On May 22, 2026, Tennessee became the latest battleground in the fight over who gets to own pharmacy. The legal war that followed this week is one every pharmacist in the country should be watching closely, regardless of which state you practice in.
What Tennessee Actually Did
Governor Bill Lee signed into law Senate Bill 2040, the Freedom, Access and Integrity in Registered Pharmacy Act, also known as the FAIR Rx Act, preventing pharmacy benefit managers from owning pharmacies in Tennessee. “Today marks a historic day for patients and pharmacists across the state,” said Tennessee Pharmacists Association CEO Anthony Pudlo. “We are grateful to Gov. Bill Lee and our General Assembly for taking a stand against the greedy corporate interests of PBMs and helping to restore a system that protects patients, healthcare providers and the pharmacies that care for their communities.”
Lee signed the bill about a month after it made its way through the state legislature. For nearly a decade, lawmakers have been trying to rein in PBMs to benefit independent pharmacies.
The legislative support was substantial and bipartisan, far beyond a narrow party-line vote.
The data behind the legislative push is striking. A recent audit by the Tennessee Department of Commerce and Insurance found that one PBM, CVS Caremark, reimbursed its affiliated pharmacies up to 16,000% more than non-affiliated pharmacies for the same medications. Another audit found Express Scripts generated $30 million in spread pricing revenue from Tennessee employers, costs ultimately borne by patients. Since 2017, PBM abuses have contributed to the loss of 620 Tennessee pharmacies, reducing critical access points for care across the state.
That 16,000% reimbursement disparity is not a typo. It is the kind of number that gives this legislation its political momentum, because it makes the conflict-of-interest argument almost impossible to dismiss as theoretical.
What the Law Actually Requires
The law prohibits PBMs from holding pharmacy licenses and requires those corporations to divest their pharmacy ownership by July 1, 2028. The measure is designed to curb harmful practices that have harmed pharmacies and patients alike, including below-cost drug reimbursement, patient steering, and excessive drug pricing.
The FAIR Rx Act targets entities that own pharmacies, insurance companies, and PBMs simultaneously. It is not just pharmacies or PBMs in isolation. It is insurance companies that also own pharmacies, the legislation targets this vertical integration directly.
The original bill carried an even tighter compliance timeline before negotiation softened it. If passed, PBMs would be prohibited from holding pharmacy licenses from January 1, 2027, according to the bill’s original language. Sponsor Bobby Harshbarger, a member of the Tennessee Senate, wrote in a public statement: “For too long, pharmacy benefit managers have been allowed to own or control pharmacies while also deciding which pharmacies patients can choose. That conflict of interest leads to patient steering, reduced choice, and local pharmacies being squeezed out.”
Importantly, the law is structurally narrow in a way that matters for understanding who it affects. A pharmacist at a local independent pharmacy clarified what the act does and does not cover when asked whether it would affect other pharmacy chains operating in the state: it doesn’t affect Walgreens, it doesn’t affect Walmart, it doesn’t affect Kroger. The law specifically targets the vertical integration model where a single corporate parent owns the pharmacy, the PBM, and the insurer simultaneously, which describes CVS Health’s structure precisely.
CVS’s Response and the Legal Arguments
CVS did not wait to see how enforcement might unfold before responding.
CVS issued a statement after the governor signed the legislation, stating they would be seeing the state in court over the law. “We will exhaust all options we can to continue to provide pharmacy and health care services to our 1.5M+ Tennessee pharmacy patients and will be filing a lawsuit this afternoon challenging the constitutionality of this law in federal court. This unconstitutional law puts special interests and local politics ahead of patients.”
CVS Health sued Tennessee on the same day Lee signed the law banning a pharmacy benefit manager from also owning a pharmacy. The complaint moved fast, filed the same day the governor’s signature became official.
In a statement to Fierce Healthcare, a CVS spokesperson said the company believes the law is designed to target CVS Health specifically, not to protect patients. “Tennessee lawmakers crafted the law to exclude CVS Health’s pharmacy operations while protecting in-state pharmacy businesses.”
The legal theory CVS is pursuing rests on two specific constitutional and statutory arguments. CVS argued in its lawsuit that the law illegally boots out-of-state companies from Tennessee’s pharmacy market, disproportionately targeting national companies while favoring in-state pharmacy businesses.
That argument invokes the Dormant Commerce Clause, the constitutional principle that prohibits states from passing legislation that discriminates against or unduly burdens interstate commerce in favor of in-state economic interests. CVS is arguing the FAIR Rx Act, despite its facially neutral language about vertical integration, functions in practice as protectionist legislation aimed at insulating Tennessee’s independent pharmacies from out-of-state competition.
The second argument involves federal preemption under ERISA, the federal law governing most employer-sponsored health plans, the same legal terrain covered in last issue’s newsletter regarding Any Willing Provider statutes. CVS contends the law interferes with the ability of nationwide employee benefit plans to rely on PBM-affiliated pharmacies; a function ERISA’s broad preemption clause is designed to protect from state-by-state interference.
The Financial Stakes CVS Is Citing
CVS has not limited its public response to legal arguments. The company has made specific economic and operational claims designed to shape public and legislative opinion alongside the litigation.
CVS Health warned it could close all 134 of its pharmacies in Tennessee if the bill went ahead. Spokesperson Amy Thibault told reporters: “The only thing this legislation does is force the closure of 134 CVS pharmacies. It’s bad 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.” Thibault also warned that CVS Health could have to shut down 25 in-store MinuteClinic locations.
When the Fair Rx Act was first introduced by lawmakers in January, it sparked backlash because CVS said it would be forced to close more than 130 of its pharmacies across the state if it passed.
CVS has separately projected a cost impact on Tennessee employers. The company has warned the legislation could increase Tennessee employers’ prescription drug costs by more than $180 million annually beginning in 2028, once the divestiture deadline takes effect.
The Independent Pharmacist’s Counter-Argument
The pharmacy community’s response to CVS’s closure warnings has been direct and, notably, has reframed the closure threat as evidence supporting the law’s premise rather than a reason to oppose it.
A local Tennessee pharmacist, Jacob Standefer of Access Family Pharmacy on Hixson Pike, responded to CVS’s lawsuit: “I think it’s a huge win for the people of Tennessee. It is going to bring back choice, where you can go and get your medication. You’re not required to use one pharmacy because that pharmacy is owned by your health insurance company and also owns the PBM. I think it will drastically lower the cost of healthcare.” He added directly regarding the lawsuit’s protectionism claim: “As a matter of common sense, banning the out-of-state pharmacies will necessarily steer more patients to the local independents.”
That last comment is worth sitting with. Standefer is not denying that the law will benefit independent pharmacies relative to CVS. He is arguing that outcome is the natural and intended consequence of removing a structural conflict of interest, not evidence of illegal protectionism. Whether a federal court agrees with that framing or with CVS’s Dormant Commerce Clause theory is precisely what this case will determine.
Why This Case Is Bigger Than One State
This is not an isolated dispute. The Tennessee case has parallels with a 2025 suit filed against a similar law in Arkansas. If Arkansas and Tennessee can successfully defend these laws addressing vertical integration in the pharmaceutical supply chain, it would be a positive sign for states considering other ways to limit vertical integration, such as limiting insurer- or hospital-owned medical practices. If the new laws are overturned, the prospects for analogous legislation may depend on the specific legal grounds on which they are struck down.
There is also a federal dimension developing in parallel, and it matters because federal legislation would sidestep the exact constitutional arguments CVS is using against the state laws. The Patients Before Monopolies Act, H.R. 8779, reintroduced in May of 2026, would prohibit a PBM, a health insurer, or a parent company of these entities from owning a pharmacy business, with a 3-year divestiture period, like the state laws. Because this would be federal legislation, the Dormant Commerce Clause and Supremacy Clause claims made against the state laws would not apply. The Dormant Commerce Clause restricts only state laws that discriminate against or unduly burden interstate commerce, and the Supremacy Clause provides that federal law supersedes state law, so neither constitutional argument would be available against a federal PBM ownership ban.
That distinction matters enormously for the long-term trajectory of this fight. If federal courts strike down Tennessee’s and Arkansas’s laws on Dormant Commerce Clause or ERISA preemption grounds, those same legal vulnerabilities will not exist for a comparable federal statute. The Patients Before Monopolies Act, even if it doesn’t pass this Congress, represents the structural alternative path to achieving PBM-pharmacy separation that survives the exact legal challenge currently playing out in Nashville.
There’s also relevant context from federal oversight worth noting. A recent HHS Office of Inspector General finding examined whether vertical integration drives higher drug costs in Medicare specifically, a question directly relevant to how courts and policymakers will weigh CVS’s economic claims against the law.
What This Means for Pharmacists Outside Tennessee
This newsletter has covered the broader PBM reform landscape extensively, the federal PBM Reform Act provisions signed into law in February, the Optum Rx and Cigna shift toward cost-based reimbursement, and the Main Street Pharmacy Access Act advancing through committee. The Tennessee fight is a different and, in some ways, more fundamental battle than any of those. It is not about how PBMs reimburse pharmacies. It is about whether PBMs can own pharmacies at all.
If this structural separation model survives federal court scrutiny in Tennessee, it provides a legal template that other state legislatures can adopt with greater confidence. If it fails, the legal grounds on which it fails will determine whether state-level structural separation remains viable anywhere, or whether the only durable path to PBM-pharmacy ownership separation runs through federal legislation like the Patients Before Monopolies Act.
Your Action This Week
Watch how the federal court in the Middle District of Tennessee rules on CVS’s motion. This litigation will move through preliminary injunction requests before reaching any final resolution, and the early procedural rulings, particularly whether the court grants or denies a preliminary injunction blocking the law’s enforcement while the case proceeds, will be the first meaningful signal of how this fight is likely to resolve.
If the law survives initial legal challenges, expect a wave of similar legislation introduced in other state legislatures heading into 2027 sessions. If you are in a state actively considering PBM-pharmacy separation laws, this case is your preview of the legal battle ahead. Get familiar with both the Dormant Commerce Clause and ERISA preemption arguments now, because they will be the central legal battlefield in your state’s version of this fight when it arrives.
The conflict-of-interest independent pharmacists have been fighting against for over a decade, the same entity setting reimbursement rates, owning the insurance plan, and operating competing pharmacies, is now being tested directly in federal court. The outcome in Nashville will shape what tools are available to every pharmacist in the country who has ever lost a patient to a PBM’s affiliated pharmacy under reimbursement terms that statute after statute, audit after audit, keeps revealing were never built on a level playing field.
Sources: Tennessee Pharmacists Association (Governor Lee Signs FAIR Rx Act Into Law, May 22, 2026), WKRN (FAIR Rx Act Signed by Gov. Bill Lee; CVS Sues in Federal Court), Local3News (UPDATE: CVS Files Lawsuit Against Tennessee’s Fair Rx Act, Local Pharmacist Disagrees With Court Filing), Tennessee Lookout (CVS Sues Tennessee Over Pharmacy Benefit Manager Monopoly Law, May 26, 2026), Fierce Healthcare (CVS Sues to Challenge Tennessee’s New PBM Law), Healthcare Dive (CVS Sues to Challenge New Tennessee PBM-Pharmacy Breakup Law), HMP Global Learning Network / PharmLaw News (CVS Challenges Tennessee Law Restricting PBM Ownership of Pharmacies), The Source on Healthcare Price and Competition (Tennessee Sued Over Structural Approach to PBM Vertical Integration), The Independent / Yahoo News (CVS Warns It Could Close All 134 Locations in a Single State if New Bill Goes Ahead)