CVS's Go-To Threat

How Big Medicine fights dirty.

Photo credit: Focal Foto

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A former editor of mine always asked for there to be three examples of anything I wanted to write about: Three bills, three comments, three incidents, etc.

Well, boss, rule of three achieved, because there are three states in which CVS — the big medicine behemoth — has used the same tactic to try to stop state lawmakers from breaking its stranglehold on the pharmacy business. These tactics, which will surely be rolled out in other states that similarly want to take on CVS’s dominance, are built on corporate bullying, market power, and misinformation.

Let’s take a quick tour. Last year, Arkansas became the first state in the country to adopt a law preventing pharmacy benefit managers — the middlemen of the pharmaceutical business, also known as PBMs, which I’ll discuss more later — from also directly owning pharmacies. During debate over the eventual law, CVS threatened to leave the state, telling customers and legislators that every CVS outlet in Arkansas would close were it to take effect. Gov. Sarah Huckabee-Sanders signed it anyway, and CVS has sued to block it.

Ditto in Louisiana, where CVS threatened to close all its outlets in response to a similar bill last year. It also accessed phone numbers through the state employee health plan (which contracts with its pharmacy benefit manager), and texted those phone numbers telling recipients to oppose the bill. Some of those texts went to state legislators themselves. That little shenanigan earned CVS a series of lawsuits from the state’s attorney general for privacy violations, which it settled for $45 million. The Louisiana bill ultimately did not become law, though, so maybe that $45 million was worth it.

Which brings us to number three, Tennessee, where a bill to create a law similar to Arkansas’ has been moving through the legislature this year. And once again, CVS is threatening to close all of its stores in the state, telling customers and legislators it will have no choice but to take its proverbial ball and go home if Tennessee adopts a law to separate PBMs from pharmacies.

CVS is spending millions of dollars reportedly flooding the local airwaves with ads deriding the bill, and is also receiving support via a $500,000 ad buy from an Oklahoma-based group called Shaping Health Initiatives for Tomorrow, which only seems to exist as a weird, stripped-down website.

To be very clear: There is no reason CVS pharmacy locations have to close in the event the bill is signed. This is a scare tactic used to defeat legislation aimed at ending just some of the conflicts of interest that plague the American health care system. In fact, CVS and PBMs more broadly have forced the closure of plenty of pharmacies themselves through their stranglehold on the drug business.

As a refresher (or for newer subscribers!), pharmacy benefit managers stand at the nexus of health insurers, drug manufacturers, and pharmacies. They determine which drugs are covered by insurance, how much pharmacies are reimbursed for selling those drugs, which pharmacies are in a given insurer’s network, and how much to charge public programs such as Medicaid for certain drugs, all of which ends up determining the costs of medication that are born by patients, taxpayers, and pharmacists.

The three largest PBMs in the U.S. — Caremark, Express Scripts, and OptumRx — handle 80 percent of the drug claims in the country. They are all also part of corporate conglomerates that own health insurance companies and affiliated pharmacies.

Caremark is owned by, you probably guessed if you made it this far, CVS, which also owns the insurer Aetna. As I wrote about here, Caremark has faced many legal complaints and investigations over allegations that it drives patients toward CVS-owned pharmacies and systematically under-reimburses independent pharmacies for dispensing drugs (meaning it pays them less per prescription that it pays itself), making it impossible for them to compete with CVS-owned outlets.

To get a sense of the scale here, the Tennessee Commerce and Insurance Department found “that CVS Caremark was reimbursing its own pharmacies in some cases 16,000% more for a specific drug than non-affiliated stores.” This gives CVS immense power to shape the pharmacy ecosystem and ensure that independent and non-Caremark-affiliated pharmacists simply can not compete, and may well end up losing money on the drugs they sell.

As one Tennessee pharmacist put it, “Either be a PBM or be the pharmacy. Which one do you want? But you can’t do both because it’s not a level playing field if you’re doing both. You cannot be the referee and a player in the same game.”

Now to the specific claim about pharmacy closures. If a bill to separate PBMs from pharmacies were to pass and become law in Tennessee, CVS has the option to either sell its pharmacies to another company or series of independent pharmacists in order to comply, or to set up an independent corporation to run its pharmacies in the state. As one of the bill’s sponsors, Republican Sen. Bobby Harshbarger, who is a pharmacist himself, explained, “This bill says you have to divest. Divestment does not equal closure.”

It’s also very possible, even if CVS did follow through on the threat, that the new market opportunity provided by PBM reform would allow for a surge of independent pharmacies in the state, or an expansion of existing pharmacies. Simply shuttering every location in a fit of rage at a common-sense health care law would be a choice, not a directive stemming from anything in the legislation.

And to be clear, it’s not like the bill only applies to CVS! No PBM would be able to simultaneously own pharmacies in the state were it to become law.

Democratic Rep. Aftyn Behn referred CVS to the Tennessee attorney general, alleging that its campaign against the bill amounts to deceptive advertising. "This is not merely a policy disagreement — it is a question of whether a dominant healthcare corporation is leveraging its market power to mislead consumers, influence legislative outcomes, and suppress competition," said Behn.

Indeed, threatening to leave the state is often a go-to move from a corporation that has amassed too much local power, whether it’s in reaction to a health care regulation, a cut in economic development subsidies, a change in labor law, or anything else. Tennessee should join Arkansas in calling CVS’s bluff, and show the potential fourth, fifth, or sixth state to consider such a step that there’s nothing to be scared of.

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SHAMELESS SELF-PROMOTION: I have a new piece in Governing about the momentum to ban secret data center deals in states across the country. Read it here.

I also spoke to The City about the Mamdani administration’s push to end subscription traps in New York City. Read it here.

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SIMPLY STATED: Here are links to a few stories that caught my eye this week.

• Pennsylvania Gov. Josh Shapiro said the latest rate increase request from the electric utility PECO is “pure greed.”

• Several municipalities across the country will vote on ballot initiatives this year regarding data center development.

• Ohio Republicans introduced two bills to overhaul the state’s gambling laws, including measures to ban online betting and in-game sports betting.

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— Pat Garofalo