Imagine learning that the pharmacy filling your prescriptions must change owners — or close — not because it failed patients, but because lawmakers object to its corporate parent. That is a risk Arkansas and Tennessee are taking with their restrictions on pharmacies affiliated with pharmacy benefit managers.
Pharmacy benefit managers negotiate drug discounts, administer prescription benefits, and manage pharmacy networks for insurers and employers. Some belong to companies that also own insurers, mail-order pharmacies, and retail drugstores. These arrangements can reduce administrative costs and coordinate care. They can also concentrate market power.
If regulation forces those systems apart, patients could lose key benefits, and lawmakers will be guilty of getting in a patient’s way, rather than out of it.
As an economist, I question the wisdom of addressing that problem by forcing a particular business structure out of the market. Patients, not competing corporate interests, should determine whether a reform succeeds.
Arkansas enacted Act 624 in 2025 to bar PBMs from holding pharmacy permits. A federal judge blocked its enforcement before the law took effect, and the state appealed. Tennessee's FAIR Rx Act, scheduled to take effect July 1, 2028, generally prohibits a corporate group from holding more than a 5% interest in a pharmacy while also controlling both a PBM and a health insurer. Companies that cannot comply may have to sell pharmacy operations.
The states' concerns are legitimate. A PBM that determines which pharmacies enter a network and how much they are reimbursed has an obvious incentive to favor its own affiliates.
Yet an ownership ban is an unusually blunt remedy. It targets the corporate structure even when lawmakers have not established that breaking it apart will lower costs or preserve access. Integrating pharmacy operations with a PBM can offer logistical advantages, specialized clinical support, and simpler coordination for patients with complicated prescriptions. Those efficiencies are possible, not guaranteed; consolidation can also conceal costs and disadvantage rivals.
The immediate question is what happens to patients during a forced separation. CVS has warned that Tennessee's law could require it to sell or close 136 pharmacies and stop some mail-order services. That is the company's claim, not a prediction that all those stores will close. But legislators ought to be able to answer a basic question before imposing divestiture: Who will fill the prescriptions if the existing providers leave?
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Access is already precarious for many Americans. A 2025 study cited by the Goldwater Institute estimated that 57.1 million people live in pharmacy deserts; another 28.9 million depend on a single pharmacy whose disappearance could leave them with few nearby choices. Those figures do not prove that PBM ownership bans will cause closures. They show how much damage even an avoidable disruption can do.
Independent drugstores are indispensable in many communities. Their complaints about reimbursement and patient steering should not be brushed aside. But a small pharmacy's difficulty matching a national company's delivery network or specialty services is not, by itself, evidence that the larger model should be prohibited. Competition should reward pharmacies that serve patients well, whatever their ownership.
There are other tools available. Lawmakers can demand transparent reimbursement arrangements, meaningful audits, safeguards against steering patients to affiliated pharmacies, and enforcement against deceptive pricing practices. Congress has already enacted PBM reforms for Medicare Part D, with important provisions scheduled to begin in 2028. Those rules deserve a chance to work before legislators assume sweeping divestiture is the answer.
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If regulation forces those systems apart, patients could lose key benefits, and lawmakers will be guilty of getting in a patient’s way, rather than out of it. Regulators have a painful history of blocking transformative business practices and have often picked sides that obstructed innovators, encouraged by incumbents whose market share is under threat.
Lawmakers in Arkansas and Tennessee are interfering with business models that may genuinely benefit patients. They have decided that sacrificing vertical integration and efficiencies in a capital-intensive industry by separating PBMs from pharmacies will better serve patients. History tells us bureaucracy and good intentions are poor ingredients when redesigning complex markets and supply chains.
They should focus on protecting Americans rather than deciding which business models deserve to win in the marketplace.
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[H/T Blaze Media]
