Health is a prominent example of a company that will be impacted by this law. They also own a PBM called Caremark and say they'd rather close all of their Tennessee pharmacies than divest of Caremark.
Companies that are willing to separate their PBM and pharmacies will have about six months to make the proper divestment before this law is truly enforced.
Supporters say law protects independent pharmacies
Supporters of the legislation, including the Tennessee Pharmacists Association, argued the bill is necessary to stop conflicts of interest in the prescription drug industry and protect independent pharmacies from unfair reimbursement practices.
“Today marks a historic day for patients and pharmacists across the state,” Tennessee Pharmacists Association CEO Anthony Pudlo said in a statement Friday. “We are grateful to Gov. Bill Lee and our General Assembly for taking a stand against the greedy corporate interests of PBMs and helping to restore a system that protects patients, healthcare providers and the pharmacies that care for their communities.”
The legislation was sponsored by Sen. Bobby Harshbarger (R-Kingsport) and Rep. Rick Scarbrough (R-Oak Ridge). Harshbarger's family owns a pharmacy in East Tennessee.
PBMs act as middlemen between pharmacies and insurance companies, negotiating drug prices and reimbursement rates. Critics of vertically integrated companies have argued that when PBMs also own pharmacies, they can reimburse affiliated stores at higher rates while squeezing independent competitors.
The Tennessee Pharmacists Association cited state audits that found CVS Caremark reimbursed affiliated pharmacies significantly more than non-affiliated pharmacies for some medications. The group also pointed to an audit showing Express Scripts generated millions in spread pricing revenue from Tennessee employers.
CVS warns law could close stores, raise costs
CVS Health warned the legislation could force the company to close all 134 CVS pharmacy locations in Tennessee rather than separate its pharmacy and PBM operations.
When the bill passed the Tennessee General Assembly in April, CVS said the legislation would lead to pharmacy closures, job losses and reduced healthcare access across the state.
“This misguided policy will lead to serious consequences for the state, including the closure of 25 MinuteClinic locations, where Tennesseans get acute and primary care, and the loss of more than 2,000 jobs,” CVS Health said in a statement.
The debate over the legislation intensified earlier this year after Tennessee Attorney General Jonathan Skrmetti warned CVS to stop sending political text messages to pharmacy customers opposing the bill, saying the company may have violated state law.
The FAIR Rx Act passed with bipartisan support in both chambers of the Tennessee legislature last month.
Arkansas passed a similar law last year, though enforcement there has been temporarily blocked during an ongoing legal challenge.
CVS files federal lawsuit challenging law
CVS Health confirmed Friday afternoon that it filed a federal lawsuit in the Middle District of Tennessee challenging the new law.
In the complaint, CVS argued the legislation unfairly targets out-of-state companies, violates the Constitution’s Dormant Commerce Clause and interferes with nationwide healthcare plans and mail-order pharmacy operations. The company said nearly 1.5 million Tennesseans rely on CVS pharmacies, while about 70,000 patients use its mail-order pharmacy services in the state.
“Our stores, retail, specialty and mail pharmacies, and retail medical clinics are open and serving patients and customers,” CVS said in a statement issued shortly after Gov. Bill Lee signed the bill into law.
The company said it would “exhaust all options” to continue operating in Tennessee.
CVS also said the law could impact specialty pharmacy care beyond CVS operations, including services provided by Accredo, which is owned by Express Scripts and operates in Memphis, and Optum Specialty Rx.
The company claimed the legislation could increase Tennessee employers’ prescription drug costs by more than $180 million annually beginning in 2028.
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