April 26, 2026 in HLTHworks

What is going on in TN – a deeper look? And What’s Up with CVS? 

Texas Medicaid is not one system—it is a collection of regional ecosystems, each with distinct MCO dynamics, provider performance expectations, and contract structures.

Most organizations fail by trying to scale a centralized model.

  1. It’s About PBM Regulation (Not Store Profitability)

    The core issue is proposed Tennessee legislation (often called the “Fair Rx Act”) that would:
    Ban companies from owning BOTH:
    • A pharmacy
    • AND a pharmacy benefit manager (PBM)
    That directly targets CVS Health because:
    • CVS owns retail pharmacies
    • AND its PBM, Caremark
    If the law passes:
    • CVS would have to choose one or the other
    • Or exit the state entirely
    CVS has said it could close all 134 Tennessee pharmacies if forced to separate its model.

  2. Why This Matters: The PBM Model Is the Profit Engine

    PBMs (like Caremark) are the economic backbone of companies like CVS.
    They:
    • Negotiate drug prices
    • Control reimbursement rates
    • Manage formularies
    • Influence where prescriptions are filled
    Owning BOTH PBM + pharmacy allows CVS to:
    • Control pricing
    • Capture margin across the value chain
    • Steer volume into its own pharmacies
    The Tennessee bill is trying to break that vertical integration

  3. Why Tennessee Is Pushing This

    State lawmakers and independent pharmacies argue:
    • PBMs create conflicts of interest
    • Large chains (like CVS) undercut independent pharmacies
    • Reimbursement rates are unfair and opaque
    The legislation aims to:
    • “Level the playing field”
    • Increase transparency
    • Protect local pharmacies

  4. Why CVS Is Fighting So Hard

    From CVS’s perspective:
    • Losing PBM + pharmacy integration = losing margin
    • Their entire model depends on end-to-end control
    • Separating the two could make many stores financially unviable
    That’s why CVS has:
    • Warned of closures
    • Launched ad campaigns
    • Said access to care could be disrupted

  5. The Bigger Picture (This Is What Matters for You)

    This is not just about Tennessee.

    This is a national inflection point:

    What’s happening:
    • States are challenging PBM power
    • Pharmacy economics are under regulatory scrutiny
    • Medicaid + commercial drug spend is under pressure
    What it means:
    • Pharmacy is becoming a margin battleground
    • Vertical integration is being questioned
    • Health plans and providers will need to rethink pharmacy strategy

Executive Takeaway

“The CVS situation in Tennessee isn’t about store closures—it’s about the unraveling of the vertically integrated pharmacy-PBM model. As states push for transparency and fairness, organizations that rely on that structure will need to redesign how they manage pharmacy cost, access, and margin.”

Bottom Line

CVS is not closing pharmacies because they want to.

They are threatening closures because a new law could break their entire business model in Tennessee.

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