House committee backs bill to bar the same company from owning pharmacies and PBMs

Representative Scarboro, the sponsor of House Bill 1959, told the House Government Operations Committee on March 16 that the bill would block a single corporate structure from controlling both a Tennessee pharmacy and the pharmacy benefit manager (PBM) or health insurance issuer that sets reimbursement rules. "If you want to hold a Tennessee pharmacy license, you cannot simultaneously own or control a PBM and a health insurance issuer," Scarboro said, framing the measure as a structural fix to a conflict of interest under Title 63 of the Pharmacy Practice Act.

The bill, as Scarboro described it, does not regulate drug prices, redesign insurance, prohibit mail order or specialty pharmacies, or apply to certain federal or hospital-run programs. It includes a delayed effective date with a transition/divestiture window and civil penalties for violations, and provides due-process protections, Scarboro said. He asked the committee for a positive recommendation; members granted it and the bill will advance to Finance, Ways and Means.

Zach Hansen, who identified himself as representing RX Preferred, a Tennessee-based transparent PBM, testified in support of the bill. "As a PBM, as a transparent PBM, we've removed conflicts of interest from our model and really aligned back with what the original intent of a PBM was," Hansen said, adding that his company negotiates reimbursement on a pass-through basis and supports independent community pharmacies.

Committee members pressed both the sponsor and the witness on several points during an extended question-and-answer exchange. Representative Fritz invoked Tennessee's Constitution (Article I, Section 22) and described vertical consolidation as monopolistic, asking whether integrated PBM/pharmacy structures could force independent pharmacies out of business. Scarboro and Hansen responded that the bill seeks to restore accountability and a level playing field, and that some transparent PBMs contract with a broad network of pharmacies rather than favoring affiliated retail outlets.

Several members asked about consumer impact and savings. Hansen said clients of his company reported lower drug costs after switching to a transparent PBM model, but members emphasized the committee should not assume uniform, immediate savings statewide and asked about market effects and the practical choices firms would make to comply (sell pharmacy assets, sell the PBM business, or erect management walls). Scarboro said companies would have until January 1, 2028, to divest, with a limited extension available for active proposals, and that the statute is designed to be prospective and civilly enforceable.

Members also asked about exemptions and scope. The sponsor said the bill preserves employer-sponsored plans, TRICARE and veterans' programs, hospital pharmacies, mail-order and specialty services, and that it does not apply to federal veteran programs. Several members sought clarification on transition impacts to employees and markets if firms choose different compliance strategies; Scarboro replied that choices about corporate assets are the firms' to make and that common alternatives include structural separation or divestiture without necessarily closing retail pharmacies.

The committee recorded a positive voice vote on the bill (11 yeas, 0 nays, 1 present not voting) and sent it to Finance, Ways and Means for further consideration. The committee did not adopt any other substantive amendments during this hearing.

What happens next: the bill now moves to the Finance, Ways and Means Committee. If enacted, the statutory change would be implemented under the licensing framework in Title 63 and enforced through civil penalties and administrative processes described by the sponsor.