How Tennessee’s PBM law could affect retail pharmacies at large

CVS is suing Tennessee over a recently passed law. But advocates for independent pharmacies say it could be the lifeline they’ve been waiting for.

The state’s FAIR Rx Act, signed into law by Gov. Bill Lee on May 22, tackles vertical integration by prohibiting companies that own a pharmacy benefits manager (PBM) or a health insurance issuer from having more than 5% ownership interest in a pharmacy in the state. (The original bill called for a full ban.)

CVS—which owns an insurer (Aetna), a PBM (Caremark), and the largest retail pharmacy chain in the country—filed a lawsuit that same day, arguing the law protects in-state pharmacies while discriminating against it, and violates a US Constitution clause that prohibits states from “discriminating against or unfairly burdening out-of-state businesses,” CVS spokesperson Amy Thibault told us in an emailed statement.

The law is intended to take effect Jan 1, 2028. If it does, it could level the competition for independent brick-and-mortar stores, regional pharmacy chains, and even national pharmacy chains or chains owned by grocery stores, Anthony Pudlo, CEO of professional group the Tennessee Pharmacists Association, told us. In other words, he said, “just about everybody that is not a vertically integrated pharmacy.”

One in three US retail pharmacies closed between 2010 and 2021, and the closure rate was nearly twice as high for independent pharmacies as chains, Healthcare Brew previously reported.

Pudlo attributes retail pharmacy closures in part to vertically integrated PBMs and health insurers that steer patients toward their affiliated pharmacies.

“We’ve all been preaching this for too long,” he said.

Thibault said the law won’t fix these issues. It has “no language addressing spread pricing, reimbursement, or formularies,” she said.

The big picture. Pressure from clients and lawmakers alike has prompted PBMs to become more transparent about their business practices over the last few years.

Tennessee is the second state to pass a law restricting PBMs from being vertically integrated with state pharmacies. Arkansas was the first—in April 2025 with plans to take effect on Jan. 1, 2026—but the ban has been temporarily blocked while the state battles Caremark and Cigna’s Express Scripts, in court.

“The Arkansas litigation gives PBMs…a roadmap, but at the same time [gives] Tennessee lawmakers a preview of the argument that they’ll need to defend against,” Dae Lee, a pharmacist and PBM and pharmacy practice group cochair at law firm Buchanan Ingersoll & Rooney, told us.

PBMs push back. CVS has also said it would close all 134 retail pharmacy locations in Tennessee when this law took effect. It vowed to do the same in Arkansas when that state passed its law.

Thibault told us CVS has to close its stores, suggesting that calls for the chain to simply divest ownership from those pharmacies are unrealistic. She pointed to what happened when Rite Aid filed for bankruptcy. CVS was “one of the only pharmacies” to step in to buy and operate some of those stores, and others were closed and left vacant. Other pharmacies “struggled” to handle the load of new customers, she said.

Prem Shah, CVS Health EVP and group president, said during the company’s May 7 earnings call that the legislation will “raise costs for the state, threaten pharmacy access,” and “create complexity and challenges for specialty pharmacy operations.”

“Our role as a PBM is critical to create competition and drive down medication costs,” he added.

Greg Lopes, spokesperson for PBM lobbying group the Pharmaceutical Care Management Association (PCMA), told us the law is “extremely dangerous for the health and well-being of patients” in an emailed statement.

“Not only will drug costs increase, but more than a hundred pharmacies in Tennessee are now set to close, leaving patients without the pharmacy of their choosing,” he said.

PCMA also put out a press release May 20 pointing to a report released this month by the Department of Health and Human Services Office of Inspector General, which found vertically integrated Medicare Part D plans had similar net costs for drugs as non-vertically integrated plans. 

The report notes, however, that due to limited data and shifts in the Part D market, “the full impacts of vertical integration—particularly on pharmacies—remain unknown.”

Looking ahead. Lee, meanwhile, predicts that if CVS does close its Tennessee locations, it could be a boon for other retail pharmacy operators alongside federal efforts to better regulate PBMs. Many former CVS customers might switch to another retail pharmacy, he said.

“[This law is] a positive development for independent pharmacy,” he said.

The next issue to tackle, Lee said, is reimbursement rates.

An audit published this February by the Tennessee Department of Commerce and Insurance found Caremark had reimbursed its affiliated pharmacies in the state more than other pharmacies for the same drug. In one instance, the company reimbursed its pharmacies over 165x more for Cinacalcet, a medication for patients with chronic kidney disease on dialysis.

The Federal Trade Commission has also accused PBMs of inflating prices for drugs like insulin. The agency sued the Big 3 PBMs in 2024 and is in the process of settling the suits.

“It’s a never-ending battle. All the independent pharmacies are suffering right now because of the low reimbursement rates,” Lee said. “But the tide is changing, slowly.”