Tennessee Becomes Second State to Ban Pharmacy Benefit Managers from Owning Pharmacies
In a landmark move that could reshape the U.S. Pharmacy landscape, Tennessee has become the second state to prohibit pharmacy benefit managers (PBMs) from owning or operating pharmacies. Governor Bill Lee signed the Freedom, Access and Integrity in Registered Pharmacy Act into law, following Arkansas’ similar legislation from 2024. The law, which takes effect January 1, 2027, mandates that PBMs divest their pharmacy ownership within a year or restructure their operations to eliminate conflicts of interest—a long-standing concern among pharmacists, patient advocates, and lawmakers.
The legislation passed despite fierce opposition from PBMs and their industry allies, who reportedly spent more than $7 million and deployed over 60 lobbyists to block the bill. The law’s sponsors argue it will restore fairness to medication pricing and ensure independent pharmacies can compete on equal footing. However, critics warn the measure could lead to pharmacy closures and job losses, particularly in states where large health systems like CVS Health operate both pharmacies and PBMs.
This development comes as PBM reform gains momentum across the country, with federal legislation and Medicare policy changes also targeting the opaque practices of these middlemen in the drug distribution chain. For patients, pharmacists, and healthcare providers, the Tennessee law raises critical questions: How will this affect medication costs? Will independent pharmacies thrive, or will corporate consolidation accelerate? And what legal challenges lie ahead as PBMs fight back in court?
Why Tennessee’s Law Matters: The PBM Ownership Conflict
Pharmacy benefit managers are the unseen giants of the U.S. Drug distribution system. These for-profit corporations negotiate drug prices on behalf of insurers and employers, controlling nearly $600 billion in prescription drug spending annually. The problem? Many PBMs—like CVS Caremark, Express Scripts, and OptumRx—also own their own pharmacies, creating a conflict of interest that critics say drives up costs and reduces competition.
A 2024 audit by Tennessee’s Department of Commerce and Insurance found that CVS Caremark engaged in “spread pricing,” a practice where the PBM charges insurers more for medications than it reimburses pharmacies. This hidden markup inflates costs for patients and employers while allowing PBM-owned pharmacies to undercut independent competitors. Tennessee’s law aims to end this dual role by forcing PBMs to choose: operate as a pharmacy benefit manager or as a pharmacy, but not both.
“An enormous conflict of interest exists when a giant corporate PBM or insurance plan owns and operates its own pharmacy. This legislation simply gives these healthcare giants a choice—you can be a PBM or you can be a pharmacy, but you can’t be both.”
How the Law Works: Key Provisions and Deadlines
The Freedom, Access and Integrity in Registered Pharmacy Act includes several critical components:
- Ownership Ban: Prohibits PBMs from owning or operating pharmacies within Tennessee.
- Divestiture Deadline: Affected companies must divest or restructure by January 1, 2027, giving them 15 months to comply.
- Pharmacy Licensing: PBMs currently holding pharmacy licenses must divest those assets or face penalties.
- Transparency Requirements: PBMs must disclose their ownership structures and financial relationships with pharmacies.
CVS Health, which owns both pharmacies and the PBM Caremark, has warned that the law could force the closure of all 134 of its Tennessee pharmacies and eliminate roughly 2,000 jobs. However, lawmakers and pharmacist groups dispute these claims, pointing to Arkansas’ experience where similar warnings proved unfounded. In Arkansas, CVS Caremark initially threatened to shut down pharmacies but later restructured to comply with the state’s law.
Arkansas vs. Tennessee: A Legal Battle Looms
Tennessee is following Arkansas’ path—but with a critical difference: Arkansas’ law is currently under federal court review. After CVS Caremark, Express Scripts, and OptumRx sued to block Arkansas’ law on Commerce Clause grounds, the case is now before the 8th Circuit Court of Appeals. Legal experts predict Tennessee’s law will face similar challenges, potentially creating a patchwork of state regulations that could complicate PBM operations nationwide.
If the courts uphold Arkansas’ law, it could set a precedent for other states to pass similar measures. However, if federal courts strike down the Arkansas ban, Tennessee’s law may become the first to survive legal scrutiny. The outcome will hinge on whether judges agree that state laws can regulate interstate commerce—particularly when PBMs operate across state lines.
Who Wins and Who Loses?
Key Takeaways: Impact by Stakeholder
- Patients: Potential for lower medication costs if PBMs reduce spread pricing, though access to pharmacies in rural areas could be affected.
- Independent Pharmacists: Level playing field against corporate chains, but may face challenges if PBMs consolidate power elsewhere.
- PBMs and Health Systems: Forced to divest pharmacy assets, potentially increasing operational costs and reducing revenue streams.
- Insurers and Employers: May see changes in drug pricing transparency, though long-term effects on premiums remain unclear.
- State Governments: Increased regulatory oversight but potential legal battles and economic impacts if pharmacies close.
Federal Reform: A Parallel Battle
While Tennessee and Arkansas lead the state-level charge, Congress is also moving to reform PBMs. A federal bill reintroduced on May 13, 2026, the Pharmacy Benefit Manager Transparency and Accountability Act, would require companies owning health insurers or PBMs to divest their pharmacy businesses. The Consolidated Appropriations Act of 2026, signed in February, included the first major Medicare Part D reforms in nearly 20 years, targeting PBM pricing practices.
These federal efforts suggest a growing bipartisan consensus that PBMs need stricter oversight. However, the industry’s deep ties to pharmaceutical companies, insurers, and large health systems make comprehensive reform politically challenging. For now, state laws like Tennessee’s may serve as both a testing ground and a catalyst for broader change.
What Happens Next?
The next critical checkpoint will be the 8th Circuit Court of Appeals’ ruling on Arkansas’ case, expected later this year. If the court upholds the Arkansas law, Tennessee’s measure will gain legal legitimacy, potentially emboldening other states to pass similar legislation. Conversely, if the ruling favors PBMs, Tennessee’s law could face immediate legal challenges.
For patients and pharmacists, the immediate impact will depend on how quickly PBMs comply with the divestiture deadline. CVS Health and other affected companies are likely to explore restructuring options, such as selling pharmacy assets to third parties or converting locations to non-PBM-owned models. Meanwhile, independent pharmacists are already preparing to capitalize on the new competitive landscape.
Practical Guide: What Patients and Pharmacists Need to Know
If you’re a patient or pharmacist in Tennessee—or any state considering similar laws—here’s what you should watch for:
- Medication Access: Monitor local pharmacy closures or consolidations, particularly in rural areas where options may be limited.
- Pricing Transparency: Advocate for state-level reports on PBM pricing practices, which may become more public under the new law.
- Independent Pharmacies: Support local pharmacies, which may see increased business if corporate chains reduce their presence.
- Legal Updates: Follow court proceedings in Arkansas and Tennessee for rulings that could affect the laws’ validity.
- Federal Legislation: Stay informed about congressional efforts, which could preempt or reinforce state-level reforms.
Have you been affected by PBM practices or Tennessee’s new law? Share your experience in the comments below, or contact Tennessee’s Department of Commerce and Insurance for updates on implementation.