CVS Faces Key Test as Tennessee Bill Targets PBM Pharmacy Ownership

WOONSOCKET, R.I. — A legislative proposal gaining traction in Tennessee is setting up a potential showdown for CVS Health, forcing the company to consider separating its pharmacy benefit management (PBM) operations from its retail pharmacy locations – or potentially exiting the state altogether. The bill, mirroring similar efforts in other states, represents a significant escalation in the ongoing debate over the role and influence of PBMs in controlling prescription drug costs.

Pharmacy benefit managers act as intermediaries between drug manufacturers, health insurers, and pharmacies, negotiating drug prices and managing prescription drug benefits. CVS Health’s unique position – owning both the PBM Caremark and a vast network of approximately 9,000 retail pharmacies nationwide, alongside the health insurer Aetna – has drawn increasing scrutiny. Critics argue this vertical integration creates inherent conflicts of interest, potentially driving up costs for consumers and hindering competition.

The Tennessee Bill: A Structural Shift

The Tennessee legislation would explicitly prohibit a single entity from simultaneously owning a retail pharmacy and a pharmacy benefit manager. If enacted, CVS Health estimates it could be forced to close over 130 stores within the state, impacting more than 2,000 jobs. This potential disruption highlights the core of the debate: whether separating these functions is a necessary step to address perceived market imbalances, or an overreach that could ultimately harm patients and limit access to care.

State Senator Bobby Harshbarger, a pharmacist and the bill’s sponsor, framed the legislation as a means to address a “structural conflict in the pharmacy marketplace.” Harshbarger stated the bill aims to prevent PBMs from steering patients toward pharmacies they own, ensuring a more level playing field. He emphasized that the legislation doesn’t eliminate PBMs or restrict access to medications, but rather requires a divestiture of ownership.

CVS Health, however, contends that such a separation is impractical. A company spokesperson indicated Notice no readily available buyers for its Tennessee pharmacy locations, particularly given the recent bankruptcy of Rite Aid and CVS’s subsequent acquisition of some of those stores. The company argues the bill would ultimately reduce patient access to pharmacies and potentially increase costs.

Beyond Tennessee: A Growing Movement

Tennessee is not alone in considering such measures. Similar legislative efforts are underway in several other states, including New York, Vermont, Texas, and Indiana. Last year, Arkansas passed a first-in-the-nation law prohibiting PBMs from having an ownership stake in pharmacies, though its implementation is currently blocked by a preliminary injunction following a lawsuit filed by CVS. This wave of legislation signals a growing national concern about the power and influence of PBMs.

The debate extends beyond state legislatures. The Federal Trade Commission (FTC) released a report in January finding that the “massive three” PBMs – CVS Caremark, Cigna’s Express Scripts, and UnitedHealth’s OptumRx – control roughly 60 percent of the market and have generated billions in revenue by increasing drug costs. The House Judiciary Committee has also launched an investigation into potential anticompetitive practices by CVS Caremark, specifically examining its relationships with pharmaceutical hubs and third-party online services.

The Core Conflict: Transparency and Competition

At the heart of the issue lies the question of transparency and competition. Legal experts argue that the integration of PBMs and pharmacies creates an inherent conflict of interest, allowing companies to control both the negotiation of drug prices and the dispensing of prescriptions. Robert Tsigler, an attorney specializing in federal and regulatory matters, explained that this control allows companies to manipulate the system to their advantage.

However, the Pharmaceutical Care Management Association (PCMA) argues that separating PBMs and pharmacies could actually harm patients. Greg Lopes, a PCMA vice president, contends that the policy would not lower drug prices and could lead to mass pharmacy closures and increased hospitalizations. A study funded by the PCMA, conducted by economics professor Moiz Bhai, suggested that similar bills could increase drug costs nationwide by nearly $32 billion and lead to 44,000 more hospitalizations. It’s important to note the funding source of this study when considering its findings.

Rhode Island’s Approach: A More Cautious Path

Although Tennessee is taking a more aggressive stance, CVS Health’s home state of Rhode Island is pursuing a different approach. Lawmakers there have introduced a package of bills focused on increasing transparency and oversight of PBMs, but stopping short of requiring a separation of ownership. Senate President Val Lawson indicated that Rhode Island lawmakers consulted with CVS representatives before introducing the legislation, suggesting a more collaborative approach.

Interestingly, a class-action lawsuit was filed in Rhode Island on Wednesday alleging that CVS Caremark operated a Racketeer Influenced and Corrupt Organizations (RICO) enterprise related to its PBM contracts. The lawsuit claims CVS concealed side agreements with drug companies in exchange for favorable formulary placements. CVS has denied the allegations and intends to vigorously defend against the claims.

What Comes Next: A Complex Landscape

The outcome of the Tennessee bill, and similar legislation in other states, will likely have significant implications for the future of the pharmacy industry. While CVS Health warns of potential store closures and job losses, proponents argue that separating PBMs and pharmacies is essential to ensure fair pricing and protect consumers. The debate is far from settled, and the coming months will be crucial in determining whether this legislative push gains broader momentum. The potential for federal legislation also remains a possibility, adding another layer of complexity to the evolving landscape of prescription drug pricing and access.

The broader trend suggests a growing willingness among lawmakers to scrutinize the practices of PBMs and address concerns about transparency and competition. Whether these efforts will ultimately lead to meaningful reforms remains to be seen, but the debate is undoubtedly reshaping the conversation around prescription drug costs and access to care.