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HOUSE BILL 1959
By Scarbrough
SENATE BILL 2040
By Harshbarger
SB2040
011974
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AN ACT to amend Tennessee Code Annotated, Title 63,
relative to the ownership or control of pharmacies
by pharmacy benefits managers.
WHEREAS, the General Assembly finds that protecting the health and welfare of
Tennesseans requires access to affordable and safely dispensed prescription medications
through a fair and transparent pharmacy system; and
WHEREAS, increasing consolidation of pharmacy benefits managers (PBMs) with
pharmacies has created conflicts of interest that can restrict patient choice, increase costs, and
jeopardize continuity of care; and
WHEREAS, the General Assembly recognizes the importance of promoting patient
choice, preserving pharmacy access, particularly in rural and medically underserved areas, and
protecting public health by preventing conflicts of interest that result in inflated costs, reduced
transparency, and steering of patients to PBM-owned entities; and
WHEREAS, the General Assembly further recognizes that pharmacists play a vital role
in medication safety, counseling, and chronic-disease management, and that these public
health functions must be preserved through competitive and independent pharmacy access;
and
WHEREAS, eliminating the conflict of interest inherent when a pharmacy benefits
manager both sets and receives reimbursement, commonly described as the "fox guarding the
henhouse," is necessary to ensure transparent pricing, maintain trust in the pharmacy system,
and promote better health outcomes for Tennessee patients; and
WHEREAS, the General Assembly finds that all pharmacies dispensing prescription
drugs to residents of this State are subject to registration and licensure by the Tennessee Board
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of Pharmacy, regardless of physical location or business model, and that regulation of
ownership and control of such registered pharmacies is necessary to protect patient access, fair
competition, and public health; and
WHEREAS, the General Assembly finds that ownership, control, and management of a
pharmacy directly affect the professional judgment, independence, and ethical obligations of
licensed pharmacists, including decisions related to medication dispensing, patient counseling,
continuity of care, and clinical safety; and
WHEREAS, it is the intent of this act that it not be construed to prohibit any duly
licensed, unaffiliated pharmacy from providing mail-order, specialty, or delivery-based services
under new, unaffiliated ownership; and
WHEREAS, this act is intended to strengthen the integrity of Tennessee's healthcare
delivery system by separating financial control from patient care decisions, improving
affordability, and protecting rural and community pharmacy access; now, therefore,
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. This act is known and may be cited as the "Freedom, Access, and Integrity
in Registered Pharmacy (FAIR Rx) Act."
SECTION 2. Tennessee Code Annotated, Title 63, Chapter 10, Part 3, is amended by
adding the following as a new section:
63-10-316.
(a) As used in this section and § 63-10-317:
(1) "Affiliate" means an entity that directly or indirectly controls, is
controlled by, or is under common control with another entity;
(2) "Beneficial owner" means a natural person or entity who, directly or
indirectly, through any contract, agreement, or other formal or informal
arrangement:
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(A) Owns or controls five percent (5%) or more of a pharmacy; or
(B) Receives or shares in five percent (5%) or more of the
economic benefits of a pharmacy;
(3) "Board" means the board of pharmacy;
(4) "Control" means the power, directly or indirectly, to direct, manage, or
influence the operations or policies of a pharmacy, whether through ownership,
contract, shared governance, overlapping management, audit authority,
exclusive provider agreement, formulary management clause, or other
arrangement conferring material influence over the professional practice of
pharmacy, including dispensing decisions, patient steering, clinical operations, or
the independent judgment of a licensed pharmacist;
(5) "Pharmacy" has the same meaning as defined in § 63-10-204; and
(6) "Pharmacy benefits manager" has the same meaning as defined in §
56-7-3102.
(b)
(1) On and after January 1, 2027, a pharmacy benefits manager shall
not, directly or indirectly, acquire, hold, control, or otherwise possess any
ownership or beneficial interest in, or exercise control over, a pharmacy license
or a pharmacy license holder, whether through ownership, contract, or any other
arrangement, including through management, staffing, leasing, supply, franchise,
service, formulary, or revenue-sharing agreements, or any other arrangement
that transfers operational control or economic benefit to the pharmacy benefits
manager.
(2) Subdivision (b)(1) applies regardless of the percentage of ownership
interest held by a pharmacy benefits manager.
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(3) Compliance with this section is a condition of the issuance, renewal,
and continued validity of a pharmacy license under this part.
(c)
(1) The board of pharmacy may issue a limited-use pharmacy license
only for certain rare, orphan, or FDA-designated limited-distribution drugs that
are otherwise unavailable in this state.
(2) An applicant for a limited-use pharmacy license must provide to the
board of pharmacy documentation of FDA orphan designation under 21 U.S.C. §
360bb, or manufacturer confirmation of a restricted distribution program.
(3) This subsection (c) must not be construed to require a drug
manufacturer to expand, modify, or alter a limited-distribution network or to
authorize dispensing by any pharmacy not otherwise approved by the
manufacturer.
(4) The board of pharmacy shall annually review each limited-use
pharmacy license.
(5) The holder of a limited-use pharmacy license shall not transfer,
assign, or sell the limited-use pharmacy license to a pharmacy benefits manager
or an affiliate of a pharmacy benefits manager.
(6) This subsection (c) is repealed on September 1, 2028.
(d)
(1) Each applicant for a pharmacy license shall file at the time of
application, and each holder of a pharmacy license shall file annually, in a
manner determined by the board, a verified disclosure with the board of
pharmacy that identifies:
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(A) All direct and indirect owners and beneficial owners of five
percent (5%) or more of the entity that is the applicant or holder;
(B) Any parent company, subsidiary, affiliate, or contractor that
provides management, staffing, purchasing, inventory, or technology
services to the applicant or holder; and
(C) Any agreement granting a pharmacy benefits manager or
affiliate authority to influence or control operations.
(2) The board of pharmacy may request supporting documentation,
including corporate charts, contracts, and financial records. Failure to provide
accurate information constitutes grounds for license denial, suspension, or
revocation by the board.
(3) A trustee, executor, administrator, or other fiduciary acting solely in a
passive capacity, and not affiliated with or under common control with a
pharmacy benefits manager or its parent company, and without authority to
direct, influence, or control the operations, management, or policies of the
pharmacy, is not a beneficial owner or controller for purposes of this subsection
(d).
(4) This subsection (d) must not be construed to permit, authorize, or
validate any ownership, beneficial interest, or control of a pharmacy by a
pharmacy benefits manager or its affiliate, whether direct or indirect, regardless
of percentage or form.
(e) An entity shall not evade or attempt to evade this section through the use of
corporate structuring, intermediary ownership, management contracts, leases, or other
indirect means. The board shall construe and enforce this section to prevent
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circumvention and may disregard corporate form or take other necessary actions to
determine true beneficial ownership or control of an entity.
(f)
(1) This section applies to any pharmacy licensed under the law of this
state and to any non-resident pharmacy that holds a Tennessee license to
operate a pharmacy under § 63-10-310 and that dispenses or ships prescription
drugs to residents of this state and is subject to the ownership and control
requirements of this part. As used in this subdivision (f)(1), "pharmacy" includes
any mail-order, specialty, central fill, telepharmacy, or automated dispensing
facility owned, operated, or controlled by a pharmacy benefits manager or an
affiliate of its parent company that dispenses or ships prescription drugs to
residents of this state.
(2) This section must not be construed to regulate activities beyond the
jurisdictional boundaries of this state.
(3) This section applies uniformly to all pharmacy licenses issued by this
state, without regard to the state of incorporation, principal place of business, or
residency of the licensee or its owners.
(4) This section regulates the qualifications, licensure, ownership, and
control of pharmacies as a condition of professional practice within this state and
does not regulate drug manufacturing, labeling, interstate shipment, pricing,
reimbursement, insurance benefits, or the design or administration of employee
benefit plans governed by the federal Employee Retirement Income Security Act
(ERISA) (29 U.S.C. § 1001 et seq.).
(g)
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(1) This section does not apply to customary payer-pharmacy network
contracts or minority ownership interests that do not convey managerial control
or exclusive dispensing authority. For purposes of this subdivision (g)(1), a
hospital or health-system pharmacy that provides pharmacy benefit management
services solely for its own employees, dependents, or patients is not deemed a
pharmacy benefits manager; provided, that this exemption does not apply if the
hospital or health system provides such services to unaffiliated employers or third
parties.
(2) This section does not limit the ability of independently owned or
unaffiliated pharmacies to provide mail-order, specialty, or delivery services
directly to patients of such pharmacies.
(h)
(1) For a violation of this section, the board may impose a civil penalty of
up to ten thousand dollars ($10,000) per violation. Each day a violation
continues constitutes a separate violation.
(2) In addition to subdivision (h)(1), the board may seek injunctive relief
from a court of competent jurisdiction for a violation of this section.
(3) The board may issue subpoenas to obtain records the board deems
necessary to enforce this section.
(4) On or before January 15, 2028, and no later than January 15 of each
subsequent year, the board shall publish, in a manner accessible to the general
public, a report that identifies the board's enforcement actions taken pursuant to
this section during the previous calendar year, and list active limited-use
pharmacy licenses. The report may be published by electronic means.
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(i) A pharmacy license issued pursuant to title 63, chapter 10, is a revocable
privilege and is not a vested property right. This section and § 63-10-317 do not create
a property right or entitlement to any pharmacy license. The regulation of pharmacy
ownership and control pursuant to this section constitutes a lawful exercise of the state's
police power to protect public health and safety and does not constitute a taking of
private property.
(j) The board shall notify the office of the attorney general and reporter of any
sale, divestiture, or transfer of ownership involving a pharmacy benefits manager or
affiliate that results in the acquiring entity owning or controlling more than twenty-five
percent (25%) of pharmacy locations within any geographic region of this state for
purposes of antitrust and market competition review.
SECTION 3. Tennessee Code Annotated, Title 63, Chapter 10, Part 3, is amended by
adding the following as a new section:
63-10-317.
(a) No later than July 1, 2026, the board of pharmacy shall assess each active
pharmacy license and shall send notice to any holder reasonably anticipated to be in
violation of § 63-10-316 no later than October 1, 2026.
(b) The written notice required by subsection (a) must include:
(1) The name of each pharmacy benefits manager with a direct or
indirect interest in the pharmacy;
(2) Board contact information; and
(3) A list or web address of a website listing pharmacies that are not
believed to violate § 63-10-316.
(c) A licensee that receives the notice required by subsection (a) shall notify
each patient and prescribing healthcare provider who has used the pharmacy within the
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previous twelve (12) months no later than November 1, 2026, that the pharmacy may no
longer dispense as of the date of the notice.
(d) A pharmacy affiliated with a pharmacy benefits manager may continue
operations through December 31, 2026, if the pharmacy demonstrates to the board that
it is actively pursuing a bona fide sale to an unaffiliated entity. For purposes of this
subsection (d), "bona fide sale" means an arm's-length transfer evidenced by a written
letter of intent or purchase agreement filed with the board. The board may grant a single
extension, not to exceed six (6) months, upon proof of substantial progress toward
completion of such sale.
(e) A pharmacy or pharmacy benefits manager aggrieved by a determination
under this section may request a hearing under the Uniform Administrative Procedures
Act, compiled in title 4, chapter 5. Any hearing must occur within sixty (60) days of filing
the request for hearing, and be concluded within thirty (30) days after the date of the
hearing. A stay shall not issue unless the appellant shows substantial likelihood of
success and irreparable harm.
(f) An action to contest the enforcement or validity of this section or § 63-10-316
must be filed exclusively in the chancery court for Davidson County.
SECTION 4. The board of pharmacy is authorized to promulgate rules to effectuate this
act. The rules must be promulgated in accordance with the Uniform Administrative Procedures
Act, compiled in Tennessee Code Annotated, Title 4, Chapter 5.
SECTION 5. If any provision of this act or its application to any person or circumstance
is held invalid, then the invalidity does not affect other provisions or applications of the act that
can be given effect without the invalid provision or application, and to that end, the provisions of
this act are severable.
SECTION 6. This act takes effect upon becoming a law, the public welfare requiring it.