Tennessee has emerged as a national leader in the fight for transparency and fairness in the Pharmacy Benefit Manager (PBM) industry. In September 2025, the Tennessee Department of Commerce and Insurance (TDCI) entered into consent orders with two of the nation’s largest PBMs—Caremark PHC, LLC (a CVS Health subsidiary) and Express Scripts Administrators, LLC (ESI)—following extensive audits that uncovered systemic and flagrant violations of the state’s PBM laws.
The actions mark a decisive escalation in Tennessee’s enforcement of PBM regulations, signaling that state regulators are no longer content to rely on voluntary compliance or industry assurances.
A New Era of PBM Regulation in Tennessee
Tennessee’s PBM laws, enacted through a series of public chapters over the past five years, require PBMs to maintain state licensure, adhere to prompt payment rules, treat pharmacies equitably, and provide transparent audit and appeal processes. The state strengthened these laws further in 2024 and 2025 through the elimination of prior caps on penalties thereby supplying TDCI with greater enforcement authority.
Until recently, state oversight was largely limited to complaint resolution, but this changed when TDCI began conducting comprehensive commercial audits of PBMs, an approach that only a few other states have attempted. These audits, which are authorized pursuant to T.C.A. §56-7-3101(b)(1)(A), permit the TDCI independent authority to initiate comprehensive audits against PBMs licensed in Tennessee to ensure compliance with Tennessee regulations. If the audit reveals any non-compliance by PBMs, the TDCI may require the PBM to take any action deemed necessary or appropriate to cure the violations which includes the payment of civil penalties. As demonstrated with these most recent consent orders, penalties also include extensive corrective action.
Express Scripts: Violations and Corrective Action
On September 12, 2025, TDCI entered into a consent order with Express Scripts Administrators, LLC, concluding an audit of its 2023 operations. The audit uncovered 12 violations and nine additional observations that collectively revealed significant noncompliance with Tennessee’s PBM statutes. A sampling of the audit findings are as follows:
- Delayed and improper reimbursements: ESI repeatedly failed to reimburse pharmacies within legally required timeframes, and in some cases withheld payments even after appeals were resolved in the pharmacies’ favor.
- Preferential treatment of affiliated pharmacies: The audit found that ESI provided higher dispensing fees to its own or affiliated pharmacies, violating Tennessee’s non-discrimination rules.
- Improper recoupments and audit practices: ESI engaged in clawbacks and audit procedures that failed to meet the transparency and documentation standards required by state law.
Under the consent order, ESI agreed to pay a $250,000 civil penalty and agreed to implement corrective measures to ensure compliance moving forward. Tennessee officials emphasized that the audit represented the first full commercial PBM audit conducted by a state regulator in the U.S., a significant development in the nation-wide crusade to tamper abusive PBM practices and one that many observers hope reflects a turning point into more proactive PBM oversight.
Caremark: Broader Penalties and Structural Failures
Just two weeks after ESI entered into its consent order with TDCI, a set of three similar consent orders were entered into with Caremark PHC, LLC, Caremark, LLC, and Caremark PCS Health, LLC (collectively, “Caremark”) imposing a total of $750,000 in penalties for repeated violations across multiple areas of Tennessee’s PBM regulations.
The audit found that Caremark:
- Failed to properly disclose and update its Maximum Allowable Cost (MAC) pricing lists;
- Did not comply with required audit and appeal procedures;
- Showed preferential network treatment toward its affiliated pharmacies; and
- Continued certain noncompliant practices even after prior state warnings.
The order requires Caremark to implement a detailed compliance plan and submit regular reports demonstrating adherence to Tennessee’s PBM laws. Regulators framed the action not as a technical enforcement but as a response to persistent and structural deficiencies within Caremark’s PBM operations.
Broader Implications for PBMs and Pharmacies
Tennessee’s enforcement actions reverberate well beyond its borders. For independent and community pharmacies—many of which have long argued that PBMs use opaque reimbursement practices and predatory audits in an effort to terminate community pharmacies from the PBM’s network in an effort to monopolize the pharmacy services market—the consent orders represent long-awaited validation.
But community pharmacies are not limited to independent state action. In February 2025, the TDCI issued a consent order against ESI in response to an audit conducted following a single complaint filed by a community pharmacy that ultimately found ESI failed to accurately reimburse 265 pharmacy claims across 40 pharmacies. The February 2025 consent order also required ESI to pay $250,000 in penalties. It is likely that increased pressure on lawmakers and state agencies with authority by community pharmacies against PBMs played a significant role in incentivizing the TDCI’s independent audits of ESI and CVS.
These developments represent a landmark penalty against PBMs that may hopefully serve as a model for other states with similar regulations to follow. While not yet proven, it stands to reason that if ESI and CVS were violating Tennessee regulations, through conduct as easily concealable as offering preferential treatment to its own pharmacies and delaying proper reimbursement to community pharmacies, other states conducting rigorous audits of these nation-wide PBMs may find similar malfeasance.
The orders also underscore growing legal tension between state and federal authority. Many PBM contracts involve employer plans regulated under the federal Employee Retirement Income Security Act (ERISA), which can preempt state laws that “relate to” plan administration. Indeed, earlier in 2025, a federal district court partially invalidated portions of Tennessee’s PBM access statute under ERISA preemption. Whether Tennessee’s latest enforcement actions withstand similar challenges could determine how far other states can go in policing PBMs.
A National Bellwether for Reform
Tennessee’s actions arrive amid mounting federal scrutiny. The Federal Trade Commission’s (FTC) ongoing investigation into PBM business practices, focused on spread pricing, rebate structures, and vertical integration, has already cited state audits like Tennessee’s as evidence of widespread compliance failures. This most recent set of audits by Tennessee only further supports the FTC’s contentions.
Furthermore, if Tennessee’s approach proves effective, other states may adopt similar auditing frameworks, creating a patchwork of enforcement that forces PBMs to standardize compliance nationwide. Tennessee is further seeking to reign-in PBM misconduct through the state’s 2025 legislative reforms, including SB 881/HB 1244 (effective as of May 9, 2025), which removed penalty caps and strengthened prompt payment rules. Removing these restraints gives TDCI even greater leverage moving forward considering that fines of less than $1,000,000 are insufficient, on their own, to curb PBM misconduct.
Conclusion
Tennessee’s consent orders against Caremark and Express Scripts mark a decisive turn in PBM oversight, one defined by active audits, meaningful penalties, and a clear signal that opaque practices will no longer go unchecked. While these actions are state-specific, their significance is national: regulators are sharpening their tools, and the tolerance for noncompliant conduct is narrowing.
For pharmacies, this moment represents a long‑awaited shift toward fairness and transparency. For PBMs, it signals that the era of minimal state scrutiny may be ending. Community pharmacies nationwide should proactively evaluate whether PBM conduct is harming their operations, including by assessing reimbursement practices and compliance with state regulatory requirements. Frier Levitt is experienced in conducting internal pharmacy audits to determine whether PBMs are meeting reimbursement and other statutory obligations and in identifying patterns of conduct that may warrant regulatory attention.
Where states have established oversight mechanisms, Frier Levitt can assist in drafting and submitting complaints against PBMs to the appropriate state authorities, including preparing supporting documentation and tailoring the presentation to specific requirements. In states with expansive governmental oversight of PBMs, Frier Levitt can work within existing regulatory frameworks to seek durable, systemic reforms. Contact us today.
