Tennessee’s SB2040, which would bar pharmacy benefit managers (or PBMs) from owning pharmacies, is being framed as a fight between free markets and government interference. That framing misses what actually built the PBM industry.
Three companies control 80% of this market. They got there because Washington built a maze only giants could navigate. Federal law blocks states from regulating most employer health plans, so PBMs largely escape local oversight. When Congress created Medicare’s prescription drug benefit, it wrote PBMs into the statute as mandatory middlemen. Federal regulators then spent two decades waving through merger after merger, until the survivors bought the pharmacies they were supposed to negotiate against on behalf of patients.
When CVS owns both Caremark and the pharmacy counter, it negotiates with itself, and we don’t have to guess what that looks like. Tennessee’s Department of Commerce and Insurance audited CVS Caremark and found the PBM paid its own affiliated pharmacies reimbursement rates as much as 16,510% higher than non-affiliated pharmacies. A separate audit of Express Scripts documented more than $30 million in spread-pricing revenue extracted from plan sponsors and patients across 753,000 claims. Patients, employers, and independent pharmacies all pay for that closed loop…