- with readers working within the Healthcare and Pharmaceuticals & BioTech industries
State regulators across the country are increasingly scrutinizing pharmacy benefit managers (PBMs) and the complex financial mechanisms that govern prescription drug reimbursement. While federal policymakers continue to debate broader reforms to the pharmaceutical supply chain, state attorneys general and insurance commissioners have begun taking matters into their own hands. Recent enforcement actions involving two of the nation's largest PBMs, CVS Caremark and Express Scripts, illustrate how states are increasingly regulating PBMs and challenging practices that they believe harm independent pharmacies and drive up drug costs.
These actions are not isolated incidents. Rather, they reflect a growing trend. States are using their existing authority under consumer protection statutes, insurance laws, and pharmacy regulations to investigate PBM conduct and extract meaningful settlements when violations are identified. Two recent matters involving CVS Caremark and Express Scripts demonstrate how this new wave of enforcement is unfolding.
Louisiana's Enforcement Action Against CVS Caremark
Louisiana has been among the most aggressive states in confronting PBM practices. In recent years, independent pharmacies across the state have raised persistent concerns about reimbursement rates, market consolidation, and the influence of vertically integrated PBM entities.
Specific concerns regarding CVS Health's vertical integration intensified. By way of background, CVS Health is not merely a retail pharmacy chain. Through a series of acquisitions over the past two decades, it has become one of the most vertically integrated healthcare companies in the United States. The parent company now operates a national retail pharmacy chain, a major health insurer through Aetna, and one of the largest PBMs in the country through CVS Caremark.
This vertical structure has raised questions among regulators and policymakers about whether PBMs affiliated with pharmacy chains may favor their own dispensing operations. Critics argue that PBMs could potentially steer patients toward affiliated pharmacies, establish reimbursement models that disadvantage competitors, or design formularies that benefit preferred distribution channels.
These concerns eventually culminated in litigation brought by the Louisiana Attorney General against CVS Health and its PBM subsidiary, CVS Caremark. State officials alleged that the companies' business practices had the effect of discouraging competition from independent pharmacies and increasing prescription drug costs for consumers. The lawsuit alleged that the companies engaged in unfair and deceptive practices that harmed independent pharmacies and increased prescription drug costs across the state.
Further, state officials alleged CVS Caremark leveraged its position within the pharmaceutical supply chain in ways that disadvantaged local pharmacies and distorted competition. Specifically, state officials alleged PBMs occupy a powerful role within the prescription drug ecosystem. They negotiate drug prices with manufacturers, determine formulary placement, administer pharmacy networks, and establish reimbursement rates for dispensing pharmacies. When a PBM is vertically integrated with an insurance company and a national pharmacy chain, state regulators expressed concern that this can cause conflicts of interest. Louisiana officials alleged that these structural conflicts allowed CVS and Caremark to engage in conduct that undermined independent pharmacies while consolidating market power within their own affiliated entities.
Rather than litigate the matter through trial, the parties ultimately reached a settlement valued at approximately $45 million. The agreement resolved the state's claims against CVS and Caremark without any admission of wrongdoing. State officials indicated that the settlement funds would support enforcement of pharmacy-related laws and strengthen oversight of prescription drug pricing practices. The recovery also sends a broader signal that PBMs operating within Louisiana will face heightened scrutiny from regulators.
For independent pharmacies, the settlement represents validation of long-standing complaints regarding PBM reimbursement practices and market dynamics. While the settlement itself does not fundamentally alter the PBM business model, it underscores the willingness of state officials to challenge conduct they believe harms community pharmacies and consumers.
Although the settlement resolves the specific claims brought by Louisiana, the underlying policy debate surrounding vertically integrated PBMs is far from settled. Lawmakers, regulators, and federal agencies continue to examine whether structural reforms may be necessary to address potential conflicts within the PBM model.
West Virginia's Enforcement Action Against Express Scripts
A separate enforcement action in West Virginia involving Express Scripts further illustrates the growing regulatory attention focused on PBMs. Following a state investigation into Express Scripts' compliance with pharmacy reimbursement and consumer protection laws, Express Scripts agreed to pay administrative penalties and reimburse pharmacies after regulators identified multiple violations of state requirements.
The investigation reviewed the PBM's operations over a multi-year period and examined compliance with state laws governing reimbursement practices, pharmacy audits, consumer appeals, and network adequacy. Regulators ultimately identified numerous violations of state law. Among the most significant findings were failures to reimburse pharmacies at the minimum rates required under state law and improper recoupment of funds from pharmacies. Investigators also found instances in which reimbursement for certain prescriptions fell below the minimum payment thresholds established by state law, affecting thousands of pharmacy claims.
In addition, regulators determined that Express Scripts failed to comply with procedural requirements governing consumer appeals and response timelines. According to the findings, the PBM missed required deadlines for reviewing consumer appeals and delayed responses to regulatory requests for information during the investigation.
As part of the settlement, Express Scripts agreed to reimburse affected pharmacies with interest and implement internal policy changes designed to ensure compliance with state law. The PBM also committed to submitting a corrective action plan and reporting its progress to regulators. Like many regulatory settlements, the agreement did not include an admission of liability.
Broader Trends and Driving Forces
Taken together, the Louisiana and West Virginia matters reveal a clear shift in how states are approaching PBM oversight. For years, PBMs operated largely outside the direct regulatory spotlight despite their central role in determining drug pricing and pharmacy reimbursement. That environment is changing rapidly. State regulators have begun using existing consumer protection laws, insurance regulations, and pharmacy statutes to investigate PBM practices and impose penalties when violations occur.
Several factors are driving this trend. First, independent pharmacies have become increasingly vocal about reimbursement levels that they argue are unsustainable. Many pharmacies report being reimbursed below acquisition cost for certain medications, forcing them to dispense prescriptions at a loss.
Second, policymakers have grown concerned about the level of transparency surrounding PBM pricing mechanisms. Spread pricing, rebate retention, and administrative fees can obscure how money flows through the prescription drug supply chain.
Third, the rapid consolidation of the healthcare industry intensified scrutiny of vertically integrated entities that control multiple stages of the pharmaceutical distribution system. These factors have combined to create a political and regulatory environment in which PBMs face greater oversight than ever before.
Implications for Independent Pharmacies
For independent pharmacies, the enforcement actions in Louisiana and West Virginia highlight both opportunity and caution.
On one hand, these investigations demonstrate that regulators are increasingly willing to examine PBM practices and intervene when violations occur. Pharmacies that believe they have been improperly reimbursed or subjected to unlawful recoupments may find that state regulators are more receptive to those concerns than in years past.
On the other hand, PBMs remain powerful actors within the prescription drug marketplace. Contract provisions, audit mechanisms, and reimbursement formulas continue to evolve as PBMs adapt to the shifting regulatory environment.
Pharmacies must remain vigilant in reviewing their PBM contracts, monitoring reimbursement data, and responding promptly to audit findings or recoupment requests. The recent enforcement actions represent only the latest chapter in an expanding national debate over PBM practices.
States across the country are considering legislation aimed at banning spread pricing, requiring rebate pass-through arrangements, and strengthening oversight of PBM reimbursement practices. At the same time, federal regulators, including the Federal Trade Commission, have begun examining whether PBM practices contribute to rising prescription drug costs.
Against this backdrop, the settlements involving CVS Caremark and Express Scripts are unlikely to be the last. Rather, they are early indicators of a broader regulatory shift in which PBMs face increasing scrutiny from both state and federal authorities. As regulators continue to examine the financial structure of the prescription drug marketplace, PBMs may find themselves operating under a far more demanding compliance environment than in the past.
For pharmacies, plan sponsors, and other stakeholders within the healthcare system, the message is clear: the era of minimal oversight for PBMs appears to be coming to an end.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
