Stop Scapegoating Middlemen in Healthcare

There’s a familiar pattern in health policy: politicians pick something voters are mad about, declare war on it, and promise quick relief. Right now, “ban the middlemen” is the fashionable version of that impulse. It sounds conservative. It sounds pro-consumer. And it looks like action.
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But it’s mostly a cover story—because the real driver of high costs is the third-party system politicians helped build and still protect. Middlemen didn’t break a free market. They expanded inside a market distorted by government.

That’s why Tennessee’s SB 2040 matters far beyond Nashville. The bill would prohibit pharmacy benefit managers (PBMs) from owning or operating pharmacies, and it heads to Senate Finance on March 24. Supporters claim it targets conflicts of interest and will lower prices. The problem is that the bill doesn’t fix the incentives that drive high costs. It just rearranges the supply chain by statute—an expensive political shortcut that is likely to hit low-income patients first.

The Costs Don’t Disappear. They Move.

Start with the program that will feel this immediately: TennCare. It covers about 1.4 million Tennesseans and spends roughly $19.2 billion annually—serving about 20% of the state, covering about half of births, and insuring about half of Tennessee’s children.

When TennCare gets hit with higher costs, it isn’t abstract. It affects pregnant women, kids, seniors, and people with disabilities—those with the least flexibility to absorb higher costs or disruptions.

That’s why TennCare leaders have been blunt. In a recent legislative hearing, TennCare’s chief pharmacy officer warned SB 2040 would cause “a significant member impact on access to treatment” and “a significant fiscal impact to our program.” TennCare’s director reinforced that the agency has data showing “with reasonable certainty” there will be a fiscal impact.

The estimated impact is about $66 million—with roughly $24 million on taxpayers and $42 million effectively borne by patients. That’s the ugly reality: a bill marketed as “protecting patients” can function as a cost increase on the poor.

Access risk is real, too. CVS has warned SB 2040 could force closures of 134 Tennessee pharmacy locations, and additional reporting highlights the same threat and likely access impacts here. Maybe it’s posturing. Maybe it’s not. But lawmakers shouldn’t gamble with pharmacy access—especially in rural communities where “choice” can mean one pharmacy or none.

PBMs Are a Symptom of Third-Party Healthcare

Here’s the part the “ban them” crowd avoids: PBMs didn’t invade a free market. They grew inside a government-shaped system dominated by third-party payment and opaque pricing. When patients aren’t directly spending their own dollars, price signals weaken. When price signals weaken, complexity grows. When complexity grows, intermediaries expand to negotiate, manage claims, and administer formularies.

That’s why more regulation isn’t the solution. It’s the same institutional mistake conservatives criticized in the Affordable Care Act era: government stepping in to “fix” problems created by government distortions, without restoring market incentives. Changing the tool (banning an ownership model) doesn’t change the broken system that breeds complexity and middle layers.

This is also why the PBM debate rhymes with the price transparency debate. “Transparency” sounds conservative—sunlight and all that. But in a third-party system, the prices being displayed are often not real market prices. They’re administrative prices shaped by mandates, reimbursement formulas, cross-subsidies, and contracting games.

Forcing transparency on distorted prices can mislead patients, punish efficient providers, and give politicians another talking point without fixing the underlying incentive problem: patients still aren’t empowered buyers.

This Isn’t Just Tennessee—Texas and Other States Have the Same Temptation

Tennessee isn’t alone. Texas has seen similar political pressure to “do something” about healthcare costs with measures that sound market-friendly but sidestep the real reform: restoring patient control, competition, and direct price discipline. The temptation is bipartisan and constant—announce a crackdown, regulate the supply chain, and claim victory.

But the third-party system remains. Costs keep rising. Outcomes don’t magically improve. Real reform means empowering people, not rearranging intermediaries.

That’s the case I make in Empower Patients and Doctors to Heal America’s Healthcare System: focus on restoring the patient-doctor relationship, expanding competition, and reducing the government distortions that keep prices opaque and incentives warped.

Three Points for Lawmakers

1. Follow the TennCare warnings. If your own program leaders say costs rise and access falls, don’t pass the bill and hope for the best.
2. Stop banning business models. If there are bad practices, target conduct—not ownership structures—so you don’t shrink access and competition.
3. Lower barriers that block competition. Expand capacity at the point of care, especially by empowering pharmacists and reducing state restrictions that limit supply.

Call to Action

Before the March 24 hearing, Tennessee lawmakers should demand a straight answer: how does SB 2040 lower net drug prices and improve outcomes if TennCare expects higher costs and worse access?

If the evidence isn’t there, they should reject this political shortcut and pursue reforms that actually expand competition and empower patients.

If we want fewer middlemen, we need a system that needs them less. That doesn’t happen through bans or transparency theater. It happens through freedom: more entry, more competition, and more patient control.

Please subscribe today and check out my work at Ginn Economic Consulting at vanceginn.com for more resources.