Tennessee Bill Would Force CVS to Choose: Be a PBM or Run Pharmacies, Not Both
TL;DR
Tennessee's FAIR Rx Act (SB 2040) would prohibit pharmacy benefit managers from owning or controlling pharmacy licenses in the state, effectively forcing companies to choose between operating as a PBM or running pharmacies. CVS Health says the bill would force it to close all 134 of its Tennessee retail locations, along with specialty pharmacies and MinuteClinic sites. The bill's sponsors, several of whom are pharmacists, call that threat "fear-mongering" and point to a damning state audit showing CVS Caremark reimbursed its own pharmacies at dramatically higher rates than independent competitors. The measure passed the Senate Health and Welfare Committee 8-1 and now heads to the Senate Finance Subcommittee.
Key Findings
- What the bill does: SB 2040 would bar any PBM from directly or indirectly acquiring, holding, or controlling a pharmacy license in Tennessee. Companies would need to divest pharmacy operations by January 1, 2027, with transition deadlines beginning in 2026.
- CVS's response: The company says passage would force closure of all 134 CVS retail pharmacies in Tennessee, plus 25 MinuteClinic locations and specialty pharmacies, costing thousands of jobs.
- The state audit: A February 2026 Tennessee Department of Commerce and Insurance audit of CVS Caremark's 2024 operations found the PBM significantly reimbursed its own pharmacies at higher rates compared to unaffiliated pharmacies.
- Market concentration: CVS, Cigna (Express Scripts), and UnitedHealth (Optum) managed nearly 79% of prescription drug claims in 2023, per KFF analysis.
- Committee vote: The Senate Health and Welfare Committee advanced the bill 8-1, with only Sen. Becky Massey (R-Knoxville) dissenting.
- Political backing: The bill is co-sponsored by Lt. Gov. Randy McNally and House Speaker Cameron Sexton. Multiple co-sponsors are pharmacists by trade.
How It Works
The bill targets vertical integration in pharmacy, where a single corporate entity owns an insurance company, a PBM, and retail pharmacies. CVS Health is the primary target: it owns Aetna (insurance), CVS Caremark (PBM), and CVS Pharmacy (retail). This structure allows the PBM arm to set reimbursement rates that, according to the state audit, systematically favor its own pharmacies over independent competitors.
SB 2040 doesn't ban PBMs from operating in Tennessee or shut down pharmacies directly. It requires corporate separation. As Dr. Casey Mulligan, chief counsel for advocacy at the U.S. Small Business Administration, put it: the bill says it's OK to be a PBM, and it's OK to be a pharmacy, but a company can't be both. Other large pharmacy chains like Walgreens, Publix, and Walmart would be unaffected because they don't own PBMs.
Why This Matters
This legislation strikes at the heart of a structural conflict of interest that has squeezed independent pharmacies for years. The Tennessee audit provided hard numbers to back up what many in the profession have long suspected: PBM-owned pharmacies get preferential reimbursement while independents are driven out. According to the Tennessee Pharmacists Association, more than 150 Tennessee pharmacies have closed in the past three years, the majority independently owned.
The bill also represents a growing state-level momentum toward PBM reform. Tennessee is part of a broader legislative package targeting the health insurance industry, and the audit findings are being cited as a model for enforcement in other states.
Beyond the Headline
CVS has used the same playbook before. When Arkansas passed a similar PBM ownership ban in 2025, CVS threatened to close all 23 of its stores there. The company and other PBMs sued, and a federal judge temporarily blocked the Arkansas law on Commerce Clause and federal preemption grounds. CVS pharmacies in Arkansas remain open while the case is litigated.
Tennessee's bill would likely face the same legal challenge. Legal experts note that Commerce Clause and federal preemption arguments are standard whenever states attempt to regulate PBM ownership. The state's own fiscal note acknowledges that TennCare and the state employee insurance program could see higher short-term costs depending on how pharmacy networks and reimbursement structures shift, though longer-term impacts remain unknown.
It's also worth noting the political dynamics. The Tennessee Pharmacists Association PAC has donated roughly $225,000 to lawmakers and their PACs since 2020, with several key co-sponsors receiving more than $20,000 each. CVS has donated about $50,000 to Tennessee lawmakers over the same period.
Big Picture
Tennessee's push is part of a national wave. Indiana, Louisiana, New York, Texas, and Vermont have all pursued PBM restrictions, and federal legislation stalled at the end of 2024. The FTC sued CVS, Cigna, and UnitedHealth in 2024 over allegations of artificially inflating insulin prices, adding federal pressure to the state-level efforts.
With the three largest PBMs controlling roughly 80% of prescription claims, any significant state-level disruption to the vertically integrated model could send ripples through pharmacy contracts and reimbursement structures nationwide. Whether Tennessee's bill survives legal challenge or not, the audit data it produced is already fueling reform efforts well beyond state lines.
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