Government generally has two ways to address problems in a marketplace. It can establish clear rules, target harmful conduct and let competition produce better outcomes. Or it can design the market itself by controlling business decisions and dictating how companies must operate. That is the decision facing lawmakers in healthcare today.
America's freight-rail experience shows what is at stake. For decades, the Interstate Commerce Commission controlled railroad rates, restricted routes and made it hard for carriers to shed unprofitable lines. Intended to stabilize an essential industry, the rules instead contributed to bankruptcies and lagging investment.
Congress changed direction with the Staggers Rail Act of 1980. The law preserved protections against unreasonable rates and anticompetitive conduct but gave railroads greater freedom to set prices, negotiate contracts and organize their networks. As a result, inflation-adjusted freight rates fell by nearly half over the ensuing decades while freight volume grew by more than 50 percent.
The lesson was not that government has no regulatory role. It was that regulation works best when it addresses identifiable misconduct without substituting political judgment for competition. The modern debate over pharmacy benefit managers, or PBMs, presents much the same choice.
PBMs administer prescription-drug benefits for insurers and government health plans. They negotiate discounts and rebates with drug manufacturers, determine which drugs are covered, contract with pharmacies and process claims. Many also run their own pharmacies to help lower drug prices. Health plans hire them to use their purchasing power and expertise to control costs.
Critics contend that some PBM practices produce conflicts of interest or higher costs. They point to rebate arrangements, spread pricing (charging a health plan more for a prescription than the PBM reimburses the pharmacy), and incentives that may favor drugs with higher list prices. PBMs have also been accused of steering patients toward affiliated pharmacies and underpaying independent ones.
These concerns deserve serious consideration. But the real question is not whether challenges exist, but which remedies address them without unnecessarily restricting competition or market choice.
Washington has chosen the targeted approach. Through Section 6224 of the Consolidated Appropriations Act of 2026, Congress restricted how PBMs serving Medicare plans may be compensated, required rebates and discounts to be passed through to plan sponsors, mandated detailed reporting and provided sponsors with extensive audit rights. Other provisions establish transparency and rebate protections for employer-sponsored health plans.
The Federal Trade Commission (FTC), meanwhile, has pursued enforcement actions targeting the same pricing, rebate, and transparency concerns. Its settlements require contract options that calculate patients' costs closer to net prices, pass rebates through at the pharmacy counter, let health plans move away from spread pricing and guaranteed-rebate arrangements, and offer community pharmacies cost-plus reimbursement.
Taken together, the federal law and settlements show how targeted intervention can address the practices that prompted calls for PBM reform without displacing market choice. They impose enforceable rules while leaving employers and health plans free to choose among competing arrangements.
The Trump administration has effectively chosen this approach: address the specific practices driving concerns about PBMs without dictating how companies must structure their businesses. With those reforms now in place, states pursuing far more sweeping measures should have to explain what problem remains that requires breaking apart lawful businesses.
Arkansas enacted the nation's first law barring PBMs from owning or operating pharmacies. Tennessee has since enacted its FAIR Rx Act. Both laws face legal challenges, and a federal court has temporarily blocked the Arkansas measure, but that has not stopped lawmakers elsewhere from considering similar proposals.
These mandates are not an indictment of any one business practice but of an industry as a whole. A PBM could comply fully with every federal requirement, abandon disputed pricing practices and offer transparent contracts, and still be forced to restructure or withdraw its pharmacy operations. This would disrupt pharmacy access for millions and could set a troubling precedent for other businesses weighing investments based on what were previously settled rules.
The contrast is clear. In a free and fair marketplace, government should establish clear rules, punish demonstrated misconduct, and step back to let competition determine how businesses organize. An industry's political unpopularity is not a reason to abandon those principles, and neither is the fact that some critics have a legitimate case.
There is also a more basic question: How does forcing a PBM to sell or close a pharmacy make a prescription less expensive? Ownership bans do not themselves lower a drug's list price, increase manufacturer discounts, or reduce a patient's copay. They dictate who may own a pharmacy without demonstrating how that restructuring lowers healthcare costs.
States pursuing ownership bans are choosing a far more sweeping approach. When government can address specific problems directly, forcing companies to divest lawful businesses is difficult to justify as consumer protection. It is government-directed market restructuring, and lawmakers should be wary of the precedent it sets.
Jack Yoest is an Associate Professor of Practice at The Catholic University of America's Busch School of Business. He served as Assistant Secretary for Health and Human Resources for the Commonwealth of Virginia and is the author of Learning to Win: The 45 Laws of the Public Policy Process.
