Tennessee’s PBM Law Signals a Broader Challenge to Healthcare Vertical Integration

For years, vertical integration was treated as the natural direction of the U.S. healthcare market.

Insurers acquired pharmacy benefit managers. PBMs acquired or affiliated with specialty, mail-order, and retail pharmacies. Health systems expanded into physician practices, outpatient facilities, pharmacies, technology platforms, and other services.

The business case was familiar: common ownership could reduce fragmentation, improve coordination, create efficiencies, and lower costs. That argument is now receiving much greater scrutiny.

Tennessee’s recently enacted Freedom, Access, and Integrity in Registered Pharmacy Act, commonly called the FAIR Rx Act, is one of the clearest examples. Rather than limiting itself to PBM transparency, reimbursement practices, or patient-steering rules, Tennessee is challenging whether pharmacy benefit managers and health insurers should be permitted to own or control pharmacies at all.

The larger message for healthcare companies is not that vertical integration is that integrated ownership structures can no longer be seen as inherently efficient or politically secure.

When a business model depends on directing prescriptions, referrals, reimbursement, data, or revenue toward affiliated entities, ownership itself can become a regulatory risk.

What Tennessee Changed

Governor Bill Lee signed the FAIR Rx Act on May 22, 2026. The law restricts certain common ownership and control relationships involving pharmacies, PBMs, and health insurance issuers. Subject to limited exceptions and transition provisions, affected organizations must separate prohibited ownership interests by July 1, 2028.

The law reaches pharmacies licensed in Tennessee as well as nonresident pharmacies dispensing or shipping prescriptions to Tennessee residents. This can include mail-order, specialty, central-fill, telepharmacy, and automated dispensing operations.

It also requires disclosures involving direct and indirect ownership, affiliates, contractors, and other arrangements that may provide a PBM with influence over pharmacy operations.

That makes Tennessee’s approach different from many traditional PBM laws.

Most PBM legislation regulates conduct. It may prohibit patient steering, require rebate disclosure, establish reimbursement standards, or impose reporting and fiduciary obligations.

Tennessee is taking a different approach. The law reflects a judgment that certain conflicts may be too embedded in the ownership model to be corrected through disclosure or contract regulation alone.

CVS Health and Cigna’s Express Scripts have challenged the law in federal court. They argue that the restrictions could interfere with pharmacy access and improperly target integrated companies. Tennessee lawmakers have defended the measure as a response to concerns about competition, drug costs, and the ability of PBMs to direct prescriptions toward affiliated pharmacies.

The litigation will determine how far Tennessee can go. The strategic significance of the law, however, is already clear.

State policymakers are becoming more willing to examine whether the structure of a healthcare company creates incentives that cannot be adequately controlled through ordinary compliance requirements.

Why Vertical Integration Is Under Pressure

Tennessee’s law did not just happen overnight. 

The three largest PBMs manage most prescription drug claims in the United States. Each operates within a larger healthcare organization that owns or affiliates with other parts of the healthcare financing, pharmacy, provider, or distribution system.

That concentration has caused regulators and lawmakers to focus less on size by itself and more on how integrated companies use contracting authority, reimbursement decisions, network design, patient data, and ownership relationships.

Federal Trade Commission staff have reported that large PBMs sometimes reimbursed affiliated pharmacies more than unaffiliated pharmacies for certain specialty generic drugs. The FTC also raised concerns that PBM-affiliated pharmacies may benefit from prescription steering and other advantages unavailable to independent competitors.

Congress has pursued PBM transparency and compensation reforms involving rebates, reporting, and the relationship between PBM compensation and drug prices. Federal proposals have also considered restrictions on common ownership involving PBMs, insurers, and pharmacies.

States too are developing their own approaches to this problem. Arkansas enacted a law directed at PBM ownership of pharmacies, while California has pursued restrictions involving steering, formulary practices, and affiliated pharmacies. Several of these measures are now being litigated.

These developments do not establish that all vertical integration is unlawful or undesirable. They simply show that the burden of persuasion is changing.

With times changing they way they are, an integrated company may no longer be able to defend its structure simply by citing efficiency. Policymakers, regulators, customers, and courts are examining whether the company directs business toward its own affiliates, treats affiliated and independent organizations differently, restricts customer choice, or retains value in ways that are difficult for plan sponsors and patients to evaluate.

It's less about whether entities share common ownership and more about how that ownership affects commercial behavior.

How Independent Companies Can Use the Shift

Regulatory pressure on vertical integration creates opportunities for independent healthcare companies.

Independent pharmacies, specialty pharmacies, physician groups, technology vendors, and healthcare service organizations can position their lack of ownership conflicts as a commercial advantage.

Their strongest message is that an independent organization can offer clearer economics, broader choice, greater flexibility, and fewer incentives to favor an affiliated channel.

An independent pharmacy may be able to show that its dispensing and clinical decisions are not influenced by a parent PBM. A technology company may emphasize that its platform supports multiple payers, pharmacies, and providers without favoring a related business. A physician group may use its independence to negotiate across several networks instead of relying on one vertically integrated partner.

As customers become more sensitive to steering and self-preferencing, independence can become part of the company’s value proposition.

That advantage should be supported by contracts, operating practices, and evidence. 

What Buyers and Investors Should Reevaluate

Healthcare buyers and investors should reconsider how they evaluate vertically integrated growth strategies.

A transaction involving a pharmacy, provider group, health platform, or distribution business may appear attractive because of projected referrals, cross-selling opportunities, preferred network access, or administrative synergies.

Those assumptions may be vulnerable if the expected value depends on steering, reimbursement advantages, exclusive contracting, or preferential treatment among affiliates.

Due diligence should examine whether the target’s revenue depends heavily on an affiliated payer, PBM, provider, pharmacy, distributor, or management company. Buyers should also determine whether key contracts would remain economically viable if anti-steering rules, ownership restrictions, equal-treatment requirements, or stronger disclosure obligations were imposed.

Ownership and management agreements should accurately reflect who exercises operational control. Affiliate arrangements should be evaluated for fair-market terms, conflict-management procedures, and regulatory exposure.

The most important question for investors is whether the economics of the transaction remain defensible under the regulatory environment that may exist several years from now.

A business model that depends on regulatory tolerance for affiliate preference may warrant a lower valuation, stronger contractual protections, or a different transaction structure.

What Integrated Companies Should Do Now

Existing integrated companies should not assume that divestiture is inevitable.

They should assume that greater justification will be required.

Executive teams need a clear explanation of how the integrated structure benefits patients, customers, employers, and the healthcare system. That explanation should be supported by data and operating evidence rather than corporate messaging alone.

Companies should review whether affiliated and unaffiliated organizations receive comparable access and treatment. They should examine whether customers have meaningful choices, how reimbursement methodologies are established, and whether contracts could be viewed as coercive or exclusionary.

Boards should understand where earnings are generated across related entities. A business line that appears modest on a standalone basis may direct substantial volume or margin to another affiliate. Regulators may focus on that relationship even when each individual agreement appears commercially reasonable.

Governance practices should reflect this risk. Contracts and transactions among affiliates may require stronger documentation, independent review, conflict-management procedures, and clearer evidence of commercial reasonableness.

Companies that can establish a defensible record now will be in a stronger position when facing legislative scrutiny, contract renegotiation, litigation, or regulatory review.

The Executive Decision

The Tennessee FAIR Rx Act reflects a broader shift in how policymakers evaluate healthcare consolidation.

Attention is moving from the existence of common ownership to the ways integrated companies control patient flow, reimbursement, distribution, information, and market access.

Executive teams should map their ownership, referral, reimbursement, data, and contracting relationships. They should identify where one affiliate has the ability to influence business flowing to another and determine whether that relationship could be characterized as steering, self-preferencing, discriminatory treatment, or hidden compensation.

They should also be able to show measurable value for patients or customers and demonstrate that the business model would remain viable if affiliates and independent companies were required to compete on more equal terms.

Organizations that cannot support those conclusions may have a structural vulnerability.

Organizations that can may have a meaningful competitive advantage.

The Larger Business Lesson

Tennessee’s law may survive, be narrowed, or be struck down. Its importance does not depend entirely on the result of the current litigation.

The law reflects a broader change in the political and regulatory treatment of healthcare consolidation. Vertical integration is no longer automatically viewed as an efficient response to a fragmented system. It is increasingly evaluated through the conflicts, incentives, and commercial power that ownership may create.

That shift will affect acquisitions, joint ventures, management arrangements, preferred networks, affiliate contracts, and market-entry strategies across healthcare.

The companies that respond most effectively will examine their structures now, determine where regulation could change the economics of the business, and use that analysis to make better decisions about transactions, contracts, governance, and growth.

Lanton, Lanton & Sosa Law advises healthcare and regulated organizations on transactions, contracting structures, regulatory change, compliance, governance, and commercial strategy. In a market where ownership structures are becoming policy questions, legal analysis must extend beyond what is permitted today to how a business model may be evaluated tomorrow.

Ron Lanton Discusses 340B Compliance and Patient Access with Drug Topics

Lanton, Lanton & Sosa Law is pleased to share that Ron Lanton III, Esq., Senior Partner of the firm, was recently featured in Drug Topics in a discussion on the 340B Drug Pricing Program and its importance to pharmacists, safety-net providers, and the patients they serve.

The 340B Program remains one of the most important and complex areas in healthcare policy. For pharmacies, hospitals, covered entities, and other stakeholders, the program sits at the intersection of patient access, regulatory compliance, reimbursement pressure, and federal oversight.

In the Drug Topics discussion, Ron addressed how the 340B Program can serve as a critical infrastructure tool for safety-net providers, helping them stretch limited resources, support clinical services, and reach vulnerable patient populations. He also emphasized the importance of compliance readiness, program oversight, and understanding how evolving policy expectations may affect pharmacies and healthcare organizations.

At Lanton, Lanton & Sosa Law, our healthcare regulatory work focuses on helping clients understand complex policy environments before they become operational, compliance, or business risks. The 340B Program is a clear example of how legal, regulatory, and market issues often move together.

You can read the full Drug Topics FAQ here.

Ron Lanton Featured in Reuters on Global Drug Pricing and Market Strategy

Recent coverage in Reuters highlights how U.S. pricing policy is beginning to influence global launch strategy for pharmaceutical companies.

The article examines how manufacturers are adjusting decisions across markets in response to policy pressure and evolving reimbursement dynamics. Click here to view the article.

New Trans-Atlantic Drug Pricing Deal: What Supply Chain Stakeholders Must Know

In a major development for the global life-sciences landscape, the United States and the United Kingdom have reached an agreement in principle that reshapes how both countries approach pharmaceutical pricing and cross-border trade.

Under the agreement, the U.K. will raise the net price of new medicines by 25%, reversing years of downward pressure that had strained returns on innovative therapies. The government will also ease the financial burden of its VPAG rebate structure, capping repayment levels and committing to maintain rebate rates at or below approximately 15% starting in 2026. These changes reflect a broader acknowledgment that sustaining innovation requires restoring reasonable margins across the branded pharmaceutical marketplace.

In exchange, the United States will exempt U.K.-origin pharmaceuticals, active ingredients, and medical technologies from current and prospective Section 232 tariffs. This concession reduces supply-chain volatility and removes a major source of uncertainty for U.S. companies sourcing components or finished products from the U.K. It also signals a more cooperative posture between two major life-sciences hubs as they seek to reinforce global competitiveness.

For 2026, this agreement provides both opportunity and complexity. Companies should monitor how implementation unfolds and assess how pricing, market access, and supply-chain exposure may shift.

If you are a pharmaceutical supply-chain stakeholder seeking help assessing potential risks or developing a 2026 strategy, contact Lanton Strategies today. Our team can guide you through the policy, regulatory, and market implications of this evolving landscape.

Understanding the 2025 Executive Order on Most-Favored-Nation Drug Pricing: Implications for Healthcare Stakeholders

On May 12, 2025, President Trump signed an executive order titled "Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients," aiming to align U.S. prescription drug prices with the lowest prices paid by other developed nations.

Key Provisions:

• Most-Favored-Nation (MFN) Pricing: The order mandates that Americans should not pay more for prescription drugs than patients in other developed countries. It directs the Secretary of Health and Human Services (HHS) to establish MFN price targets within 30 days and communicate these to pharmaceutical manufacturers.

• Direct-to-Consumer Sales: HHS is instructed to facilitate programs allowing pharmaceutical manufacturers to sell directly to American patients at MFN prices, potentially reducing reliance on intermediaries.

• Addressing International Pricing Disparities: The Secretary of Commerce and the U.S. Trade Representative are directed to take action against foreign practices that may contribute to higher drug prices in the U.S., ensuring that American patients do not disproportionately fund global pharmaceutical research and development.

Potential Impact:

While the executive order sets forth ambitious goals to reduce drug prices, its implementation may face challenges, including legal scrutiny and resistance from stakeholders concerned about its impact on innovation and global pricing dynamics. The effectiveness of the order will depend on the specifics of the forthcoming regulations and the responses from pharmaceutical companies and international partners.

Call to Action:

Healthcare providers, insurers, and pharmaceutical companies should closely monitor developments related to this executive order. For a comprehensive analysis of its implications and guidance on navigating the evolving regulatory landscape, contact Lanton Law today.

Section 232 Targets Drug Imports: What It Means for Pharma and Healthcare

​On April 1, 2025, the U.S. Department of Commerce initiated a Section 232 national security investigation into the importation of pharmaceuticals and pharmaceutical ingredients. This inquiry aims to assess whether the reliance on foreign sources for essential medical products poses a threat to national security. The scope includes finished drug products, active pharmaceutical ingredients (APIs), key starting materials, and related derivatives.​

The Department of Commerce is soliciting public comments to inform this investigation. Stakeholders are encouraged to provide input on various factors, including:​

• The current and projected demand for pharmaceuticals and their ingredients in the U.S.​

• The capacity of domestic production to meet this demand.​

• The role and risks associated with foreign supply chains.​

• The impact of foreign government subsidies and trade practices on U.S. industry competitiveness.​

• The feasibility of expanding domestic manufacturing to reduce import reliance.​

Comments must be submitted by May 7, 2025, through the Federal Rulemaking Portal at www.regulations.gov, referencing Docket ID BIS-2025-0022. Submissions containing business confidential information should be clearly marked and accompanied by a non-confidential version.​

For further details, please refer to the official notice in the Federal Register: Notice of Request for Public Comments on Section 232 National Security Investigation of Imports of Pharmaceuticals and Pharmaceutical Ingredients.​

There are plenty of questions and speculation about what this means for specific supply chain participants. Contact Lanton Strategies to learn about how we can help you respond to these comments as well as help you speak with either Congress or the Administration to get your voice heard.   

Pharmaceutical Commerce Speaks with Lanton Law about New Drug Pricing Models

Pharmaceutical Commerce interviews Ron Lanton; Partner at Lanton Law on newly emerging pricing models such as the cost plus drug model. Ron gives his insight on what impacts these emerging models will have on the pharmaceutical industry. The interview can be seen here.

Biden Administration Announces First Ten Drugs Selected for Medicare Price Negotiation

The Biden Administration has announced today that Medicare will be able to negotiate drug prices for the first time due to provisions within the Inflation Reduction Act. 

The first ten selected drugs for negotiation are Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara and Fiasp. 

The Administration stated that these drugs “accounted for $50,5 billion in total Part D gross covered prescription drug costs. The negotiations will occur in 2023 and 2024 and any negotiated prices will become effective beginning in 2026. 

According to HHS press release read here, “In future years, CMS will select for negotiation up to 15 more drugs covered under Part D for 2027, up to 15 more drugs for 2028 (including drugs covered under Part B and Part D), and up to 20 more drugs for each year after that, as outlined in the Inflation Reduction Act.”

Lanton Law is a national boutique law and government affairs firm that closely monitors legislative, regulatory and legal developments in the healthcare and life science spaces. Contact us to learn about how either our legal or lobbying services can help you attain your goals.

White House Releases Report Outlining Steps to Strengthen Critical Supply Chains

In February 2021, President Biden issued an Executive Order to direct a government-wide “approach to assessing vulnerabilities in, and strengthening the resilience of, critical supply chains.” 

The key findings highlight recommendations from its “comprehensive 100-day supply chain assessments for four critical products: semiconductor manufacturing and advanced packaging; large capacity batteries, like those for electric vehicles; critical minerals and materials; and pharmaceuticals and active pharmaceutical ingredients (APIs).” 

Lanton Law has several years of experience with supply chain issues. Our firm is a national boutique regulatory law and lobbying firm that focuses on healthcare/life science and technology. 

If you are an industry stakeholder with questions about the current landscape or if you would like to discuss how your organization’s strategic initiatives might be impacted by either Congress, regulatory agencies or legal decisions, contact us today.