PBM pharmacy ownership ban passes in Tennessee

But a three-judge panel at the 6th U.S. Circuit Court of Appeals ruled last week that ERISA does preempt a Tennessee PBM law enacted in 2021 and another Tennessee PBM law enacted in 2022.

Enactment of the FAIR Rx Act bill likely would lead to a new legal battle between pharmacies and employer groups over what, if anything, states can do to regulate PBMs that serve ERISA plans.

CVS Health, the parent of Aetna and Caremark, has said in a statement that it will close drug stores in Tennessee and sue the state if the bill becomes law.

"While disguised as anti-PBM, this misguided legislation will not lower drug costs and is solely designed to benefit independent pharmacies, with no thought about the patients who'd lose access to the pharmacist who they know and trust," the company said.

What it means: Pharmacies have persuaded all states to regulate PBMs, most to block PBM restrictions about what pharmacists can say about drug prices, and more than 30 to require PBMs to cover drugs purchased from any pharmacy willing to meet their contract terms.

Related: State PBM battles near the finish line, but new fights loom

But the 6th Circuit ruling shows that the FAIR Rx Act bill and other state efforts to regulate PBMs that serve ERISA plans are facing lawsuits in the federal courts.

The backdrop: PBMs help employers' self-insured health plans, health insurers and other "payers" set up and administer prescription drug benefits.

Pharmacists and prescription drug manufacturers argue that big PBMs use complicated, poorly disclosed strategies to maximize discounts by pushing up drug list prices, then convert big portions of the discounts into secret streams of revenue for themselves.

The PBMs' critics also argue that the big PBMs increase their profits and make their finances harder to understand by owning pharmacies and pushing health plan participants to use the PBM-owned pharmacies.

The PBMs argue that their critics have an obvious bias, that PBMs save customers enormous amounts of money, and that PBMs have high customer retention rates.

ERISA preemption: Congress included a provision in ERISA — a federal benefits reform law enacted in 1974 — indicating that federal law preempts state efforts to regulate benefits at large employers and multistate employers, to protect those employers from having to spend time and money reconciling conflicts between state benefit rules.

The Supreme Court ruled in 2020, in connection with Rutledge v. the Pharmaceutical Care Management Association, that states may be able to regulate health care organizations that serve ERISA plans if the regulations simply affect the organizations' general operations, make no mention of employer health plans and have no direct connection with employer health plans.

But, in June 2025, the Supreme Court declined to hear an appeal on a ruling issued by the 10th U.S. Circuit Court of Appeals on Glen Mulready et al. v. the PCMA.

Oklahoma regulators had applied a state pharmacy benefit manager law to PBMs that were working with ERISA plans,

The 10th Circuit blocked Oklahoma's effort to regulate PBMs that serve ERISA plans, even though Oklahoma lawmakers had tried to base the law on the interpretation the Supreme Court included in the Rutledge ruling.

The Tennessee bill: The new Tennessee bill was introduced in the Tennessee Senate Jan. 22, and a similar bill was introduced in the state House on the same day.

State Sen. Robert Harshbarger III, R-Kingsport, Tenn., is the sponsor of the Senate version of the bill. Harshbarger is a pharmacist and the son of U.S. House Rep. Diana Harshbarger, R-Tenn.

State Rep. Rick Scarbrough, R-Oak Ridge, Tenn., is the sponsor of the House companion bill.

The bill would prohibit a PBM from directly or indirectly acquiring, owning or controlling a pharmacy license or a pharmacy license older.

The bill includes an exemption for organizations, such as hospitals or health systems, that provide PBM services for their own health plans, but it does not include an exemption for employers' self-insured employer health plans or other employer plans governed by ERISA.

The bill does include a section stating that the law created by the bill would regulate "the qualifications, licensure, ownership, and control of pharmacies as a condition of professional practice within this state and does not regulate drug manufacturing, labeling, interstate shipment, pricing, reimbursement, insurance benefits, or the design or administration of employee benefit plans governed by the federal Employee Retirement Income Security Act."

The bill passed by a 24-9 vote in the Tennessee Senate Monday.

The McKee Foods Case: In 2021, Tennessee enacted a law that prohibits PBMs from steering a patient toward favored pharmacies or making any other efforts to interfere with a patient's choice of pharmacy.

In 2022, the state enacted a law that applied that ban on steering to plans governed by ERISA, and it required a PBM to cover drugs plan participants purchased from any pharmacy willing to accept the PBM's reimbursement rates and other payment terms.

McKee Foods — the Collegedale, Tennessee-based company that makes the Little Debbie Nutty Buddy cookies — sued to block the 2021 law in the U.S. District Court for the Eastern District of Tennessee in 2021.

McKee Foods argued that ERISA should preempt the Tennessee law.

The ERISA Industry Committee, a group for sponsors of ERISA plans, backed McKee Foods.

A district court judge ruled in the company's favor in March 2025.

A three-judge panel upheld the district court preemption ruling in a judgment and opinion issued April 7.

"States can enact laws looking to regulate health care and PBMs," Circuit Judge Stephanie Dawkins wrote in the opinion. "But those laws cannot trespass into ERISA's territory. Because the Tennessee laws McKee challenges have an impermissible connection with ERISA plans, they are preempted."