A New Arkansas Law Puts Pharmacies Before Patients
The statute is intended to protect small pharmacies from larger corporations, but at serious costs to consumers
Sometimes problems in need of solutions end up creating “solutions” in need of boogeymen. For Arkansas lawmakers, the problem is protecting independent pharmacies, and the boogeymen are pharmaceutical benefit managers (PBMs). But their solution is likely to reduce competition, leaving patients with higher drug prices, more pharmacy closures and less access to medicines.
PBMs are entities that negotiate drug prices with pharmacies and drugmakers on behalf of public and private health insurance plans. Arkansas Act 624, which was signed by Gov. Sarah Huckabee Sanders in April 2025 and takes effect in January 2026, bans PBMs from owning their own pharmacies in Arkansas. PBMs pool customers across millions of health plans, leveraging this bulk-buying power to negotiate lower prices from drugmakers and pharmacies. Today, the nation’s three largest PBMs—Optum Rx, CVS Caremark and Express Scripts—account for 80% of U.S. drug prescriptions and are all vertically integrated with insurers. Other insurance plans often choose to contract with these PBMs to benefit from their bulk-buying leverage. Some PBMs, like CVS Caremark, also affiliate with or retain their own pharmacy chains.
Act 624 would force these PBMs to sell or close their pharmacies. The law’s proponents accuse PBMs of harming customers by inflating drug prices and delaying or denying them access to critical medications. They argue that Act 624 will eliminate “conflicts of interest,” such as PBMs preferring their own pharmacies over independent competitors or encouraging insured patients to use them. Unsurprisingly, lobby groups representing independent pharmacies support the legislation in the name of protecting “local businesses.”
Critics of PBMs claim their vertically integrated nature (controlling multiple steps of the supply chain) gives them an unfair advantage in the marketplace. But vertical integration isn’t inherently bad and is usually pro-competitive. By operating at multiple supply chain levels, vertically integrated businesses reduce the costs of repeatedly contracting with third parties, increasing efficiency and lowering prices for consumers. Larger firms also benefit from scale economies: Since their costs are spread out over a larger order volume, each good or service costs less to produce. And unlike horizontal mergers, vertical mergers don’t reduce the number of competitors in a market.
It is true that PBMs can harm competition by entering into the downstream pharmacy market if they use their market power to raise prices while excluding rivals from competition, in contravention of the antitrust laws. Courts have broken up firms where deemed necessary to prevent such harms. And individual PBMs accused of harming competition or their health plan clients and their customers have been successfully sued for contract and antitrust violations, leading to multimillion-dollar settlements.
By contrast, Act 624’s proponents don’t accuse specific PBMs of violating laws. Act 624 instead applies a blanket prohibition on PBMs owning pharmacies. Proponents describe PBMs’ practice of steering insured patients to their own pharmacies through lower prices or special deals as “conflicts of interest.” However, this typically benefits both patients and health plans. Bulk orders from these chains lower the costs of medicine for insurance plans, leading to lower premiums and often lower out-of-pocket costs for customers. Large customer volumes lead to lower per-drug acquisition costs for the pharmacy chains, benefiting even patients who aren’t served by the affiliated PBM or insurers. Owning and operating pharmacies also better enables PBMs to monitor and foster uptake of new medicines and treatments, improving patient outcomes.
PBM critics also claim that the big PBM chains have forced some rural and independent pharmacies to close, leading to “pharmacy deserts” in underserved areas. But these closures could instead be caused by population decline or customer preference for convenient alternatives like mail-order prescription services. America’s rural population fell by nearly 300,000 between 2010 and 2020, and this has coincided with a decline in rural pharmacies. Low order volumes may render these businesses uneconomical, as they cannot match the bulk-buying power necessary to lower costs. Population loss and mail delivery options have also hurt brick-and-mortar pharmacy chains, with their locations reducing by over 5% during 2011-2020. Since many mail-order pharmacies are affiliated with PBMs, Act 624 would also curtail access to medications for scores of patients, including rural Americans, chronic illness sufferers and seniors, all of whom are more likely to rely on mail-order services.
Rather than being unable to compete with PBMs, independent pharmacies typically recruit Pharmacy Services Administrative Organizations (PSAOs), which pool pharmacies to negotiate favorable reimbursement rates. Independent pharmacies typically receive higher drug reimbursement rates than pharmacy chains, and their locations have grown by 9% U.S.-wide between 2011 and 2021, especially in population growth areas like metropolitan areas. This makes the case for legislating their rivals out of Arkansas even more dubious.
Worse still, Act 624 will likely create more pharmacy deserts, as even proponents of increased PBM regulation acknowledge. For rural areas served by only a chain pharmacy benefiting from inclusion in a PBM network, it’s unlikely that an independent operator taking it over could profitably operate. This would lead to closures, cutting services and disrupting care for patients.
Patients who rely on rare, orphan or specialty drugs will also be harmed. Limited distribution chains for these drugs mean they’re often available only through PBM-affiliated chains. Though Act 624 allows for PBM-affiliated pharmacies dispensing drugs to operate under a limited permit, the board issuing these permits will lose its authority in 2027. This creates long-term access and distribution channel risks.
Rural and urban Arkansans deserve to choose between the full range of independent, chain, PBM-affiliated and mail-order pharmacies available based on what best serves their needs. Targeted government assistance could help Americans in underserved areas access the drugs they need. But forcing pharmacy divestitures and closures will only harm patients for the sake of protecting some businesses from competition.
Satya Marar is a visiting postgraduate fellow at the Mercatus Center at George Mason University specializing in competition, innovation and governance.
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