Systems Explained: Tennessee’s Fair Rx fight moves from the legislature to federal court
By The Redemption Project Newsroom
Civic / Government Desk
Tennessee’s fight over pharmacy benefit managers has moved from the legislature to federal court.
At the center of the dispute is the Fair Rx Act, a new Tennessee law aimed at separating pharmacy benefit managers, known as PBMs, from the pharmacies they own or control.
Supporters say the law is needed because vertically integrated health-care companies can manage prescription benefits, set pharmacy reimbursement rules, steer patients through pharmacy networks and own pharmacies that profit from those decisions.
Opponents say the law is unconstitutional, protectionist and could disrupt prescription access for patients who rely on retail, mail-order and specialty pharmacies owned by PBM-affiliated companies.
That makes the Fair Rx fight about more than one company, one pharmacy counter or one lawsuit.
It is a systems fight over who controls the prescription-drug marketplace.
A PBM is a company hired by insurers, employers and health plans to manage prescription-drug benefits. PBMs can negotiate rebates or discounts with drug manufacturers, create formularies, set pharmacy networks, process claims, reimburse pharmacies and operate mail-order or specialty pharmacy services.
In plain language, PBMs sit between the health plan, the drug company, the pharmacy and the patient.
The complication is that the largest PBMs are often part of corporate families that also own insurers, retail pharmacies, mail-order pharmacies or specialty pharmacies.
That structure is called vertical integration.
Supporters of Tennessee’s law say vertical integration creates a conflict of interest. Their argument is that the same corporate family should not be able to help design the drug benefit, decide which pharmacies are in network, set reimbursement terms and then own the pharmacy filling the prescription.
PBMs and affiliated companies say the structure can improve coordination, lower costs, support mail-order access and help patients obtain specialty medications that may be difficult to manage through ordinary retail pharmacies.
Both sides describe the fight as a patient-access issue.
Independent pharmacies say PBM practices can squeeze local pharmacies, especially rural pharmacies that may have limited bargaining power. They argue that if local pharmacies close, patients lose nearby access to medication, advice and basic health-care support.
PBM-affiliated companies argue the Fair Rx Act could force pharmacy closures or divestment, reducing access for patients who depend on CVS stores, specialty pharmacies, mail-order prescriptions or military-related pharmacy services.
That is why this is not a simple story.
Independent pharmacies can be essential community access points. PBMs can also provide services used by employers, insurers and patients. The legal and policy question is whether Tennessee can restructure part of the prescription-drug marketplace to reduce conflicts of interest without violating federal law or disrupting access to care.
The Fair Rx Act is one of the most aggressive state PBM laws in the country because it does not only regulate reimbursement practices or require more transparency. It targets ownership and control.
The Tennessee General Assembly’s bill summary describes the law as an act related to the ownership or control of pharmacies by pharmacy benefit managers.
The Tennessee Pharmacists Association says the law prohibits PBMs from holding pharmacy licenses and requires those companies to divest pharmacy ownership by July 1, 2028.
CVS, Express Scripts and the Pharmaceutical Care Management Association, the PBM industry’s main trade group, have filed legal challenges in federal court.
Their lawsuits argue, in different ways, that Tennessee exceeded its authority. The companies and trade group say the law violates constitutional limits on state regulation, interferes with interstate commerce and conflicts with federal laws governing employer health plans or federal health programs.
One major legal argument is the Commerce Clause.
PBMs argue Tennessee is using state law to push out-of-state, vertically integrated companies out of the pharmacy market while protecting local competitors. Supporters of the law reject that framing and say the state is regulating pharmacy ownership to protect competition, patient access and market fairness.
Another legal issue is federal preemption.
PBMs argue the Tennessee law interferes with federally regulated health plans, including employer-sponsored plans and federal prescription programs. Tennessee and supporters of the law are expected to argue that states have traditional authority to regulate pharmacies and protect health-care markets.
The Supreme Court has already allowed some state regulation of PBMs. In 2020, the Court ruled in an Arkansas case that federal law did not preempt a state law regulating PBM reimbursement rates.
But Tennessee’s law goes further than reimbursement.
It attempts to separate PBMs from pharmacy ownership. That is why the federal court fight matters.
If Tennessee wins, other states may see a path to more aggressive PBM ownership laws. If the challengers win, courts may limit how far states can go in trying to break up vertically integrated prescription-drug businesses.
For patients, the practical question is simpler.
Will the medicine they need remain affordable, available and close enough to get?
Supporters of the Fair Rx Act say patients are harmed when independent pharmacies are squeezed by reimbursement practices and steering. Opponents say patients will be harmed if PBM-affiliated pharmacies are forced to close, divest or stop serving Tennessee customers.
Neither outcome is guaranteed yet.
The law’s full ownership provisions do not take effect immediately. The key legal question now is whether a federal court allows Tennessee to continue implementing the law or pauses enforcement while the lawsuits proceed.
The next stage is likely to involve motions asking the court to block the law before the divestment deadline creates business and patient-access consequences.
The broader debate will continue outside court.
Lawmakers, employers, pharmacists, patients, insurers and PBMs are all asking different versions of the same question: who should have power over prescription-drug access?
The answer may determine how Tennessee regulates pharmacies, how national health-care companies structure their businesses and whether other states follow Tennessee’s lead.
The Fair Rx Act began as a state law.
It is now a federal test case over how far states can go in rewriting the rules for the prescription-drug marketplace.
The Civic / Government Desk at The Redemption Project Newsroom covers government, elections, public policy, legislation, public agencies, local decision-making and the civic systems that shape daily life. The desk focuses on clear, fact-grounded reporting that explains what officials are doing, how public decisions are made, who is affected, what remains unclear and why the issue matters to citizens.