CVS's Arkansas Exit: A Strategic Shift or a Warning Sign for PBM Dominance?

Theodore QuinnSaturday, Apr 19, 2025 12:09 am ET
27min read

The state of Arkansas has ignited a firestorm in the pharmacy industry with its new law banning Pharmacy Benefit Managers (PBMs) from owning retail pharmacies. By January 2026,

(CVS) will shutter 23 pharmacies in the state—roughly 10% of its Arkansas footprint—eliminating access to medications for 340,000 patients and costing 500 jobs. While CVS calls the law “bad policy,” supporters argue it’s a necessary step to curb PBM dominance. For investors, the move raises critical questions: How will this regulatory shift impact CVS’s bottom line? And what does it signal about the broader threat to PBM business models?

The Arkansas Law: A Direct Challenge to PBM Power

House Bill 1150, signed into law in April 2025, bars PBMs from owning pharmacies, aiming to dismantle anti-competitive practices. The law’s supporters, including independent pharmacists and bipartisan state attorneys general, argue PBMs suppress competition by underpaying rivals and steering patients to their own stores. CVS, which operates its PBM subsidiary Caremark, faces a stark choice: comply and close pharmacies or risk legal penalties.

CVS has framed the closures as a loss for patients, citing reduced access to 24-hour services and specialty medications. Yet the company also claims compliance with Arkansas’s reimbursement rules, paying independent pharmacies 61% more per prescription than its own stores. This raises a key contradiction: If CVS already overpays competitors, why does it oppose a law that would force it to divest its pharmacies?

The Financial Impact on CVS

While the 23 pharmacies represent a small slice of CVS’s 9,900 U.S. locations, the closures highlight vulnerabilities in its PBM-centric strategy. shows the stock has underperformed peers, down 12% year-to-date, compared to a 6% gain for Walgreens. Investors may be pricing in regulatory risks to its PBM operations, which accounted for 42% of CVS’s revenue in 2024.

The Arkansas law’s ripple effects could extend beyond pharmacy closures. If other states follow suit—similar bills are pending in Texas, Indiana, and Vermont—PBMs may face a wave of divestitures. This could disrupt their ability to control drug distribution networks, potentially squeezing margins.

The Bigger Picture: PBM Regulation is Heating Up

Arkansas’s law is part of a national reckoning with PBMs, which manage 80% of U.S. prescriptions but remain largely unregulated. The FTC has labeled PBMs “gatekeepers” that inflate drug prices through anti-competitive practices. While CVS argues the law ignores the 14 new independent pharmacies opened in Arkansas since 2019, critics counter that PBMs still dominate reimbursement rates.

For investors, the key question is whether Arkansas’s approach will catalyze broader reforms. Bipartisan federal bills, including the PBM Anti-Steering Act, could amplify the regulatory pressure. If passed, they might force PBMs to unwind ownership ties nationwide, reshaping the industry’s $400 billion market.

Conclusion: A Regulatory Crossroads for CVS

CVS’s Arkansas exit is more than a regional issue—it’s a harbinger of rising regulatory scrutiny. The company’s stock struggles reflect investor skepticism about its reliance on PBM fees, which face both legislative and reputational risks. While CVS insists it will comply with the law, the closures underscore a broader vulnerability: its PBM operations are now a liability as much as an asset.

For now, the immediate financial impact is manageable—$150 million in annual revenue from Arkansas pharmacies is a drop in the $300 billion bucket of CVS’s total sales. Yet the precedent is alarming. If states and Congress succeed in dismantling PBM ownership models, CVS and peers like Express Scripts and OptumRX could face existential shifts. Investors should monitor not just Arkansas’s pharmacy landscape, but also legislative calendars in state capitals and Congress. The writing is on the wall: PBMs’ days of unchecked power may be numbered.

Data sources: CVS SEC filings, Arkansas State Board of Pharmacy reports, FTC analysis.