(The Center Square) – CVS Health followed through quickly on its promise to sue Tennessee if Gov. Bill Lee signed a bill requiring the company to divest its pharmacy benefit management arm, filing a lawsuit in federal court shortly after the bill became law.
One of the battles over Senate Bill 2040 centers on whether pharmacy benefit managers harm local pharmacies. The Tennessee Pharmacists Association says they do.
“If you talk to any independently owned pharmacy, they struggle to have any level of negotiation with the big PBMs,” Anthony Pudlo, CEO of the Pharmacists Association, said in an interview with The Center Square before the bill passed. “They’re also being audited by that company and then they can see everything that they’re doing and then they can control how much that pharmacy wants to get paid. I even refer to it as you have a PBM that ends up being the judge, jury and executioner of a local, independent pharmacy because they control the contracts as well as they audit their competition and then change the rules to make it work for their own pharmacies.”
CVS said in its lawsuit, filed Friday in the U.S. District Court for the Middle District of Tennessee, that the law would force 160 retail and specialty pharmacies, including 136 of its own, to close, putting thousands of Tennesseans out of work.
“To what end? The Act’s stated goals are to expand ‘patient choice’ and ‘rural and community pharmacy access,'” the company said in the filing. “But a law that will close over 160 pharmacies (including the 136 CVS retail and specialty pharmacies), eliminate thousands of jobs, ban certain out-of-state pharmacies (like CVS) from providing mail-order pharmacy services, and force over a million patients to find new providers neither expands patient choice nor increases access to pharmacy services.”
The bill could cost the state as much as $24 million, largely due to specialty drug costs, TennCare Director Stephen Smith testified to the Senate Finance, Ways and Means Committee.
Bojan Savic, executive director of the Tennessee Fiscal Review Committee, said there is a disagreement about the cost.
“I would say the main reason for the disagreement is behind the assumption that pharmacies will close,” Savic said. “The assumption in the fiscal note is that those pharmacies have options to restructure, divest and that they can remain in operation, at least for the most part.”
Americans for Lower Drug Prices, a bipartisan group founded by former Trump and Obama administration officials, said the bill would affect rural Tennesseans, cancer patients and chronically ill patients the most.
“A pharmacy that closes, closes for everyone, regardless of what the ownership structure looked like the day before,” the organization said in a statement. “The carveouts in the new law, we believe, will offer little practical protection to patients, including veterans, who rely on the same pharmacies as everyone else in the state.”
The law also violates the federal Dormant Commerce Clause that bars states from passing laws that impede interstate commerce,” CVS said in the lawsuit, calling the bill “naked protectionism.”
The bill’s primary sponsor, Sen. Bobby Harshbarger, R-Kingsport, is a pharmacist. Lt. Gov. Randy McNally is a retired hospital pharmacist. Other lawmakers have ties to the healthcare or pharmaceutical industry or have accepted campaign donations from the Tennessee Pharmacists Association, independent pharmacies or pharmacists, according to CVS.
Arkansas lawmakers passed a similar bill in 2025. CVS sued that state and won a preliminary injunction stopping that bill.
“But Arkansas’s experience did not deter Tennessee from trying the same ploy,” CVS said in the lawsuit. “To the contrary, the General Assembly embraced the Arkansas law in all relevant respects, right down to borrowing the same metaphor of describing PBM affiliation as akin to a ‘fox guarding the henhouse.’”
