Tennessee’s PBM Ban Would Raise Costs — and Hit the Poor the Hardest

Originally published at PJ Media. 

In March, Tennessee’s Senate Finance Committee voted to send SB 2040 to the full Senate. Their reasoning is simple: banning pharmacy benefit managers (PBMs) from owning or operating pharmacies in the state will lower drug prices.

It sounds great. But senators who voted in favor of the legislation are ignoring top state officials who have warned that SB2040 is far more likely to raise costs, reduce access, and hit low-income Tennesseans first.

Start with the stakes. TennCare covers about 1.4 million Tennesseans and runs about $19.2 billion a year. It serves roughly 20% of the state, covers about half of births, and insures about half of Tennessee’s children. When TennCare takes a financial hit, it’s not “the system” absorbing it — it’s pregnant women, kids, seniors, and people with disabilities.

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

The estimate is about $66 million in added TennCare costs — roughly $24 million on taxpayers and $42 million borne by patients. That means a bill marketed as “patient protection” functions like a cost increase on poor Tennesseans. For families already stretched by groceries, rent, and gas, higher costs don’t improve health — they lead to delayed or skipped prescriptions and worse outcomes later.

​Fiscal staff are warning about the mechanisms behind that cost: higher drug acquisition costs, higher dispensing fees, and higher administrative costs from renegotiating pharmacy networks and reimbursement arrangements. That’s what happens when the government forces a restructuring rather than letting competition work.

This comes at the worst time. Tennessee’s comptroller has warned the coming year will be the tightest budget year in nearly eight years. Adding tens of millions in new TennCare costs without credible proof of better outcomes or lower net prices is a bad trade.

There’s also a serious access risk. CVS has warned that SB 2040 could force the closure of 134 Tennessee pharmacy locations. Maybe that’s negotiating pressure, maybe it’s real. But lawmakers shouldn’t gamble with pharmacy access — especially in rural areas where people don’t have multiple options.

Here’s the bigger economic point: PBMs didn’t invade a free market. They expanded inside a third-party payer system dominated by government programs, mandates, and opaque pricing. 

When patients are disconnected from prices, complexity grows and intermediaries fill the gap. Banning a business model doesn’t fix those incentives. It piles state control on top of federal distortions and then acts surprised when costs rise.

​Other states are already learning the hard way. Arkansas’ PBM ownership ban was blocked via a preliminary injunction, and Iowa’s PBM crackdown was also hit with a preliminary injunction. Tennessee shouldn’t rush into a costly policy trend that’s both economically shaky and legally unstable.

If lawmakers want a better approach that puts patients first, the answer is to empower patients by expanding competition and reducing barriers at the point of care — not banning ownership structures. A practical step is empowering pharmacists and reducing state restrictions that limit capacity and raise overhead.

As the full Senate considers SB2040, lawmakers should answer one question: why impose a restructuring that TennCare says will raise costs and reduce access — especially for the poor — without clear evidence it will lower drug prices or improve outcomes?