A federal lawsuit claims Tennessee’s new law prohibiting vertical integration between pharmacies and pharmacy benefit managers (PBMs) violates the dormant Commerce Clause of the U.S. Constitution, federal law governing employer-sponsored health plans, rules specific to Medicare Advantage and Medicare Part D plans, and the Constitution’s Takings Clause, which prohibits private property from being taken for public use without compensation.
The lawsuit was filed by CVS and affiliated PBM and insurance companies in the U.S. Court for the Middle District of Tennessee last Thursday, shortly after Governor Bill Lee signed Senate Bill (SB) 2040, the Freedom, Access, and Integrity in Registered Pharmacy (FAIR Rx) Act, beginning the countdown for vertically integrated companies to divest by January 1, 2027, ahead of a complete prohibition that will start in January 2028.
At the center of the lawsuit are the plaintiffs’ claims under the dormant Commerce Clause, a legal doctrine that invokes the Constitution’s explicit assignment of power to regulate interstate commerce to imply that states must be prohibited from regulating interstate commerce themselves.
According to the filing, the FAIR Rx Act “discriminates purposefully and in practical effect,” allegedly violating the “antidiscrimination principle” as used by the Sixth Circuit last year for its ruling in Energy Michigan v. Public Service Commission. It additionally argues the law violates the dormant Commerce Clause under the framework established under Pike v. Bruce Church, alleging “the burdens that it imposes on interstate commerce are clearly excessive in relation to the putative local benefits.”
To support the claim the Tennessee General Assembly passed legislation that would violate the clause, the lawsuit cites statements from Republican state lawmakers, who allegedly framed the bill as an effort to protect local businesses.
It specifically cites a memo allegedly circulated by the bill’s original sponsor, State Senator Bobby Harshbarger (R-District 4), which argued that local ownership results in “keeping pharmacy revenues within the community instead of corporate headquarters out of state.”
CVS also alleges multiple lawmakers “will be personally enriched” by the law, including Harshbarger, whom it states “manages his family’s independent pharmacy.”
In addition to Harshbarger, the complaint names State Senator Shane Reeves (R-Murfreesboro), who previously owned the Reeves-Sain Drug Store, and has since founded TwelveStone Health Partners, and State Representative Rick Scarbrough (R-Oak Ridge), whose wife co-owns an Anderson County pharmacy.
It also points to the recent podcast appearance by Dr. Anthony Pudlo, the CEO of the Tennessee Pharmacists Association (TPA), who commended Tennessee state lawmakers with pharmacy backgrounds for backing the bill and suggested that other states should learn from Tennessee to pass their own legislation to block vertical integration by PBMs.
While the central arguments in the lawsuit relate to the constitutionality of the legislation, it also asserts Tennessee’s law violates the Employee Retirement Income Security Act (ERISA), claiming the FAIR Rx Act “will blow up existing pharmacy networks in Tennessee,” and instead force plans into “a new networks structure unique to Tennessee,” interfering with the nationwide employer healthcare plans governed by the 50-year-old federal law.
Similarly, CVS claims the law attempts to regulate Medicare Advantage and Medicare Part D plans, violating the Medicare Prescription Drug Improvement and Modernization Act of 2003.
The company also reiterates its claim, made repeatedly before the bill was signed into law, that the FAIR Rx Act will require CVS to close more than 130 pharmacies throughout Tennessee.
Unless a court stops the law from taking effect, the lawsuit argues it “would effect a taking of CVS’s private property—specifically, its 136 retail and specialty pharmacies in Tennessee—without just compensation by the State.”
The company claims that forcing the liquidation of its assets, especially “on the State’s timeline,” would mean “[d]epressed sale prices are practically guaranteed in those circumstances, if qualified buyers can even be found at all.”
Such a forced divestiture, the lawsuit argues, would violate the Takings Clause of the 5th Amendment, as applied to Tennessee through the 14th Amendment, which “provides that private property shall not ‘be taken for public use, without just compensation.’”
Again citing statements from lawmakers, CVS claims throughout its lawsuit that Tennessee lawmakers were inspired by a similar law passed in Arkansas last year. That law has since been blocked from taking effect by a federal judge appointed by President Donald Trump.
The company’s Tennessee lawsuit is assigned to U.S. District Judge Eli Richardson, who was appointed by Trump in 2018.
CVS has retained lawyers from the Nashville office of the national law firm, Butler Snow.
Tennessee Attorney General Jonathan Skrmetti, whose office will represent the Volunteer State in the litigation, notably practiced at Butler Snow’s Memphis office prior to his appointment.
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Tom Pappert is a 2025 recipient of the Dao Prize and the lead reporter for The Tennessee Star. He also reports for the Star News Network. Follow Tom on X. Email tips to [email protected].
