SB 2040

This bill establishes comprehensive regulations and prohibitions regarding the ownership and control of pharmacies by a pharmacy benefits manager ("PBM""), as described below. This bill prohibits, on and after January 1, 2027, a PBM from directly or indirectly acquiring, holding, controlling, or otherwise possessing any ownership or beneficial interest in, or exercising control over, a pharmacy license or a pharmacy license ho lder, including through any contract or arrangement that transfers operational control or economic benefit to the pharmacy benefits manager. This prohibition applies regardless of the percentage of ownership interest. Compliance with the prohibition is ma de a condition of the issuance, renewal, and continued validity of a pharmacy license. This bill prohibits evasion of the prohibition through corporate structuring, intermediary ownership, management contracts, leases, or other indirect means, and requires the board of pharmacy (""board"") to construe and enforce the prohibition to prevent c ircumvention, including by disregarding corporate form to determine true beneficial ownership or control. This bill provides the prohibition does not apply to customary payer-pharmacy network contracts or minority ownership interests that do not convey managerial control or exclusive dispensing authority. For this exemption, a hospital or health-system phar macy that provides pharmacy benefit management services solely for its own employees, dependents, or patients is not deemed a pharmacy benefits manager. However, the exemption does not apply if the hospital or health system provides such services to unaf fi liated employers or third parties. LIMITED-USE PHARMACY LICENSE Until September 1, 2028, this bill authorizes the board to issue a limited-use pharmacy license solely for certain rare, orphan, or FDA-designated limited-distribution drugs otherwise unavailable in the state. An applicant for a limited-use pharmacy lic ense must provide documentation of FDA orphan designation or manufacturer confirmation of a restricted distribution program. The limited-use license provision must not be construed to require a manufacturer to expand or modify a limited-distribution netw or k or to authorize dispensing by any pharmacy not otherwise approved by the manufacturer. This bill requires the board to annually review each limited-use pharmacy license, prohibits a limited-use license holder from transferring, assigning, or selling the limited-use pharmacy license to a pharmacy benefits manager or an affiliate of a pharma cy benefits manager, and repeals the limited-use license provision on September 1, 2028. REQUIRED DISCLOSURES This bill requires each applicant for a pharmacy license, at the time of application, and each holder of a pharmacy license, annually, to file a verified disclosure with the board of pharmacy identifying: (i) all direct and indirect owners and beneficial owners of 5% or more; (ii) any parent company, subsidiary, affiliate, or contractor that provides management, staffing, purchasing, inventory, or technology services; and (iii) any agreement granting a pharmacy benefits manager or affiliate authority to in fluence or control pharmacy operations. This bill authorizes the board to request supporting documentation, including corporate charts, contracts, and financial records, and provides that failure to provide accurate information is grounds for license den ial, suspension, or revocation. This bill provides that a trustee, executor, administrator, or other fiduciary acting solely in a passive capacity, and not affiliated with or under common control with a pharmacy benefits manager or its parent company, and without authority to direct or influence pharmacy operations, is not a beneficial owner or controller for disclosure purposes. The disclosure requirements must not be construed to permit, authorize, or validate any ownership, beneficial interest, or control of a pharmacy by a pharmac y benefits manager or its affiliate, regardless of percentage or form. APPLICABILITY This bill applies to any pharmacy licensed under the laws of this state and to any non-resident pharmacy holding a license that dispenses or ships prescription drugs to residents of this state, including any mail-order, specialty, central fill, telepharma cy, or automated dispensing facility owned, operated, or controlled by a pharmacy benefits manager or an affiliate of its parent company that dispenses or ships prescription drugs to residents of this state. This bill provides that it regulates the qualifications, licensure, ownership, and control of pharmacies as a condition of professional practice within this state, and does not regulate drug manufacturing, labeling, interstate shipment, pricing, reimburs ement, insurance benefits, or the design or administration of employee benefit plans governed by the federal Employee Retirement Income Security Act. This bill provides that it must not be construed to regulate activities beyond the jurisdictional bounda ri es of this state, and applies uniformly to all pharmacy licenses without regard to the state of incorporation, principal place of business, or residency of the licensee or its owners. This bill further provides that it does not limit the ability of indep endently owned or unaffiliated pharmacies to provide mail-order, specialty, or delivery services directly to patients. VIOLATIONS This bill authorizes the board of pharmacy, for a violation, to impose a civil penalty of up to $10, 000 per violation, and provides that each day a violation continues constitutes a separate violation. This bill authorizes the board to seek injunctive r elief, issue subpoenas to obtain records necessary to enforce the prohibition, and requires the board to publish, by January 15, 2028, and annually thereafter, a public report identifying enforcement actions taken during the prior calendar year and listin g active limited-use pharmacy licenses. This bill requires, no later than July 1, 2026, the board to assess each active pharmacy license and send notice by October 1, 2026, to any license holder reasonably anticipated to be in violation. The notice must include the name of each pharmacy benef its manager with a direct or indirect interest, board contact information, and a list or web address to a website listing pharmacies not believed to be in violation. A licensee receiving notice must notify each patient and prescribing healthcare provider w ho has used the pharmacy within the previous 12 months, no later than November 1, 2026, that the pharmacy may no longer dispense as of the date of the notice. This bill authorizes a pharmacy affiliated with a pharmacy benefits manager to continue operations through December 31, 2026, if the pharmacy demonstrates it is actively pursuing a bona fide sale to an unaffiliated entity, and authorizes the board to gra nt a single extension not to exceed 6 months upon proof of substantial progress toward completion of the sale. The board is required to notify the attorney general of any sale or transfer involving a PBM that results in the acquiring entity controlling m or e than 25% of pharmacy locations in any geographic region. This bill authorizes a pharmacy or pharmacy benefits manager aggrieved by a determination to request a hearing under the Uniform Administrative Procedures Act, requires such a hearing to occur within 60 days of filing the request and to be concluded with in 30 days after the hearing date, and provides that a stay must not issue unless the appellant shows substantial likelihood of success and irreparable harm. This bill requires an action contesting enforcement or validity of the prohibition to be filed e xc lusively in the chancery court for Davidson County. ON APRIL 20, 2026, THE SENATE ADOPTED AMENDMENTS #2, #3, AND #4 AND PASSED SENATE BILL 2040, AS AMENDED. AMENDMENT #2 rewrites the bill to, instead, prohibit a person or entity from directly or indirectly owning, operating, controlling, or directing the operation of, the whole or part of any pharmacy and either a health insurance issuer or a pharmacy benefi ts manager. Such prohibition takes effect on January 1, 2028, and applies when the percentage of ownership interest held by a person, entity, or affiliate is greater than 5%. This amendment provides that a pharmacy that is affiliated with both a pharmacy benefits manager and a health insurance issuer in violation of this amendment may continue to operate through December 31, 2028. However, such a pharmacy must demonstrate to the board of pharmacy (""board"") that it is actively pursuing a bona fide sale to an unaffiliated entity. The board may grant one, six month extension to such an entity, upon proof of substantial progress toward completion of a sale. EXCEPTIONS This amendment clarifies that a hospital or health-system pharmacy is not a pharmacy benefits manager for the purposes of the above-described prohibition. Further, the amendment does not limit the ability of independently owned or unaffiliated pharmacie s to provide mail-order, specialty, or delivery services directly to patients of such pharmacies. The amendment does also does not apply to an FDA-designated orphan drug with limited distribution or to a drug that is subject to an FDA-required risk evalu at ion and mitigation strategy (REMS) that includes limited distribution. This amendment does not prohibit an employer from owning and operating a pharmacy or administering pharmacy benefits solely for its own employees. However, this amendment does not apply to pharmacy services provided pursuant to a contract with the Unite d States government for the administration of a federal healthcare program by the department of defense, department of veterans affairs, Indian health service, or office of personnel management. ENFORCEMENT This amendment authorizes the attorney general to enforce this amendment and requires the board to refer information of potential violations to the attorney general. A violation is subject to a civil penalty of up to $10, 000 per violation. Each day cons titutes a separate violation. A pharmacy, health insurance issuer, or pharmacy benefits manager aggrieved by a determination may request a hearing. Such a hearing must occur within 60 days of filing the request, and must be concluded within 30 days afte r the date of the hearing. This amendment requires any action to contest the enforcement or validity of this amendment to be filed only in the chancery court for Sumner County. RULEMAKING This amendment authorizes the board of pharmacy to promulgate rules to effectuate this amendment. AMENDMENT #3 clarifies that the bill does not prohibit an employer from owning or operating a pharmacy or administering pharmacy benefits solely for its own employees, retirees, and dependents under an employee benefit plan. AMENDMENT #4 changes the date after which a person or entity may not directly own, operate, control, or direct the operation of, the whole or party of a pharmacy; and directly own, operate, control, or direct the operation of the whole or any part of a h ealth insurance issuer and a pharmacy benefits manager from January 1, 2028, to July 1, 2028."