Tennessee passes sweeping PBM bill as CVS Health signals legal challenge

NASHVILLE 鈥� Tennessee lawmakers have approved sweeping legislation aimed at restructuring the role of pharmacy benefit managers (PBMs), setting up a high-stakes legal and operational battle with CVS Health, which says it will challenge the measure in federal court.

The bill, widely known as the 鈥淔air Rx Act,鈥� would prohibit a company from owning or controlling both a pharmacy and a PBM, and in some cases a health insurer, within the state. The legislation passed with strong bipartisan support, clearing the House 86-7 and the Senate 24-9, and now heads to Gov. Bill Lee鈥檚 desk.

Lawmakers framed the bill as a structural reform aimed at vertical integration in the prescription drug supply chain. The move is especially consequential for CVS Health, which operates retail pharmacies, the PBM CVS Caremark, and the insurer Aetna, leaving it uniquely exposed to the proposed restrictions.

Legislative push targets PBM structure

The legislation follows scrutiny of PBM practices in Tennessee, including a state audit that found affiliated pharmacies were reimbursed at higher rates than independent pharmacies. Policymakers argued that these dynamics distort competition and threaten the viability of community pharmacies.

Kingsport Republican state Sen. Bobby Harshbarger, a pharmacist and the bill鈥檚 primary sponsor, said during debate that PBMs have used their market position to the detriment of independent operators.

鈥淚f you鈥檙e going to manage the system, you should not also be in a position to financially benefit from distorting that system,鈥� Harshbarger said. 鈥淭his legislation does not require a single closure. Any suggestion otherwise is a business decision being described as a policy outcome.鈥�

Harshbarger added in closing remarks, speaking to local media, 鈥淲hat the bill does is straightforward. It promotes transparency, it reinforces fair competition, and it protects the integrity of the system for patients and providers. Nothing more, nothing less.鈥�

Supporters, including the Tennessee Pharmacists Association, have argued that the bill is necessary to curb what they call anti-competitive practices by vertically integrated PBMs.

Anthony Pudlo, Pharm.D., M.S., CEO of the Tennessee Pharmacists Association, said in a statement: 鈥淐VS Caremark鈥檚 threat to close its pharmacies is a desperate attempt to protect the unfair system from which it has profited and driven out more than 600 Tennessee pharmacies, reducing access to care for patients in our state. CVS鈥檚 threat is also a signal that, given the choice between being a pharmacy or a PBM, it will always choose profits over patients. We are grateful to our legislators for taking strong, bold and necessary action to stand up to the abusive corporate greed of PBMs and put Tennessee patients first.鈥�

CVS warns of closures, prepares lawsuit

CVS Health has responded forcefully, warning that the law could significantly disrupt patient access and lead to widespread store closures. The company has previously said it could shutter more than 100 stores in Tennessee, including locations in rural communities, if the legislation takes effect, and eliminate more than 2,000 jobs.

Amy Thibault, a CVS spokesperson, said in a statement: 鈥淲hile disguised as anti-PBM, this misguided legislation will not lower drug costs and is solely designed to benefit independent pharmacies, with no thought about the patients who鈥檇 lose access to the pharmacist who they know and trust.鈥�

In a more detailed company statement circulated following passage, CVS added: 鈥淲hile disguised as anti-PBM, this misguided legislation will NOT lower drug costs and is solely designed to benefit independent pharmacies, with no thought about the patients who鈥檇 lose access to the pharmacist who they know and trust. 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. We鈥檙e prepared to challenge the constitutionality of this law in federal court, as we did in Arkansas.鈥�

The company鈥檚 legal strategy is expected to mirror its response to similar legislation in Arkansas, where a federal judge blocked enforcement of a comparable law on federal preemption grounds. That case remains ongoing.

Broader industry implications

The Tennessee measure comes amid intensifying scrutiny of PBMs nationwide. The industry is highly consolidated, with three players controlling roughly 80% of the market, according to KFF. Those entities are affiliated with large healthcare conglomerates, including CVS Health, Cigna and UnitedHealth Group.

The Tennessee bill specifically targets the intersection of pharmacy ownership, PBM operations and insurance, setting thresholds that would bar entities from controlling all three components unless their ownership stake is minimal. Supporters say this is necessary to prevent conflicts of interest in formulary design, reimbursement rates and network access.

Opponents, including some lawmakers, argue the measure could have unintended consequences.

鈥淚 think there鈥檚 already reform in progress, I just think this goes a step too far,鈥� said state Sen. Raumesh Akbari, one of the bill鈥檚 dissenting votes, speaking to local media.

Timeline and next steps

If enacted into law, the bill鈥檚 provisions would take effect on a phased schedule, with key restrictions beginning as early as 2027 and broader ownership prohibitions extending into 2028. Existing entities that fall out of compliance may be required to divest or restructure, with limited transition periods and potential civil penalties of up to $10,000 per violation per day.

The legislation also grants the Tennessee Board of Pharmacy authority to establish rules governing implementation.

The outcome in Tennessee is likely to be closely watched across the pharmacy and healthcare landscape, particularly as policymakers at both the state and federal levels continue to examine PBM practices and the role of vertical integration in drug pricing and access.