Does Tennessee's 'any willing pharmacy' law force TennCare and CoverKids to admit any licensed pharmacy to their networks?

Plain-English summary

Tennessee's "any willing pharmacy" law (Tenn. Code Ann. § 56-7-2359) generally requires health insurers and managed-care plans to let any licensed pharmacy or pharmacist join their network on the same terms offered to other pharmacy providers. In 2014, the AG was asked four questions about how far that law reached.

The AG concluded that the statute did not apply to TennCare, Tennessee's Medicaid program, because subsection (c) carved TennCare out by name. It did, however, apply to CoverKids, the State Children's Health Insurance Program for uninsured kids, because the legislature had created CoverKids as a program "separate from the Tennessee medicaid program" and because CoverKids met the statutory definition of a "managed health insurance issuer."

Not every insurer, health plan, or pharmacy-benefit manager was covered. Some drug benefits are not subject to insurance regulation at all, and a federal statute could exclude a plan from state-law requirements, so figuring out coverage for a specific arrangement required case-by-case analysis.

On contract terms, the AG read the statute to permit insurers to set neutral terms such as rate and fee schedules, drug formularies, coinsurance, copays, deductibles, and quantity limits, as long as the participation list stayed open to all licensed pharmacies on the same terms. Insurers could not use "terms and conditions" as a back door to exclude willing pharmacies. The AG specifically flagged that requiring a pharmacy to hold a license in every American state would likely cross the line.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: What was Tennessee's "any willing pharmacy" rule?
A: Under Tenn. Code Ann. § 56-7-2359, no health-insurance issuer or managed-health-insurance issuer could deny a licensed pharmacy or pharmacist the right to participate as a network provider on the same terms offered to other pharmacy providers under the policy, contract, or plan. The Tennessee Court of Appeals in Reeves-Sain described it as requiring insurers to include all pharmacies on their lists if the pharmacy agreed to the same terms offered to other providers.

Q: Why was TennCare exempt but CoverKids was not?
A: Subsection (c) of § 56-7-2359 said in plain text that nothing in the section applied to "the TennCare programs administered pursuant to the waivers approved by the federal department of health and human services." CoverKids was created by a separate statute (Tenn. Code Ann. § 71-3-1103) as a program for uninsured children not eligible for TennCare, and the legislature said the goal was to create a program "separate from the Tennessee medicaid program." Because the TennCare exemption was written to cover TennCare specifically and CoverKids met the statutory definition of "managed health insurance issuer" in Tenn. Code Ann. § 56-32-128(a), CoverKids fell within the statute.

Q: Could an insurer set rates and formularies and still comply?
A: Yes. The AG read the statute to allow standard contract terms covering the pharmacy's obligations, including rate and fee schedules, formularies, coinsurance, copay and deductible factors, and quantity limits, as long as the participation list stayed open to any licensed pharmacy on the same terms.

Q: What kinds of network rules would likely violate the statute?
A: The AG identified a requirement that a network pharmacy hold a license in every American state as one that would likely be prohibited, because such a rule operates as a disqualifier rather than a neutral contract term. The line between an acceptable term and an unacceptable disqualifier is fact-specific.

Q: Did the law reach self-funded government plans?
A: This opinion did not directly address state and local employee plans, but it discussed Gray v. City of Memphis, 2005 WL 652786 (Tenn. Ct. App. Mar. 22, 2005), which held that the legislature intended Title 56 to regulate the State and its political subdivisions unless otherwise provided, and that a self-funded City of Memphis health plan was governed by § 56-7-2359. Gray superseded the earlier conclusion in Tenn. Att'y Gen. Op. 04-01 that self-funded governmental plans were outside the statute.

Q: Did a federal statute change the picture for some plans?
A: The AG noted that a federal statute could work to exclude a plan from the requirements of state law or override the Tennessee mandate, depending on the specific circumstances. Whether that applied to a particular plan required a fact-based analysis the opinion did not undertake.

Background and statutory framework

The any-willing-pharmacy statute keeps pharmacy provider networks open to all licensed pharmacies that accept the network's terms, while letting insurers set the economic and operational terms of participation.

Two structural features mattered to this opinion. First, the TennCare carve-out in subsection (c) is written to apply to "this section," not just to the subsection containing it, and the AG read that as a section-wide exemption. Second, the definition of "managed health insurance issuer" in Tenn. Code Ann. § 56-32-128(a) reaches any entity that offers coverage restricting reimbursement to a network and that either is regulated under Title 56 or bears the financial risk of providing care through providers it does not own or employ. CoverKids fit that definition.

The opinion also relied on existing case law for the boundaries of "terms and conditions." Reeves-Sain tied the phrase to rate and fee schedules and to the legislative history's reference to giving pharmacists "an option to participate in the networks if they choose to accept those prices." The federal J.E. Pierce Apothecary case offered a longer list of examples (reimbursement methodology, utilization review participation, online eligibility requirements, complaint resolution) as the type of operational rules an insurer can lawfully impose.

Citations and references

Statutes:

• Tenn. Code Ann. § 56-7-2359 (any willing pharmacy)
• Tenn. Code Ann. § 56-32-128(a) (managed health insurance issuer definition)
• Tenn. Code Ann. § 71-3-1103 (CoverKids program)
• Tenn. Comp. R. & Regs. 0620-05-01-.03; 0620-05-01-.06 (CoverKids coverage and copays)

Cases:

• Reeves-Sain Med., Inc. v. BlueCross BlueShield of Tenn., 40 S.W.3d 503 (Tenn. Ct. App. 2000) (Tennessee Court of Appeals; describes scope of "terms and conditions")
• Gray v. City of Memphis, No. W2004-00976-COA-R3-CV, 2005 WL 652786 (Tenn. Ct. App. Mar. 22, 2005) (Tennessee Court of Appeals; self-funded municipal plan covered)
• J.E. Pierce Apothecary, Inc. v. Harvard Pilgrim Health Care, Inc., 365 F. Supp. 2d 119 (D. Mass. 2005) (federal district court; examples of network terms)

Earlier AG opinions:

• Tenn. Att'y Gen. Op. 04-01 (Jan. 6, 2004) (state insurance committees; superseded in part by Gray)

Subject

Opinion No. 14-71, Application of "Any Willing Pharmacy" Statute, July 16, 2014

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2014/op14-071.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
July 16, 2014
Opinion No. 14-71
Application of "Any Willing Pharmacy" Statute

QUESTIONS

1. Does Tenn. Code Ann. § 56-7-2359, the "any willing pharmacy statute," apply to Tennessee's Medicaid program, TennCare?

2. Does Tenn. Code Ann. § 56-7-2359 apply to state-run programs for children, such as CoverKids, the State Children's Health Insurance Program?

3. Does Tenn. Code Ann. § 56-7-2359, which applies to health-insurance issuers and managed-health-insurance issuers, apply to all insurance companies, health plans, and pharmacy benefit managers?

4. May insurers or their intermediaries impose standards or requirements beyond those imposed by Tennessee law in order for pharmacy-services providers to participate in their networks, such as a requirement that the provider maintain a license in every American state?

OPINIONS

1. No.

2. Tenn. Code Ann. § 56-7-2359 applies to CoverKids, the State Children's Health Insurance Program for uninsured children.

3. No.

4. The "terms and conditions" of a pharmacy-benefit policy, contract, or plan may specify the pharmacy's obligations to the insurer, the plan sponsor, and the plan members/enrollees and thus may include such items as rate and fee schedules, approved drug formularies, provisions regarding coinsurance, co-payments, deductibles, and quantity limits, so long as the insurer's provider lists are open to any licensed pharmacy or pharmacist on the same terms and conditions. Terms and conditions may not be used by insurers or their intermediaries to disqualify or exclude any willing pharmacy or pharmacist from participating in the network. The point at which an acceptable term and condition becomes an unacceptable qualification or exclusion would typically depend on the particular facts and circumstances presented, but a requirement that pharmacy network participants be licensed in every American state would likely be prohibited under the statute.

ANALYSIS

1. Tenn. Code Ann. § 56-7-2359, the "any willing pharmacy act," generally requires health-insurance issuers and managed-health-insurance issuers to open their networks for participation by any licensed pharmacy or pharmacist on the same terms and conditions offered to any other provider of pharmacy services under their policies, contracts, or plans. But the statute does not apply to TennCare, Tennessee's Medicaid program; § 56-7-2359(c) expressly provides that "[n]othing contained in this section shall be construed or interpreted as applying to the TennCare programs administered pursuant to the waivers approved by the federal department of health and human services." Although this provision appears in subsection (c) of the statute, it nevertheless applies to "this section," i.e., all of § 56-7-2359, and not just to subsection (c). By contrast, the immediately preceding sentence of the statute sets forth the circumstances in which "[t]his subsection (c)" does not apply.

2. CoverKids is the State Children's Health Insurance Program; it is a "program to provide health care coverage for uninsured children who are not eligible for health care services under any part of Tennessee's medicaid program, either pursuant to the medicaid state plan or pursuant to any medicaid waivers secured by the bureau of TennCare." Tenn. Code Ann. § 71-3-1103. In creating CoverKids, it was the intent of the legislature "to create and fund a program separate from the Tennessee medicaid program." Id. (emphasis added). Thus, Tenn. Code Ann. § 56-7-2359's express exemption for TennCare does not include CoverKids.

In Tenn. Att'y Gen. Op. 04-01 (Jan. 6, 2004), this Office opined that § 56-7-2359 did not apply to the State insurance committees that administer health plans for State and local employees, based in part on the fact that the plans were self-funded governmental plans. But in Gray v. City of Memphis, No. W2004-00976-COA-R3-CV, 2005 WL 652786 (Tenn. Ct. App. Mar. 22, 2005), the Tennessee Court of Appeals held that the legislature intended Title 56 to regulate the State and its political subdivisions unless otherwise provided and that the self-funded health-benefit plans issued by the City of Memphis were governed by § 56-7-2359. 2005 WL 652786, at 6, 7. In light of Gray, the answer to the question whether § 56-7-2359 applies to a State health-insurance program for children like CoverKids depends on whether the program is a health-insurance issuer or a managed-health-insurance issuer, as those terms are used in the statute.

The term "health insurance issuer" in Tenn. Code Ann. § 56-7-2359 is not defined by the statute. But the meaning of "managed health insurance issuer" in Tenn. Code Ann. § 56-7-2359 is the same as in § 56-32-128(a). See Tenn. Code Ann. § 56-7-2359(d). Under § 56-32-128(a), a "'managed health insurance issuer' means an entity that: (1) Offers health insurance coverage or benefits under a contract that restricts reimbursement for covered services to a defined network of providers; and (2) Is regulated under this title or is an entity that accepts the financial risks associated with the provision of health care services by persons who do not own or control, or who are not employed by, the entity." CoverKids fits this definition. The program supplies coverage for prescription drugs obtained from network pharmacies and requires co-pays at differing levels based on family income. See Tenn. Comp. R. & Regs. 0620-05-01-.03; id. 0620-05-01-.06. And under the program, the State of Tennessee, with funding from the federal government, bears the financial risk associated with providing health-care services to persons not employed by the State, or the State contracts with other risk-bearing entities to provide such health care. While CoverKids is a federally funded program, it has been approved as a state plan by the federal government as a condition for receipt of federal funds under Title XXI, and no federally authorized plan feature appears to exempt CoverKids from the law or necessarily entails a departure from the mandates of Tenn. Code Ann. § 56-7-2359.

3. Not all insurance companies, health plans, or pharmacy benefit managers are covered by § 56-7-2359, because drug benefits are furnished in a variety of contexts, some of which are not subject to insurance regulation at all or, if so subject, may be exempted from general health-insurance laws mandating benefits. Furthermore, as mentioned above, a federal statute could work to exclude a plan from the requirements of state law or to override the Tennessee mandate based on specific circumstances. Determining whether a particular insurer or plan is subject to the statute requires an examination of the particular facts and circumstances under a given contract, policy, or plan of drug coverage and is thus beyond the scope of this Opinion.

4. Tenn. Code Ann. § 56-7-2359(a) provides that "[n]o health insurance issuer and no managed health insurance issuer may . . . [d]eny any licensed pharmacy or licensed pharmacist the right to participate as a participating provider in any policy, contract or plan on the same terms and conditions as are offered to any other provider of pharmacy services under the policy, contract or plan." In other words, the statute "requires insurance companies to include all pharmacies on their lists of providers if the pharmacy agrees to the terms and conditions offered to others on the list." Reeves-Sain Medic., Inc. v. BlueCross BlueShield of Tenn., 40 S.W.3d 503, 505 (Tenn. Ct. App. 2000).

An insurer may impose standard contract terms to specify the pharmacy's obligations to the insurer, the plan sponsor, and the plan members/enrollees. The "terms and conditions" of a policy, contract, or plan generally refers to an insurer's rate and fee schedules. See id. at 507 (legislative history of the bill giving rise to § 56-7-2359 indicates that pharmacists were included in the bill in order to provide "an option to participate in the networks if they choose to accept those prices"); see also Tenn. Code Ann. § 56-7-2359(a)(1) (making exception for when insurer may establish higher rates or fees). But the terms and conditions of a contract, policy, or plan may also include procedures for approving and revising drug formularies, as well as provisions regarding "coinsurance, co-payment, deductible and quantity limit factors." Id. § 56-7-2359(c), (e). See also J.E. Pierce Apothecary, Inc. v. Harvard Pilgrim Health Care, Inc., 365 F. Supp. 2d 119, 130 (D. Mass. 2005) (referring to terms and conditions such as reimbursement-rate methodology, participation in utilization review and quality-assurance, online requirements for eligibility and claims determinations, and participation in surveys and complaint-resolution programs). Whatever the terms and conditions, though, the statute requires insurance companies "to open up their approved provider lists to any 'licensed' pharmacy or pharmacist providing 'pharmacy' or 'pharmaceutical' services on the same terms and conditions extended to all other licensed providers." Reeves-Sain, 40 S.W.3d at 506-07 (emphasis added).

But the "terms and conditions" imposed on pharmaceutical services by an insurer or its intermediary may not work to disqualify or exclude any willing pharmacy or pharmacist from participating in the network. While the point at which an acceptable term and condition becomes an unacceptable qualification or exclusion would typically depend on the particular facts and circumstances presented, a requirement that pharmacy network participants be licensed in every American state would likely be prohibited under the statute.

ROBERT E. COOPER, JR.
Attorney General and Reporter

JOSEPH F. WHALEN
Acting Solicitor General

SARAH ANN HIESTAND
Senior Counsel

Requested by:
The Honorable David Shepard
State Representative
34 Legislative Plaza
Nashville, Tennessee 37243