A new law passed overwhelmingly by the Tennessee legislature may force the state’s second-largest drug store chain to vamoose.
The Fair Rx Act, signed on May 22 by Gov. Bill Lee, effectively prohibits ownership of retail pharmacies by pharmacy benefit managers, the middlemen who negotiate prices with manufacturers and manage drug plans for insurance companies. CVS Health is the only company that owns an insurer (Aetna), a pharmacy benefit manager (Caremark) and a network of retail pharmacies. If the Fair Rx Act survives legal challenges, CVS must sell or close its 134 Tennessee locations, including 25 MinuteClinics, by 2028.
CVS spent millions of dollars on ads to defeat the measure to little effect, perhaps because the role of pharmacy benefit managers is not well understood by the public. CVS has not always played by the rules, and community pharmacy interests organized an effective campaign.
Pharmacy benefit managers, routinely referred to as PBMs, are intermediaries that operate at the nexus of plan sponsors (employers and insurance companies), pharmacies, drug manufacturers and wholesalers. They have come to serve an important role in the U.S. health care system. These companies design and manage the formularies or lists of covered medications on behalf of insurers, a complex process that involves comprehensive reviews of scientific literature and evidence from clinical trials. They also manage plan details like prior authorizations, deductibles and copays, and refill limits for insurance plans.
One critical function they perform is negotiating drug prices with pharmaceutical manufacturers. Drug companies frequently agree to rebate a portion of a medication’s wholesale price, most of which is passed on to the payer but a portion of which is retained by the prescription benefit manager. In addition, an insurance company may agree to a fixed price for a given drug while the benefit manager pays a lesser amount to the dispensing pharmacy, a practice known as “spread pricing.” They also charge fees for specific administrative services.