The unseen costs of banning PBM-owned pharmacies in Tennessee

Tennessee lawmakers recently passed the FAIR Rx Act, which would bar companies from owning pharmacies while also operating a pharmacy benefit manager (PBM) and a health insurer in the state, targeting businesses like CVS. Supporters argue that the bill would curb conflicts of interest and protect independent pharmacies, but the real-world consequences remain largely untested. With Arkansas’s similar law still tied up in court, Tennessee offers a timely opportunity to assess how such a ban might affect pharmacy access and market competition.

What are pharmacy benefit managers?

PBMs play a central role in the prescription-drug market, handling claims, negotiating prices, and building pharmacy networks for health plans. They are part of a large, highly intermediated system in which scale, contracting, and integration are normal features rather than exceptions.

While they can create real efficiencies in a complex prescription-drug market, critics argue the system is opaque and dominated by a few large firms, squeezing independent pharmacies and frustrating patients. The key policy question is whether concerns about PBM behavior justify banning vertical integration outright, or whether states should instead target specific harmful practices directly. As health care economist Jeremy Nighohossian argued, a blanket ban on PBM-owned pharmacies condemns a business form first and asks consumer-welfare questions later.

Tennessee’s regulatory environment

Tennessee already regulates PBMs, with a 2022 law and subsequent rules governing licensure, reimbursement appeals, and oversight. Consequently, Tennessee already has legal tools to police PBM conduct.

The FAIR Rx Act would go further, prohibiting PBMs from directly or indirectly owning or controlling pharmacies beginning in 2028. A separate bill would raise reimbursement floors and tighten payment rules further. The question is no longer whether to regulate PBMs, but whether to prohibit vertical integration in this sector and accept the costs that result.  

The statewide tradeoffs of PBM bans

In “The Seen and the Unseen,” Frédéric Bastiat warned that bad policy often broadcasts its visible effects while concealing real costs. The seen effects of a PBM-pharmacy ban are obvious enough: legislators can say they stood up to PBMs; rival pharmacies have less competition; and supporters can claim they’ve reformed a disliked ownership model. The invisible costs then fall on everyday Americans in the form of higher prices and compliance costs.

If FAIR Rx is signed into law, CVS would be most affected as it is the only PBM-owned retail pharmacy chain in Tennessee. CVS therefore would serve as an example of how a PBM ban would affect pharmacy access.

This bill would not automatically shutter every CVS, though. Tennessee’s fiscal note says compliance could occur through divestiture, restructuring, or other business transitions, and it explicitly says the bill does not require pharmacy closures. However, CVS warned that this would force it to close all 134 Tennessee pharmacies and eliminate roughly 2,000 jobs. Although this may just be political bluster, the no-CVS model remains a legitimate scenario that FAIR Rx may entail. This would force CVS customers to travel to their second-closest pharmacy rather than retain the one they’ve already chosen to use.

CVS is the nearest pharmacy for 29 ZIP codes in Tennessee, covering 724,051 people (roughly 10 percent of the state’s population). While removing CVS would not create pharmacy deserts, the data shows roughly 406,887 added one-way person-minutes of travel exposure, or about 6,781 person-hours, amounting to 14,000 hours and 480,881 driving miles of extra travel round trip. This would cost about $349,000 statewide, assuming one round-trip visit per person.

A 2022 study found a median of five annual community-pharmacy visits among commercially insured adults, while higher-need populations visited much more often. Annual burden would depend heavily on how often affected patients use pharmacies, but even conservative assumptions would multiply the per-trip costs quickly.

That is exactly the sort of cost Bastiat considered in “The Candlemakers’ Petition.” Every dollar spent complying with an artificial constraint is a dollar not spent elsewhere. That is the unseen cost of a PBM-pharmacy ban: resources quietly pulled away from better uses to satisfy a policy with an undetermined cost-benefit tradeoff. Even that possibly understates the disruption, as this data does not capture every Tennessean who would be forced to change behavior under a ban.

People choose pharmacies based on their daily routines and familiarity. Many currently choose CVS instead of other national brands or local pharmacies, for example. Out of the 134 CVS locations in Tennessee, only 26 are the nearest pharmacy to a ZIP code’s population center. That means 724,051 is not a count of everyone who relies on CVS in practice; it is only the narrower group captured by a nearest-pharmacy model. The real disruption could very well be larger.

Localized burdens, concentrated gains

Statewide averages have a way of concealing where the burden actually falls, downplaying how dependent some communities are on CVS. For example, in the city of Soddy Daisy, losing the nearest CVS would add about 2.4 minutes to the nearest pharmacy trip, while in one Nashville ZIP code the added per-trip increase is smaller but totals more than 900 extra driving hours across residents.

County-level data shows the same pattern: Weakley County has 16 pharmacies in total (three CVS), Carter County has 14 (two CVS), and Marion, Giles, and Grundy have only six or seven pharmacies each, with one CVS apiece. The access burden of FAIR Rx would fall hardest where local pharmacy options are thinnest.

 

Displaced business would largely shift to other major chains, not new local competitors. Walgreens would become the new nearest pharmacy for eight ZIP codes covering about 275,000 people, while Kroger would gain four ZIPs (covering about 135,000 people), and Walmart three (about 125,000 people).

Policies like FAIR Rx do not eliminate scale or corporate power, they merely shift customers from one large chain to others while patients bear the switching costs.

Tennessee already has tools to regulate PBMs. If they are inadequate, lawmakers can strengthen them, and if a PBM violates the law, the state should enforce it. Banning PBM-owned pharmacies instead risks higher travel burdens and localized costs while benefiting rival chains.

It is not the government’s role to dismantle a lawful business arrangement without clear evidence of consumer harm and proof that narrower remedies would fail. While FAIR Rx proponents cite conflicts of interest and higher costs, the bill offers little quantified evidence of savings, and its fiscal summary says the overall effect is uncertain.

Meanwhile, Tennessee’s own data shows the downside clearly: real consumer costs, hidden behind symbolic policy, and business shifted to favored incumbents without addressing a demonstrated problem. That is not reform; it is regulation in search of justification.