This week saw a pair of significant developments in the effort by state agencies to rein in certain practices by pharmacy benefit managers (PBMs), the middlemen in the pharmaceutical distribution chain. First, the National Association of Attorneys General (NAAG), on behalf of a bipartisan coalition of 39 state and territory attorneys general, penned a letter to congressional leadership urging Congress to pass an act "prohibiting PBMs, their parent companies, or affiliates from owning or operating pharmacies."1 Second, Arkansas adopted a first-in-the-nation bill that does just that: blocking PBMs from owning pharmacies in Arkansas.
According to the letter, "This vertical integration allows PBMs and their parent companies to control every step of the prescription manufacturing, wholesale, retail, and dispensing process."
PBMs serve as third-party administrators of prescription drug programs for health plans, employers and other entities. The NAAG letter, which relies heavily on findings from an interim report by the Federal Trade Commission published in 2024, summarizes the trend toward consolidation in the pharmaceutical supply chain. For instance, through years of horizontal consolidation, the three largest PBMs—CVS Caremark, Express Scripts and OptumRx—now "process 80% of the nation's prescriptions and bring in 70% of specialty drug revenue." At the same time, the top six PBMs have vertically integrated downstream by acquiring and operating their own affiliated pharmacies. According to the letter, "This vertical integration allows PBMs and their parent companies to control every step of the prescription manufacturing, wholesale, retail, and dispensing process."
As the letter observes, in addition to owning pharmacies, PBMs contract with nonaffiliated pharmacies, including independent pharmacies, to create pharmacy networks that control drug access and pricing. The result, which the letter criticizes, is that PBMs "are contracting with and have power over their own pharmacies' competition." According to the NAAG, PBMs use that power to "harm independent pharmacies" by forcing these mostly small businesses to accept unfair contractual terms, all while offering more favorable terms to their own affiliated pharmacies, effectively steering consumers away from independent pharmacies and to their own affiliated pharmacies. The letter finds that, as a result, over the last decade, approximately 10 percent of rural independent pharmacies in the United States have closed, negatively impacting consumers in rural and underserved areas that have limited access to retail pharmacies.
The Arkansas law is intended to address this concern. Again relying on the findings of the Federal Trade Commission, as well as a report from the U.S. House Committee on Oversight and Government Reform, that PBMs have engaged in "anticompetitive business tactics that have driven locally [] operated pharmacies out of business," thereby "limiting patient choices and inflating drug prices" at PBM-affiliated pharmacies, the law's stated purpose is to "improve healthcare delivery in the pharmacy market." To accomplish that goal, the law prohibits PBMs from obtaining or holding, directly or indirectly, a permit for the retail sale of drugs or medicines in the state of Arkansas. The law further defines "permit" to include permits for mail-order pharmacies. The law, which becomes effective on January 1, 2026, directs the Arkansas State Board of Pharmacy to revoke or not renew a permit accordingly.2
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Footnotes
1 The letter was sponsored by the attorneys general of Arkansas, Massachusetts, Missouri and Vermont, and also signed by Alaska, American Samoa, Arizona, California, Delaware, District of Columbia, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Virgin Islands, Virginia, Washington, West Virginia, Wisconsin and Wyoming.
2 The Arkansas law contains a limited exception for "rare, orphan, or limited distribution drugs that are otherwise unavailable in the market to a patient or a pharmacy," for which the Arkansas State Board of Pharmacy is authorized to issue a limited use permit to a pharmacy for a period of no less than 90 days.
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