Tennessee Takes On Pharmacy Benefit Managers with New Legislation

Pharmacy benefit managers (PBMs) are powerful players in the healthcare system, often sitting between patients, pharmacies, and insurance companies. They negotiate drug prices, manage formularies, and process claims. However, their practices have come under scrutiny for potentially driving up costs and creating conflicts of interest. Tennessee is the latest state to take a stand against these issues, following in the footsteps of Arkansas.

The Human Stakes

For many Tennesseans, the cost of prescription drugs can be a significant financial burden. High drug prices not only affect individuals but also strain healthcare systems and insurance premiums. The FAIR Rx Act, recently passed by Tennessee lawmakers, aims to address some of these concerns by prohibiting PBMs from owning and operating pharmacies within the state.

What is the FAIR Rx Act?

The FAIR Rx Act (House Bill 1959) was approved by the Tennessee Senate with a 24-9 vote and by the House with an 86-7 vote. The bill now awaits a decision from Republican Governor Bill Lee. If signed into law, it would prevent PBMs from owning or operating pharmacies in Tennessee. This measure is designed to reduce conflicts of interest that can arise when PBMs have a financial stake in both negotiating drug prices and selling those drugs through their own pharmacies.

Lessons from Arkansas

Tennessee's legislation closely mirrors a similar law passed in Arkansas last year. Arkansas was the first state to enact such a law, but it faced immediate legal challenges. CVS Caremark, Express Scripts, and the Pharmaceutical Care Management Association (PCMA) quickly sued to block the law, arguing that it violated the Commerce Clause of the U.S. Constitution. The clause prohibits states from passing laws that unfairly harm or discriminate against businesses from other states.

A judge agreed with these arguments and issued a preliminary injunction, preventing the Arkansas law from taking effect. The state has since appealed the decision, but the legal battle continues.

Potential Challenges for Tennessee

If Governor Lee signs the FAIR Rx Act into law, it is likely to face similar challenges. CVS Health has already indicated its readiness to challenge the bill's constitutionality, as it did in Arkansas. Eric Knowles, a partner at Frier Levitt, believes that defending the law could be an uphill battle.

“I do think that it may be an uphill battle to convince a court that it does not violate the Commerce Clause,” said Knowles.

Key Differences

While Tennessee's bill is similar to Arkansas's, there are some notable differences. According to Knowles, one key difference is that Tennessee’s bill does not apply to pharmacy services provided under contracts with the federal government. This distinction could play a role in any legal challenges that arise.

The Broader Context

The efforts by states like Tennessee and Arkansas reflect a growing concern about the practices of PBMs. These concerns are not limited to state legislatures; Congress has also been exploring ways to regulate PBMs, including potential legislation to address vertical integration within the industry.

Looking Ahead

If Governor Lee signs the FAIR Rx Act into law, it will be a significant step in Tennessee's efforts to control prescription drug costs and reduce conflicts of interest. However, the road ahead is likely to be fraught with legal challenges. The outcome of these battles could have far-reaching implications for how PBMs operate across the country.