Pharmacy benefit managers (PBMs) have become a major focus of healthcare policy, as policymakers, regulators, and other stakeholders debate the industry’s business practices and models.
Congress addressed PBM transparency and Medicare Part D payments in the 2026 Consolidated Appropriations Act (CAA), which is intended to address some concerns from some lawmakers, independent pharmacy organizations, and patient advocates that PBMs may reduce competition and contribute to higher prescription drug costs. The industry and its main trade association, the Pharmaceutical Care Management Association (PCMA), reject that argument, contending that PBMs lower costs by negotiating rebates and other price concessions and that manufacturers—not PBMs—set list prices. However, Congress has not yet mandated changes to PBMs’ vertically integrated ownership structures. As members of Congress and several states pursue proposals that would require certain vertically integrated PBMs and insurers to divest ownership of affiliated pharmacies, the industry is already challenging the laws that have been passed in court.
Overview of PBM Vertical Integration
PBMs first emerged in the 1960s, when insurers began covering prescription drugs and needed help processing claims and payments between health plans and pharmacies. Their role has since expanded well beyond administration. Today, PBMs have assumed a central role in the prescription drug supply chain, connecting health plans, pharmacies, and drug manufacturers. They negotiate rebates and other price concessions with manufacturers, manage drug formularies, establish pharmacy networks, conduct utilization management such as prior authorization and step therapy, and administer prescription drug benefits for health plans.
Many PBMs are now vertically integrated—owned by or under common ownership with insurers, pharmacies, group purchasing organizations (GPOs), and provider groups. That consolidation is what the Federal Trade Commission has examined in its broader inquiries into competition in the prescription drug marketplace.
PBM Divestiture as a Response to Integration
Divestiture proposals under consideration at the federal and state levels would unwind existing integration and prohibit new combinations. They would force structural separation, requiring a company to break up common ownership of a PBM and an affiliated pharmacy, insurer, or other healthcare business.
Supporters of divestiture, including the sponsors of these proposals, contend that common ownership may create conflicts of interest by allowing PBMs to favor affiliated pharmacies over competitors. PCMA and the major PBMs counter that common ownership improves coordination of pharmacy benefits and helps manage drug costs, and they warn that forced separation would disrupt established pharmacy networks, reduce efficiency, add administrative complexity, and ultimately limit patient access to care.
Under a divestiture requirement, a company found in violation would typically have to choose between retaining its PBM or its affiliated pharmacy. As detailed below, several companies and PCMA have challenged enacted state laws on constitutional and federal preemption grounds. As a result, the future of PBM divestiture will depend not only on legislative action but also on how courts resolve these legal challenges.
State and Federal Divestiture Proposals
As concerns over common ownership of PBMs, pharmacies, and health plans have grown, divestiture initiatives have advanced on both the state and federal levels.
Representative State Legislation
- Arkansas – Act 624 (2025): Arkansas was the first state to bar a PBM from owning a pharmacy, whether directly or through an affiliate. Act 624 was signed into law in April 2025 and was set to take effect Jan. 1, 2026. Enforcement is on hold: after Express Scripts Inc., Optum Inc., CVS Pharmacy Inc., and PCMA sued, and their cases were consolidated as Express Scripts, Inc. v. Richmond, the U.S. District Court for the Eastern District of Arkansas granted a preliminary injunction in July 2025. The court concluded that Act 624 likely runs afoul of the Commerce Clause and is likely preempted by TRICARE, the federal military health program, because the act interfered with the federal government’s ability to contract with PBM-owned pharmacies. The state has appealed to the Eighth Circuit, where the case is pending.
- Tennessee – FAIR Rx Act (2026): The Freedom, Access, and Integrity in Registered Pharmacy Act was signed into law in May 2026. Like Arkansas’ law, it prevents one company from owning a health plan, a PBM, and a pharmacy together. The ownership prohibition is scheduled to take effect July 1, 2028, with existing pharmacies given until Dec. 31, 2028, to complete a sale to an unaffiliated owner. After the law passed, CVS’ Caremark, Cigna’s Express Scripts, and PCMA each filed a separate suit in the U.S. District Court for the Middle District of Tennessee. Their complaints argue that the statute intrudes on federal territory already occupied by Medicare, TRICARE, and the Employee Retirement Income Security Act (ERISA), and that it runs up against constitutional limits on interstate commerce by disadvantaging pharmacies based outside the state. The cases remain pending.
Proposed Federal Legislation
- Patients Before Monopolies Act (2026): This bipartisan, bicameral bill, first introduced in December 2024, was reintroduced in May 2026. It would prohibit a parent company that owns a PBM or health insurer from also owning a pharmacy business and would require divestiture within one year of enactment—a change from the three-year period the 2024 version had proposed. The bill would also let the FTC, the Department of Health and Human Services, the Justice Department’s Antitrust Division, and state attorneys general sue to force divestiture and recover revenue earned during a violation, and it would allow private parties, including independent pharmacists, to sue for treble damages. The House bill was referred to the Committee on the Judiciary. It has been reintroduced in both chambers but has not advanced beyond committee.
- Break Up Big Medicine Act (2026): Introduced in February, this measure would extend structural-separation requirements across several segments of the healthcare industry, including insurers, PBMs, pharmacies, physician practices and management services organizations (MSOs), and wholesalers. It would give companies in violation one year to comply, apply automatic penalties if the companies fail to comply in a timely manner, and would authorize the FTC, the Department of Health and Human Services, the Department of Justice, state attorneys general, and private citizens to sue violators.
Legal and Regulatory Updates Ahead
While the vertical-integration lawsuits remain ongoing, the Eighth Circuit has already ruled on a related corner of Arkansas’ PBM framework, which may shed some light on future court rulings. In June 2026, in Flowers v. Caremark PCS Health, the court held that Arkansas’ “Geographic Coverage Requirements” (a separate rule requiring PBM pharmacy networks to meet set distance standards for plan members) are preempted by ERISA. That ruling does not decide the ownership-ban appeal in Express Scripts v. Richmond, but it may provide some indication as to how the court views preemption arguments against state PBM rules, an issue all sides are watching as the ownership case moves forward.
State-level activity extends well beyond Arkansas and Tennessee, and several of these disputes turn on the same preemption questions now before the Eighth Circuit. In Iowa, a coalition of employers and health plans persuaded a federal court to freeze much of a state law governing how PBMs build networks and set patient cost-sharing, finding it likely conflicts with ERISA and treads on free-speech protections; Iowa has asked the Eighth Circuit to revive the law, a reminder that PBM litigation is not confined to ownership bans. In California, Optum Rx and a GPO it controls went to court in May 2026 to stop the state’s sweeping PBM law, again on the theory that ERISA overrides it. And in Arizona, lawmakers have floated a measure patterned on Arkansas’ Act 624, though its progress may hinge on how the Eighth Circuit rules.
Legislative proposals and litigation involving PBM vertical integration continue to evolve as policymakers, regulators, industry participants, and other stakeholders consider how best to address the sometimes-competing issues of competition, transparency, patient access, and prescription drug costs.
| Other Federal Pressure on PBMs The debate over divestiture is unfolding alongside three other federal efforts that target how PBMs are paid and how they operate, rather than who owns them. The first is the Consolidated Appropriations Act, 2026. Beginning with the 2028 plan year, it bars PBMs in Medicare Part D from tying their compensation to a drug’s price, rebates, or utilization, requiring flat service fees set at fair market value instead. It also requires PBMs to pass manufacturer rebates through to plan sponsors in full and disclose more detailed pricing, rebate, and reimbursement data. For plan years beginning on or after January 1, 2029, Medicare Part D plan sponsors must offer network pharmacies contract terms and conditions that are “reasonable and relevant” under standards to be established by HHS. HHS must seek public input through a request for information by April 1, 2027, before establishing those standards. The second is a Federal Trade Commission enforcement case. In September 2024, the agency sued the three largest PBMs—Caremark, Express Scripts, and Optum Rx—over rebating practices it said inflated insulin list prices. The case has since resolved into settlements: Express Scripts agreed to terms in February 2026 and Caremark in July 2026, while Optum Rx reached a proposed settlement whose terms had not yet been finalized. The published agreements require the companies to change practices in ways the FTC says will lower patients’ out-of-pocket costs, increase pricing transparency, and treat community pharmacies more fairly. The third is the Department of Labor’s proposed Improving Transparency into Pharmacy Benefit Manager Fee Disclosure Rule. Proposed in January 2026 pursuant to President Trump’s Executive Order 14273, Lowering Drug Prices by Once Again Putting Americans First, the rule would require PBMs to disclose detailed pricing and compensation information to ERISA plan sponsors and fiduciaries, increasing transparency into the direct and indirect compensation received by PBMs and their affiliates. The proposal has not yet been finalized. Together, these initiatives address PBM compensation, pricing, transparency, and business practices through legislation, enforcement, and regulation. |
Research and editorial support for this article was provided by Marissa Kieser, Health Policy Intern.
