CVS Faces Key Test as Tennessee Bill Targets PBM-Pharmacy Ownership
WOONSOCKET, R.I. — A legislative battle is brewing in Tennessee over the business practices of CVS Health, potentially forcing the company to significantly alter its operations in the state or exit the market altogether. The conflict centers on a bill that would prohibit a single company from simultaneously owning a pharmacy benefit manager (PBM) and a retail pharmacy, a business model currently employed by CVS Health.
Pharmacy benefit managers act as intermediaries between drug manufacturers, health insurers, and pharmacies, negotiating drug prices and processing prescription claims. CVS Health’s integrated structure includes approximately 9,000 retail pharmacy locations nationwide, the Aetna health insurance company, and Caremark, a major PBM.
If enacted, Tennessee Senate Bill 2040 would require CVS to divest either its PBM business or its retail pharmacy holdings within the state. CVS Health has warned that complying with the bill could lead to the closure of over 130 stores in Tennessee and the loss of more than 2,000 jobs.
The bill, which passed the Senate Health and Welfare Committee 8 to 1 on February 25 and is now before the Senate Finance, Ways, and Means Committee, aims to address perceived conflicts of interest within the pharmaceutical supply chain. State Senator Bobby Harshbarger, a pharmacist and Republican co-sponsor of the legislation, stated that the bill seeks to “separate pharmacy benefit managers from owning or controlling the pharmacies they reimburse or steer patients toward.” Harshbarger emphasized that the legislation does not intend to eliminate PBMs, close pharmacies, or reduce access to medications, but rather to address a “structural conflict in the pharmacy marketplace.”
CVS Health disputes the feasibility of separating its businesses. Amy Thibault, a company spokesperson, argued that there is no readily available buyer for its Tennessee pharmacies, pointing to the difficulty other pharmacy chains have had in expanding. “This proves unlikely another pharmacy could or would buy 134 CVS pharmacies, or the others impacted by the bill,” Thibault said. She characterized the bill as “lousy for Tennessee, for the more than 1.5 million patients we serve, and for the more than 2,000 colleagues who will lose good paying jobs.”
Legal experts suggest that the integration of PBMs and pharmacies can stifle competition and drive up costs for consumers. Robert Tsigler, an attorney specializing in federal and regulatory matters, explained that when a single company controls both aspects of the transaction, it has the ability to manipulate pricing at both ends.
However, the Pharmaceutical Care Management Association (PCMA), a trade group representing PBMs, opposes the Tennessee bill. Greg Lopes, a PCMA vice president, called the legislation “dangerous for patients’ health” and argued it would not lower drug prices. The PCMA cited a study by Moiz Bhai, an economics professor at the University of Arkansas at Little Rock, which suggested that similar bills could lead to pharmacy closures, increase national drug costs by nearly $32 billion, and result in 44,000 additional hospitalizations. The PCMA funded Bhai’s study.
Tennessee is not alone in considering such legislation. Last year, Arkansas passed a law prohibiting PBMs from having an ownership interest in pharmacies, but its implementation is currently blocked by a preliminary injunction granted by a federal judge after CVS filed a lawsuit. Similar legislative efforts are underway in Novel York, Vermont, Texas, and Indiana, and Louisiana has commissioned a study on the issue. Bipartisan federal legislation addressing PBM practices has also been proposed.
Massachusetts state Senator Cindy F. Friedman, chairperson of the Health Care Finance Committee, has expressed interest in the Tennessee proposal, with a spokesperson stating that any legislation reducing the impact of PBMs on patient costs is worth considering.
The debate extends beyond state legislatures. In late 2024, the House Judiciary Committee launched an investigation into potential anticompetitive practices by CVS Caremark, focusing on its relationships with pharmaceutical hubs and third-party online services. The committee subsequently found evidence suggesting that CVS Health may have violated federal antitrust laws by pressuring independent pharmacies to avoid using cost-saving services outside of Caremark.
The market is heavily concentrated, with CVS Caremark, Cigna’s Express Scripts, and UnitedHealth’s OptumRx controlling roughly 60 percent of the PBM market. A Federal Trade Commission report released in January found that these three companies generated billions in revenue by increasing the cost of medications for conditions like heart disease and cancer.
While Rhode Island, where CVS is headquartered, is taking a more measured approach, focusing on transparency and oversight of drug costs, it is not pursuing legislation to separate PBMs and pharmacies. Senate President Val Lawson stated that CVS representatives were informed about the state’s proposed bills before their introduction, and that her policy team discussed the contents with them.
However, a class-action lawsuit filed on Wednesday in the US District Court of Rhode Island by a lawyer representing Roofers’ Unions Welfare Trust Fund alleges that CVS operated a Racketeer Influenced and Corrupt Organizations (RICO) enterprise related to its PBM contracts, claiming the company concealed side agreements with drug manufacturers in exchange for favorable formulary placements and kickbacks. CVS spokesperson Shelly Bendit dismissed the lawsuit as without merit, stating the company is committed to lowering prescription drug costs and intends to vigorously defend against the claims.
Kent McKinney, a health care economist at Columbia University, suggested that while the potential closure of Tennessee stores would not be a “doomsday scenario” for CVS, broader legislative action or federal intervention could pose a significant challenge to the company’s business model.