Summary of SB 2574 (Session 114) – Tennessee
Purpose and intent
- Establishes clear rules governing pharmacy benefits managers (PBMs) to protect prescriber authority and patient access.
- Aims to prevent PBMs from unilaterally modifying or delaying medications prescribed by healthcare prescribers, except where a formulary exception or prior authorization has been explicitly initiated by the prescriber.
- Seeks increased transparency and accountability of PBMs, with regulatory oversight by the Department of Commerce and Insurance (DCI) and the Department of Health (DOH).
Key provisions and changes
1) Definitions and policy basis (new section 56-7-3125)
- Defines:
- Department: Tennessee Department of Commerce and Insurance.
- Healthcare prescriber: Individual legally authorized to prescribe drugs.
- PBM: Entity that administers the medication portion of pharmacy benefits coverage for a covered entity.
- Policy findings:
- PBMs are not healthcare prescribers; medical decision-making is the purview of prescribers.
- Non-clinical interference with medical decisions can threaten patient safety.
- Emphasizes transparency and accountability; PBMs are regulated as market participants, not as providers of health plan benefits.
2) Prohibitions on PBMs (c)(1)
- PBMs shall not:
- Modify, restrict, or deny a medication ordered by a prescriber unless the prescriber initiates a formulary exception or prior authorization (PA), which must be granted or denied within specified timeframes (see 5 below).
- Impose requirements that delay or prevent prescribing/modifying medications based solely on clinical judgment.
- Enforce policies that interfere with a prescriber’s prescribing authority.
- Require prescribers to obtain prior approval or perform utilization management activities that directly alter, delay, or deny a medication unless authorized by the patient’s health plan.
- Exercise authority via delegation, incorporation by reference, or contractual terms in a health plan unless expressly permitted.
- Structure formularies or cost-sharing in a way that circumvents prescribing protections (e.g., excessive cost-sharing or non-medical exclusions).
3) Prescription authorship and dispensing (c)(2)–(4)
- Only a healthcare prescriber may issue, modify, or discontinue a medication.
- A pharmacist may dispense a medication only with a valid prescription from a prescriber; no additional PBM approval is required to dispense.
4) Conflict with health plans and contracts (c)(3)–(4)
- Any health plan or contract provision granting PBM authority in conflict with this section is void and unenforceable.
- If prescribers determine a medication is medically necessary, PBMs must ensure an clinically appropriate and affordable access pathway for the patient.
5) Formulary exceptions / PA timeline (c)(5)
- Requests for formulary exceptions or prior authorization must be granted or denied within:
- 24 hours for exigent/urgent clinical circumstances.
- 72 hours for non-urgent requests.
- If the PBM fails to respond within these timeframes, the request is deemed approved.
6) Retaliation and protections (e)(1)–(3)
- Retaliatory actions by PBMs (e.g., network termination/exclusion, reimbursement reductions, targeted audits, penalties, or claim delays) are prohibited.
- If retaliatory action occurs within 180 days of a protected activity, the action is presumed retaliatory unless the PBM proves by clear and convincing evidence that it was not.
7) Transparency and reporting (f)–(g)
- DC I or DOH may request PBM disclosure of:
- Contract terms with pharmacies and payers, including formulary and PA policies.
- Rebates and fee arrangements that influence formulary decisions.
- PBMs must disclose to the requesting department within 10 days.
- PBMs must annually report to DCI on:
- Average PA response times.
- Approval vs. denial rates.
- Number of formulary exception requests.
- Aggregate rebate/fee categories.
8) Enforcement and penalties (h)
- Violations are treated as unfair trade practices under Tennessee law.
- DCI may impose penalties up to $10,000 per violation.
- A harmed pharmacy or healthcare prescriber may pursue injunctive relief and actual damages.
9) Exclusions and effective dates (i)–(k)
- Applies to most plans; excludes ERISA-governed plans and their administrators.
- Takes effect upon becoming law for rulemaking; general effective date is July 1, 2026, with rulemaking to proceed earlier as allowed.
Additional notes
- Section 2 tweaks ERISA-related applicability, reinforcing that ERISA plans may be exempt in ways defined.
- Section 4 contains standard severability language.
- Supporting fiscal notes indicate potential significant cost implications if state PBMs can no longer perform utilization management for TennCare and the State Employee/SGIP programs, depending on rule implementation and contract modifications.
Who is affected
- Pharmacy benefits managers operating in Tennessee.
- Health plans, health-care providers (prescribers and pharmacists), and patients receiving medications through PDPs and PBMs.
- State agencies: Department of Commerce and Insurance (DCI) and Department of Health (DOH).
- ERISA-governed plans are largely exempt, per the bill’s provisions.
Timeline and procedural notes
- Initial action: Introduced and assigned to committees in early 2026.
- Key operative date: General effective date July 1, 2026 (rulemaking can commence earlier).
- Rulemaking: Both DCI and DOH may promulgate implementing rules under the Uniform Administrative Procedures Act.
Overall impact
- Strengthens prescriber authority and patient access by limiting PBM interventions absent a prescriber-initiated request.
- Increases transparency around PBM practices and pricing arrangements.
- Establishes enforceable penalties and a framework for reporting and oversight.
