Tennessee has taken a meaningful step toward restoring trust in the prescription drug marketplace. With the passage of Senate Bill 2040 and Governor Bill Lee expected to sign it into law shortly, the state has moved beyond debate and into action on one of the most complex structural issues in healthcare.
At the center of this issue is a simple question: should the entities responsible for managing prescription drug benefits also own the pharmacies that profit from those decisions? For years, pharmacy benefit managers have operated as intermediaries between insurers, drug manufacturers, and pharmacies, negotiating prices and determining how medications are distributed. While that role was originally designed to reduce costs, consolidation and vertical integration have fundamentally changed how the system functions.
When a PBM also owns a pharmacy, it is no longer acting as a neutral administrator. It becomes both decision-maker and beneficiary. The analogy often used is that of a referee owning a team, and while simple, it accurately reflects the concern. Even if decisions are technically within the rules, the structure itself introduces doubt about fairness and undermines trust in the system.
Senate Bill 2040 addresses this issue directly by requiring separation between PBMs and the pharmacies they influence. It does not eliminate PBMs or prevent them from operating in Tennessee. Instead, it removes the financial incentive to steer patients toward affiliated pharmacies and restores a boundary that helps ensure decisions are made without inherent conflicts of interest. This distinction is important, particularly as some have suggested the legislation would force widespread pharmacy closures. Those claims are not supported by the language of the bill. Companies can continue operating in Tennessee, but they must do so within a structure that promotes fair competition.
The importance of this reform becomes clearer when examining how the current system affects patients and providers. Many of the most concerning practices are not visible to the public but have real financial and clinical consequences. These include:
- Patient steering toward pharmacies owned by PBMs rather than those chosen by patients or providers
- Rebate structures that favor higher-cost drugs because they generate larger returns for intermediaries
- Reimbursement disparities that disadvantage independent and community pharmacies
Federal audits and regulatory reviews have repeatedly raised concerns about these dynamics, including findings that significant savings negotiated by PBMs are not always passed on to patients or payers. In some cases, patients and employers end up paying more, even as intermediaries report increased profits. This disconnect highlights a system that has drifted away from its original purpose.
By addressing vertical integration, Tennessee is targeting a root cause rather than a surface-level symptom. When a single entity can influence pricing, determine access, and benefit from its own decisions, the market becomes distorted. Removing that overlap creates a more level playing field where pharmacies compete based on service, access, and quality of care instead of corporate alignment.
This shift is particularly important for independent pharmacies, many of which serve rural and underserved communities. These providers have long argued that current reimbursement models and network restrictions make it difficult to remain viable. By reducing incentives for steering and creating more equitable conditions, the legislation supports broader access to care and strengthens the overall healthcare ecosystem.
Tennessee’s action also reflects a broader national conversation. Policymakers across the political spectrum have begun to question the role of intermediaries in driving up drug costs. Federal regulators, including the Federal Trade Commission, have examined PBM practices and raised concerns about transparency and market concentration. Similar reforms have been introduced in other states, signaling growing momentum toward structural change.
As SB2040 moves toward implementation, the focus will shift to how organizations adapt. PBMs and affiliated pharmacies will need to restructure operations to comply with the new requirements, which may involve separating business units or redefining relationships. While that process may be complex, it represents a necessary adjustment toward a more transparent and accountable system.
Healthcare is inherently complicated, but the principles guiding it should be clear. Patients deserve access to medications without hidden incentives influencing where they go or what they pay. Providers deserve a system where clinical decisions are not overshadowed by corporate ownership structures. Employers and taxpayers deserve confidence that the dollars they spend on healthcare are being used effectively.
Senate Bill 2040 does not resolve every challenge within the prescription drug supply chain, but it addresses a foundational issue that has shaped many of the problems we see today. By restoring appropriate boundaries and promoting fair competition, Tennessee is taking a step toward a system that better aligns with the needs of patients.
When the structure of a market creates doubt about fairness, trust begins to erode. This legislation is an effort to rebuild that trust and ensure that the rules governing healthcare serve the people who depend on it.
Author bio:
As Founder and Chief Executive Officer of TwelveStone Health Partners, Shane Reeves has built a best-in-class specialty infusion center organization that covers 6 states and 30 sites. With patient experience data including more than 3,000 5-star ratings, TwelveStone has become a model of care delivery focus on those with chronic long-term conditions.
Photo credit: ljubaphoto, Getty Images
