SB2040, known as the “Freedom, Access, and Integrity in Registered Pharmacy (FAIR Rx) Act,” restructures the relationship between pharmacy benefits managers (PBMs), health insurance issuers, and pharmacies in Tennessee. Beginning July 1, 2028, the bill generally prohibits a person or entity from directly or indirectly owning, operating, controlling, or directing any part of a pharmacy if that person or entity also owns, operates, controls, or directs a health insurance issuer or a PBM, subject to a more-than-5% ownership threshold. The bill defines “control” broadly to include ownership, contracts, shared governance, overlapping management, audit authority, exclusive provider agreements, formulary management clauses, and other arrangements that materially influence pharmacy operations or pharmacists’ independent judgment.
The bill includes several exceptions and transition provisions. It does not treat hospital or health-system pharmacies as PBMs, does not restrict independent pharmacies from offering mail-order, specialty, or delivery services, and excludes certain limited-distribution drugs such as FDA-designated orphan drugs and REMS-restricted drugs. Pharmacies that are currently affiliated in a way that would violate the new rule may continue operating through December 31, 2028 if they are actively pursuing a bona fide sale to an unaffiliated entity, with a possible six-month extension for substantial progress. The attorney general is given enforcement authority, violations are subject to civil penalties of up to $10,000 per violation per day, and disputes are routed through administrative hearings and exclusive venue in Sumner County chancery court.
The bill’s impact on Tennessee law is to add a new regulatory framework in Title 63 governing pharmacy ownership and control, aimed at separating PBMs and insurers from pharmacy ownership to reduce conflicts of interest. It also authorizes the Board of Pharmacy to adopt rules to implement the act and creates specific carveouts for employer-owned pharmacies serving employees, retirees, and dependents, as well as certain federal healthcare program pharmacy services. In practical terms, the measure could force divestitures or corporate restructuring among vertically integrated pharmacy, PBM, and insurance businesses operating in the state.
The general sentiment reflected in the bill’s findings and voting history is strongly supportive of the stated policy goals of patient choice, transparency, affordability, and protection of rural and community pharmacy access. The bill advanced through committee with solid majorities and passed the Senate and House on the floor by comfortable margins, indicating broad legislative support. The findings language frames the measure as a consumer- and access-protection bill intended to address conflicts of interest and preserve continuity of care.
The main points of contention are likely the breadth of the ownership/control prohibition and its effect on vertically integrated healthcare companies. The bill’s expansive definition of “control,” the 5% ownership threshold, and the requirement to separate pharmacy ownership from PBMs and insurers could be viewed as disruptive by affected businesses, especially those with existing integrated models. At the same time, the bill attempts to limit disruption through transition periods and exceptions for independent pharmacies, hospitals, employers, and federal programs, suggesting the legislature sought to balance anti-conflict-of-interest concerns with operational continuity.
SB2040 amends Tennessee Code Annotated Title 63 by creating a new section regulating ownership and control of pharmacies by entities that also own or control pharmacy benefits managers or health insurance issuers. It establishes enforcement by the attorney general, authorizes Board of Pharmacy rulemaking, sets civil penalties, and creates administrative and judicial review procedures. The law is designed to require divestiture or separation of certain vertically integrated pharmacy/PBM/insurer arrangements while preserving specified exceptions for independent pharmacies, hospitals, employers, and federal programs.
The bill appears to have been viewed favorably overall, with committee recommendations for passage and strong floor votes in both chambers. The bill’s stated purpose emphasizes patient access, lower costs, transparency, and protection of rural pharmacies, and the voting history suggests broad agreement with those goals. The legislative record provided does not show organized opposition in transcript form, but the narrower vote margins in committee indicate some concern about the scope and implementation of the restrictions.
The most notable contention is the bill’s broad prohibition on common ownership or control among pharmacies, PBMs, and health insurance issuers, especially given the expansive definition of “control” and the 5% ownership threshold. Critics would likely focus on the potential impact on integrated healthcare businesses, existing contracts, and specialty or mail-order pharmacy operations, while supporters emphasize eliminating conflicts of interest and protecting patient choice. The transition period, sale requirement, and exceptions for independent pharmacies, employer plans, and federal programs appear to be the main compromise features intended to address these concerns.