NASHVILLE, Tenn. (WZTV) — A Tennessee Senate committee on Tuesday advanced legislation that would prohibit pharmacy benefit managers from owning or controlling pharmacies in the state, a proposal supporters say is aimed at addressing potential conflicts of interest in the prescription drug marketplace.
Senate Bill 2040, sponsored by Sen. Bobby Harshbarger, R-Kingsport, was approved by the Senate Health and Welfare Committee. The measure would establish a new licensure requirement for pharmacy benefit managers, or PBMs, operating in Tennessee.
Under the bill, PBMs would be barred from owning or controlling pharmacies they reimburse or to which they direct patients. The legislation would apply prospectively and includes a transition period for companies to comply.
Harshbarger said the proposal addresses what he described as a structural conflict within the pharmacy system.
“When a PBM sets reimbursement rates, designs pharmacy networks, audits competing pharmacies, and simultaneously owns the pharmacy it directs patients to, that alignment creates an inherent conflict of interest,” Harshbarger said during committee discussion.
The bill does not eliminate PBMs, restrict the number or location of pharmacies, or affect federal facilities or TRICARE contracts. It also includes exceptions for hospitals and health systems serving their own patients.
Pharmacy benefit managers act as intermediaries between insurers, drug manufacturers and pharmacies, negotiating drug prices and determining reimbursement rates.
According to data cited by supporters of the bill, Tennessee has seen 815 pharmacy closures over the past decade, including 163 in the last three years and 62 in 2024. The legislation’s sponsor noted that closures have occurred under the current framework, which allows vertically integrated ownership.
The proposal comes as national pharmacy chains have also reduced their retail footprints. In 2021, CVS Health announced plans to close approximately 900 stores nationwide between 2022 and 2024 as part of a restructuring strategy, with additional closures planned for 2025. State data show 31 CVS locations in Tennessee have closed since 2019.
A 2024 statutory audit by the Tennessee Department of Commerce and Insurance reviewed PBM compliance with state law and identified several deficiencies. Among the findings, auditors reported instances of higher reimbursement rates paid to affiliated pharmacies compared with non-affiliated pharmacies for the same drugs, as well as issues involving spread pricing, dispensing fees and claims processing timelines.
The bill’s sponsor said structural separation would provide a clearer regulatory framework than additional enforcement measures.
The measure now moves to the next stage of the legislative process.