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Update: On Monday, July 28, 2025, U.S. District Court Judge Brian Miller issued a preliminary injunction blocking the law (which would have taken effect on January 1, 2026) until the federal court issues final judgement.

In April 2025, Arkansas passed legislation prohibiting pharmacy benefit managers (PBMs) from acquiring or holding a direct or indirect interest in pharmacies.  This law makes Arkansas the first state to enact a structural approach to address concerns about PBM business practices.  To date, three separate lawsuits have been filed challenging the law.  This article looks at how PBMs work, previous attempts to regulate them, and the current lawsuits opposing the Arkansas law.  While the lawsuits will determine the fate of the Arkansas law, how the suits are adjudicated may be crucial in determining whether other states can follow Arkansas' lead.

The Role of PBMs

Pharmacy Benefit Managers first appeared in the late 1960s to help insurance companies and employers negotiate better prices from drug manufacturers and pharmacies.  Currently, PBMs negotiate drug prices, manage formularies for health plans, process prescription drug claims, establish networks of pharmacies, provide mail-order pharmacy services, and review drug utilization.

In recent years, PBMs have come under scrutiny from policymakers, the media, drug manufacturers and pharmacies, with claims that PBM practices have increased drug prices and limited patient choice. These problems are exacerbated by increased vertical integration with insurance companies and pharmacies, a lack of transparency, and heavy market concentration.  Currently, just three PBMs (CVS Caremark, Express Scripts, and Optum Rx) control 80% of the PBM market and all three have financial connections to insurance companies and pharmacies.

While insurers typically pay administrative fees to PBMs, PBMs can also generate revenue through business practices, including rebates and spread pricing.  For example, PBMs can negotiate rebates from drug manufacturers off the drug's list price, effectively lowering the price paid for the drug.  While the savings could be passed on to the insurer or patient, PBMs frequently retain some or all of the rebates as a profit.  Similarly, spread pricing occurs when a PBM negotiates a lower price from the drug manufacturer but receives a higher payment from insurers and retains the difference as profit.  While PBMs have the potential to create savings for insurers and patients, these practices result in higher costs that are passed on to consumers.  A recent FTC report noted that PBMs can profit “by inflating drug costs and squeezing Main Street pharmacies.”

Repeated Federal Attempts to Reign in PBMs have Failed

Federal leaders on both sides of the aisle have spoken out in favor of legislation addressing PBM excesses, including Senator Elizabeth Warren (D-MA), Senator Josh Hawley (R-MO), Senator Dick Durbin (D-IL), Senator Ron Wyden (D-OR),  Representative Buddy Carter (R-GA), Representative James Comer (R-KY), and former Representative Katie Porter (D-CA).  President Donald Trump has criticized PBMs, calling them “rich as hell” and accusing them of raising drug prices.

Despite the broad bipartisan support for PBM reform, recent history is littered with failed attempts at Federal legislation to address PBMs, including the DRUG Act, the Pharmacy Benefit Manager Reform Act, the Pharmacists Fight Back Act, the Health Care Prices Revealed and Information to Consumers Explained Transparency Act, the Lower Costs, More Transparency Act, and the PBM Act.

In July 2024, the Federal Trade Commission published a report holding PBMs accountable for higher drug prices.  In September, the FTC sued Caremark, Express Scripts, OptumRx, and their affiliates for allegedly artificially inflating the price of insulin, including claims of anticompetitive and unfair behavior.

State Actions So Far

Alabama recently passed legislation that requires PBMs to reimburse independent pharmacies at rates no less than those paid by Medicaid.  In 2024, Idaho passed legislation to prevent PBMs from limiting pharmacy networks, restricting network participation, and penalizing non-participation.  Also, in 2024, Oregon passed HB 4149, which requires PBMs to be licensed by the Department of Consumer and Business Services and has provisions to protect pharmacies that dispense 340B drugs.  This year, several more states considered legislation addressing PBMs, including Connecticut, Iowa, Maryland, New Hampshire, Oklahoma, and Virginia.  Mississippi has considered legislation to end spread pricing.

How the New Arkansas Law Differs

On April 16, 2025, Arkansas Governor Sarah Huckabee Sanders signed HB 1150 into law.  The new law states that as of January 1, 2026, the Arkansas Pharmacy Board will revoke or not renew pharmacy permits if the permit holder is a PBM, a subsidiary of a PBM, or an entity with an ownership interest in a PBM.  There are some limited exceptions, including the possible issuance of limited-use permits.  An earlier version of the bill would have required Walmart to close its pharmacies as well since the company administers its own pharmacy benefits for employees.  However, state lawmakers amended the bill so Walmart would no longer be subject to the law.   While not naming Walmart explicitly, the law allows for PBM-affiliated pharmacies if the PBM serves only the pharmacy’s own employee benefit plan.  The language was added to the bill after Arkansas lawmakers stated that they could not have supported legislation that would have prevented Walmart from operating pharmacies.

While previous state attempts to regulate PBMs have addressed reimbursement, transparency, and pharmacy access, the new Arkansas law represents a structural solution - requiring a separation of PBMs and pharmacies - that has previously been more common in antitrust remedies.

The Pharmaceutical Care Management Association (PCMA), a national trade organization representing the interests of PBMs, issued a statement concluding that the bill would result in “the closure of over 35 retail pharmacies, suspension of home delivery prescription drug programs, and restricted access to specialty pharmacies” and that "[t]he result would be increased health care costs for Arkansas employers."  Governor Huckabee claimed this was proof that priorities were misaligned, stating, "They would rather own the PBM than keep their pharmacy open and provide care to the patients they claim to care about.  I think it tells us everything that we need to know, that they care more about their bottom line.”

Since HB 1150 was introduced in Arkansas, similar provisions were introduced or added to bills in Indiana, New York, Texas, and Vermont.

Arkansas Has Been a Leader In Addressing PBMs

Although the recent Arkansas legislation is unique in its approach to PBMs, Arkansas has taken other PBM-related steps in recent years.  In August 2024, the state issued $1.5 million in fines against four PBMs for routinely skirting state law.  On April 14, 2025, 39 Attorneys General, including Arkansas AG Tim Griffin, sent a letter to Congress asking for action addressing anticompetitive PBM practices.

Lawsuits Filed to Challenge the Arkansas PBM Law

So far, three lawsuits have been filed challenging the new Arkansas law.  On May 29, 2025, CVS/Caremark filed suit in the United States District Court for the Eastern District of Arkansas Central Division.  The suit claims the new law is an “assault on free commerce between the States and the foundational principles of fair-market competition that underpin the Union" and that "[t]he law improperly seeks to leverage the State’s licensing power—which is meant to ensure public safety and health—to pick economic winners and losers.”  The suit claims the Walmart exemption in the law is unconstitutional as it “is a blatantly protectionist measure that flouts the ‘antidiscrimination principle’ that lies ‘at the very core’ of the Dormant Commerce Clause.”  It is also claimed that the statute violates the U.S. Constitution’s Supremacy Clause “because it is expressly preempted by multiple federal statutes” including a claim that the law “impermissibly interferes with the uniform nationwide administration of employee benefit plans governed by the Employee Retirement Income Security Act of 1974 (ERISA) by preventing those plans from relying on PBM-affiliated pharmacies (including mail-order pharmacies) in Arkansas even though many plan sponsors have relied on this integrated model to meet their participants’ needs.”  Also on May 29, Express Scripts filed suit against Arkansas, making similar claims to the CVS suit, citing the TRICARE law, which delivers military health benefits through private contractors, as an example of a Federal law that preempts the Arkansas law.

On June 9, 2025, PCMA also filed suit to challenge the new law.  Similar to the previous suits, this suit claims that the new Arkansas law violates the Constitution's Dormant Commerce Clause and Privileges and Immunities Clause by penalizing out-of-state entities to protect local businesses (i.e., Walmart).  The suit adds a claim that the new law violates the Bill of Attainder clause by enacting a punishment (revoking the PBM-owned pharmacies permits to conduct business) without a court proceeding.

The claim that state PBM laws are preempted by ERISA has had some success in challenges to other state PBM laws.  The First Circuit Court found ERISA did not preempt Maine’s 2003 PBM law, but the DC Circuit Court found that ERISA did preempt the same provisions in a DC law (mandating fiduciary duty for PBMs and disclosures over drug costs and PBM benefits).  The United States Supreme Court recently refused to hear a challenge to a Tenth Circuit decision that determined Oklahoma’s 2019 PBM law was preempted by ERISA and Medicare Part D.

The Potential Effects of the Lawsuits

It remains to be seen if other states will follow Arkansas’ lead and attempt to enact structural solutions to address PBM issues.  If the Arkansas law successfully survives the lawsuits, it could be instructive for other states considering similar legislation.  If the law is overturned, the effects would depend on the basis used for overturning it.  If the law is overturned based on the "Walmart" exemption, this may not present a problem for other states that wish to pursue a similar path, as they may not have the need to include such an exemption.  If the court strikes down the Arkansas law for a broader reason (for example, if it is deemed to be preempted by Federal law), this would likely discourage other states from proposing similar legislation.

While PBMs have the potential to be a useful tool in addressing pharmaceutical costs, disproportionate market share and vertical integration seem to encourage questionable business practices among the largest PBMs.  If states (or the Federal government) can find a way to limit PBM excesses that will stand up to court scrutiny, consumers would likely benefit.  We will continue to monitor these cases for future developments.

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