Arkansas seeks to kick big pharmacy middlemen out of drugstore business

The Eighth Circuit heard arguments over whether a first-in-the-nation ban on PBM-owned pharmacies is illegal favoritism or a fair fight for local stores and patients.(CN) — Arkansas wants to stop the nation’s largest pharmacy middlemen from owning drugstores in the state. On Tuesday, an Eighth Circuit panel heard whether that ban illegally protects hometown pharmacies at the expense of out-of-state companies and whether hundreds of thousands of patients would have to find new places to fill their prescriptions.Attorney Joseph Nelson, arguing for the state, opened with the core claim:“When pharmacy benefit managers own their own pharmacies, that creates an irresistible opportunity for those PBMs to engage in predatory and anti-competitive practices,” he said. “To protect patients by preserving fair competition, Arkansas enacted Act 624, which bars PBMs from owning pharmacies.”He said the law treats all vertically integrated pharmacies the same, whether they are based in Arkansas or not.“What plaintiffs are arguing is that states lack power to police anti-competitive and harmful practices when the perpetrators happen to be out-of-state entities. The Dormant Commerce Clause … does not give them that get-out-of-jail-free card.”Nelson noted that Walgreens, Kroger and Amazon would not be banned and would benefit along with local independents. Pharmacies facing the ban, he added, “could just sell, and they could sell to another out-of-state entity. They could sell to Walgreens.”Attorney Jeffrey B. Wall, arguing for the PBM companies, called the law textbook favoritism.“Applying this court’s settled test for discrimination under the Dormant Commerce Clause, this is as clear a violation as this court will ever see,” he said. “The text of the law itself is protectionist. The legislative history is rife with protectionist rhetoric and the law adds nothing of legitimate substance to the existing regulatory regime.”He quoted a sponsor who said, “we don’t want these big companies, these big box stores, sucking our business and taking it out of Arkansas. We want it to be going to our local pharmacies.”Wall also warned of real-world disruption.“You’re talking one-in-five Arkansans who’re going to have to find a different place to get their medicines,” he warned. “We’re going to have to fire pharmacists, we’re going to have to close every one of these pharmacies.” The record suggested upwards of 50 pharmacies would be closed, affecting five to six million prescriptions a year.The panel included U.S. Circuit Judges Bobby E. Shepherd, L. Steven Grasz and David R. Stras.Judge Grasz, a Donald Trump appointee, asked Nelson when a ban on vertical integration crosses into illegal discrimination against out-of-state companies. Nelson replied that no court has struck down such a ban on that basis and that non-integrated out-of-state chains such as Walgreens are untouched.Judge Stras, another Trump appointee, asked whether lawmakers wrote a facially neutral rule they knew would hit only out-of-state giants. Nelson said the statements were about patients, not protectionism.Judge Shepherd, a George W. Bush appointee, asked what “locally operated pharmacies” in the statute actually means. Nelson said it points to brick-and-mortar stores, not ownership. Wall said the phrase, the legislative history and last-minute carve-outs for Walmart show the true target.Act 624, signed in 2025, would have taken effect Jan. 1, 2026. U.S. District Judge Brian S. Miller, a George W. Bush appointee, blocked it, finding it likely discriminates against interstate commerce. The three largest PBMs and their pharmacies, which fill mail-order and specialty prescriptions for hundreds of thousands of Arkansans, sued. Independent pharmacies backed the law as a check on conflicts of interest. A decision is expected in the coming months.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads