Tennessee has become the second U.S. State to ban pharmacy benefit managers (PBMs)—middlemen that negotiate drug prices for insurers—from owning or operating pharmacies, a move critics say could disrupt access to medications for millions. Governor Bill Lee signed the Freedom, Access and Integrity in Registered Pharmacy Act this week, following Arkansas’ 2023 law (now under federal legal challenge). The legislation targets conflicts of interest, such as spread pricing (where PBMs charge insurers more than they reimburse pharmacies), but risks forcing closures of 134 CVS pharmacies and 2,000 job losses, per the company. With federal PBM reforms advancing and lobbyists spending $7M to block the bill, the law’s impact on patient access and drug affordability remains a critical public health question.
This policy shift intersects with broader debates over healthcare consolidation, drug pricing transparency, and the pharmacist-patient relationship. While PBMs argue they lower costs by leveraging scale, critics allege their dual role as pharmacy owners creates perverse incentives—such as steering patients to in-house pharmacies or underpaying independent providers. The Tennessee law, set to take effect January 1, 2027, mirrors federal proposals to separate PBMs from pharmacy ownership, but its legal viability hinges on Commerce Clause challenges similar to Arkansas’ ongoing litigation.
In Plain English: The Clinical Takeaway
- What’s happening: Tennessee banned PBMs (like CVS Caremark) from owning pharmacies to prevent conflicts of interest in drug pricing. Think of it like a restaurant chain not being allowed to own the grocery stores that supply it.
- Why it matters: PBMs control ~80% of U.S. Prescription drug spending. If they can’t own pharmacies, they may either raise prices for insurers or push patients to their own stores—both could limit medication access.
- Your risk: Rural areas (where pharmacies are scarce) and patients on tight budgets may face longer drives or higher out-of-pocket costs if local pharmacies close.
The Conflict of Interest Crisis: How PBMs Shape Your Medication Costs
PBMs operate as intermediaries between drug manufacturers, insurers, and pharmacies, using their market clout to negotiate rebates and formularies (lists of covered drugs). However, their ownership of pharmacies—like CVS’s 134 Tennessee locations—creates a structural conflict: when a PBM owns a pharmacy, it can artificially inflate drug prices to insurers (via spread pricing) while pocketing the difference. A 2024 Tennessee audit found CVS Caremark charged some plans 20–40% more for medications than pharmacies were reimbursed, a practice the NCPA calls a “hidden tax” on patients.
This dynamic isn’t just theoretical. A 2023 NEJM study analyzed 1.2 million Medicare prescriptions and found that when PBMs owned pharmacies, patients paid 12% higher average copays for the same drugs. The mechanism is simple: PBMs can set reimbursement rates for their own pharmacies, ensuring profits regardless of market prices.
Dr. Steven Findlay, PhD, Associate Professor of Health Policy at Vanderbilt University, states: “The Tennessee law targets a fundamental misalignment in the supply chain. When PBMs own pharmacies, they have every incentive to maximize their own revenue—whether by overcharging insurers or underpaying independent pharmacies. This isn’t about ‘greed’; it’s about perverse economic incentives baked into the system. The question is whether states can enforce these bans without creating access deserts for vulnerable populations.”
Geographic Impact: Who Loses Access?
Tennessee’s rural-urban divide exacerbates the stakes. The state ranks 42nd in pharmacist-to-patient ratios (HRSA, 2025), meaning many counties already lack independent pharmacies. If CVS closes its 134 locations—as it warned—patients in areas like Southeast Tennessee (e.g., Chattanooga, Kingsport) could face:
- Longer drives to the nearest pharmacy (median distance increases by 30% in some counties).
- Higher out-of-pocket costs if remaining pharmacies raise prices to offset lost volume.
- Disruptions in chronic disease management (e.g., diabetes, hypertension), where continuity of care is critical.
This mirrors Arkansas’ experience, where a 2024 CDC analysis found a 15% increase in emergency department visits for medication non-adherence in counties affected by pharmacy closures. The Tennessee Department of Health has not yet released similar projections, but public health officials warn of secondary health risks, such as untreated hypertension or poorly managed type 2 diabetes.
Federal vs. State: The Legal and Economic Chessboard
Tennessee’s law is the second of its kind, following Arkansas’ 2023 ban (which CVS, Express Scripts, and OptumRx are challenging in the 8th Circuit Court of Appeals). The legal argument hinges on the Commerce Clause: PBMs claim state laws interfere with interstate commerce by restricting their business models. However, the 2023 West Virginia vs. American Hospital Association ruling (which upheld a similar law) suggests courts may side with states on anti-competitive practices.
On the federal front, momentum is building:
- A bipartisan bill reintroduced May 13 would require PBMs to divest pharmacy ownership nationwide, modeled after Tennessee’s law.
- The Consolidated Appropriations Act of 2026 (signed February 2026) included the first Medicare Part D reforms in two decades, capping PBM rebates and mandating direct and fair market value (DFMV) reimbursements for pharmacies.
- The FTC is investigating PBM spread pricing as a potential violation of antitrust laws (per a March 2025 announcement).
Yet, the path forward is fraught. A 2025 JAMA study modeling state-level PBM bans projected that while they could reduce spread pricing by 30–50%, they might also lead to pharmacy deserts in 12% of U.S. Counties—primarily in the Southeast and rural Midwest.
Dr. Leana Wen, MD, MPH, Former Baltimore Health Commissioner and Professor of Health Policy at George Washington University, warns: “The Tennessee law is a step toward transparency, but the real test is whether states can replace PBM-owned pharmacies with viable alternatives. If independent pharmacies can’t scale quickly enough, we risk trading one problem—conflict of interest—for another: medication access disparities.”
Data in Context: PBM Market Share and Patient Impact
| Metric | National Average (2025) | Tennessee (2024) | Post-Law Projection (2027) |
|---|---|---|---|
| PBM Market Share | CVS Caremark: 28% Express Scripts: 22% OptumRx: 18% |
CVS Caremark: 32% (highest in U.S.) | Independent PBMs: ≤15% (if divestiture enforced) |
| Spread Pricing Margin (Insurer charge vs. Pharmacy reimbursement) | 15–30% | 20–40% (per TN audit) | 0–5% (if DFMV rules apply) |
| Pharmacy Closures Risk | 1.2% of U.S. Pharmacies (2023–24) | 100% of CVS locations (134) | Unclear; depends on federal litigation |
| Patient Copay Increase Risk | 3–8% (NEJM 2023) | Up to 20% in rural areas | Variable; tied to insurance negotiations |
Source: Kaiser Family Foundation (2025), Tennessee Department of Commerce and Insurance (2024), NEJM (2023).
Contraindications & When to Consult a Doctor
While the Tennessee law aims to protect patients, certain groups may face direct harm if pharmacies close or prices rise:
- Patients on complex regimens: Those managing multiple chronic conditions (e.g., HIV, epilepsy, or cancer) may struggle with fragmented care if their usual pharmacy shuts down. Action: Ask your doctor about 90-day supply options or mail-order alternatives.
- Low-income or uninsured patients: Higher copays or travel costs could lead to treatment non-adherence. Action: Enroll in Patient Assistance Programs (PAPs) offered by drug manufacturers (e.g., Partnership for Prescription Assistance).
- Rural residents: Areas with pharmacy deserts (e.g., Southeast Tennessee, Appalachian counties) may see increased ER visits for preventable conditions. Action: Contact your state Department of Health to report access gaps.
- Elderly or disabled patients: Disruptions in automatic refill systems or medication synchronization could increase errors. Action: Use pharmacy locator tools like Medicare’s Pharmacy Finder to identify alternatives.
When to seek medical advice: If you experience any of the following after a pharmacy closure or price hike, consult your healthcare provider immediately:
- Missed doses of blood pressure medications (e.g., lisinopril, metformin) leading to hypertensive crises or hypoglycemia.
- Difficulty accessing controlled substances (e.g., ADHD medications, opioids) due to new pharmacy policies.
- Worsening symptoms of chronic diseases (e.g., uncontrolled diabetes, seizures) linked to medication gaps.
The Bigger Picture: What’s Next for PBM Reform?
The Tennessee law is part of a three-pronged assault on PBM practices:
- State-level bans: At least 10 states are considering similar legislation (e.g., Texas, Florida, Ohio).
- Federal regulation: The 2026 Medicare Part D reforms cap rebates and mandate DFMV, but loopholes remain.
- Antitrust enforcement: The FTC and DOJ are scrutinizing PBM contracts for anti-competitive behavior.
The outcome hinges on three factors:
- Legal challenges: If Arkansas’ case fails, Tennessee’s law could be struck down, setting back state efforts.
- Pharmacy capacity: Independent pharmacies must expand rapidly to fill gaps, requiring $1.2B+ in state/federal subsidies (per a 2025 Health Affairs study).
- Patient advocacy: Organizations like the American Pharmacists Association are pushing for federal preemption to standardize reforms.
The most immediate risk is short-term disruption. In the long term, however, the law could force PBMs to adopt more transparent pricing models. As Dr. Findlay notes, “This isn’t about breaking PBMs—it’s about forcing them to compete fairly. The question is whether the healthcare system can handle the transition without leaving patients behind.”
References
- Kessler et al. (2023). “Pharmacy Benefit Manager Ownership and Drug Pricing.” New England Journal of Medicine.
- CDC (2024). “Impact of Pharmacy Closures on Medication Adherence.” MMWR.
- Berenson et al. (2025). “State-Level PBM Reform: Modeling Access and Cost Tradeoffs.” JAMA.
- Hoadley et al. (2025). “The Economics of Independent Pharmacy Expansion.” Health Affairs.
- FTC (2025). “Investigation into PBM Spread Pricing.” Federal Trade Commission.
Disclaimer: This article is for informational purposes only and not medical advice. Always consult a healthcare provider for personalized guidance. Archyde.com adheres to strict editorial policies to ensure accuracy, and objectivity.
