Pharmacy Benefit Managers (PBMs) have long dominated the independent pharmacy landscape with little oversight and expansive discretion. From opaque reimbursement formulas to excessive audit recoupments, PBMs have deployed a variety of tools to maintain their grip on pharmacy networks. In recent years, however, a newer and increasingly aggressive strategy has emerged—terminating pharmacies not for direct misconduct, but because of their affiliation, ownership, or relationship with another pharmacy that has allegedly fallen out of compliance.

This approach represents a dangerous shift. Instead of evaluating pharmacies on their own conduct and audit performance, PBMs are casting a wide net, terminating entire groups of pharmacies based on presumed connections—often without conducting individualized audits, issuing audit findings, or providing meaningful due process. For independent pharmacy owners with multiple locations or any business or personal connection to other operators, this trend poses a serious threat to continued network participation and long-term viability.

The Expansive Interpretation of “Affiliation”

PBMs are increasingly invoking vague contractual language in their provider manuals and network agreements that allow them to terminate a pharmacy for being “under common ownership, control, or affiliation” with a non-compliant or terminated pharmacy. These clauses are typically written broadly, without precise definitions or clear limitations. As a result, PBMs have substantial discretion in determining what constitutes an “affiliation.”

In practice, PBMs have applied this rationale to pharmacies that share the same owner, are registered under the same tax ID or DEA number, or are operated by close family members or business partners. Some pharmacies have faced termination simply for sharing employees or for previously operating out of the same physical location. Others have been terminated because they transacted with, or were once co-located with, another pharmacy that is now on the PBM’s watchlist. In many instances, these terminations occur even when the affiliated pharmacy passed its audits or was never audited at all.

This tactic reflects a disturbing erosion of individualized assessment. Pharmacies are no longer judged on their own merit, compliance history, or audit performance. Instead, they are presumed guilty by association—with no opportunity to respond to any alleged findings, because there are no specific findings issued against them.

How PBMs Are Weaponizing Network Control

The implications of this strategy are deeply problematic. Pharmacies that are operating in full compliance with applicable federal and state laws can suddenly find themselves expelled from a PBM’s network without warning, solely because another location—under common ownership or simply perceived to be affiliated—was terminated. These secondary pharmacies are often not given a chance to cure any alleged issues or to dispute the termination before it becomes effective.

In one recent matter, our firm represented a pharmacy group that operated three locations under the same corporate umbrella. One location was subject to a PBM audit that identified a handful of technical discrepancies. The pharmacy responded with documentation and corrective measures. Nevertheless, the PBM issued a termination letter citing breach of contract. Within weeks, the other two locations—neither of which had been audited or accused of any wrongdoing—received termination notices as well. The stated reason: common ownership with a terminated pharmacy. There was no suggestion that these other locations engaged in similar conduct, and no audit was performed to support the PBM’s decision.

This type of termination by association is not just overreach—it is a strategic maneuver by PBMs to remove independent operators in bulk, with minimal effort or oversight. And it is often targeted at multi-site pharmacy owners, particularly those dispensing high-cost or specialty drugs that cut into PBMs’ profit margins.

Legal and Compliance Challenges

From a legal perspective, the practice raises several red flags. First, PBMs are denying pharmacies any meaningful opportunity to be heard or to dispute the basis of the termination—especially when they are not the original subject of the audit. This lack of process contradicts basic principles of contract law and fairness.

Second, the vague and subjective nature of PBM affiliation clauses makes it nearly impossible for pharmacies to proactively structure their businesses to avoid triggering these provisions. Inconsistent application of these rules also suggests an arbitrary and capricious enforcement approach, which may give rise to legal claims under state law—particularly in states that have enacted PBM regulatory statutes or fair pharmacy audit laws.

Third, and perhaps most importantly, these terminations can have devastating financial consequences. For pharmacies that depend heavily on PBM-covered claims, exclusion from a major network can mean immediate loss of revenue, layoff of staff, and potential closure—especially if multiple locations are terminated in quick succession.

What Pharmacies Can and Should Do

Independent pharmacy owners should take this trend seriously and act preemptively to protect their businesses. While it is not always possible to eliminate every perceived affiliation, there are practical steps pharmacies can take to mitigate risk.

Pharmacies with multiple locations should review their corporate structures, tax registrations, and provider enrollment documents to ensure that each location is clearly delineated as a distinct entity. Shared ownership or centralized management is not inherently problematic, but failing to properly document independence between pharmacies can make it easier for PBMs to treat them as a single unit.

Business operations should also be reviewed. If pharmacies share staff, inventory, or administrative processes, those arrangements should be clearly documented and legally justified. If one location is under audit, owners should assume that other affiliated pharmacies may come under scrutiny as well, even without formal notice. Taking proactive compliance steps—such as self-audits, documentation reviews, and staff retraining—can help build a defense if termination notices are later issued.

Equally important is the need to act swiftly when a termination notice arrives. Many PBMs offer only a short appeal window—sometimes as little as 7 days. Pharmacies should retain legal counsel with specific experience in PBM disputes to prepare a robust appeal, gather supporting documentation, and, if necessary, initiate arbitration or legal action to challenge the termination. In some cases, filing for injunctive relief in court may be the only way to preserve network participation while the dispute is resolved.

Looking Ahead

The PBM industry continues to operate with limited transparency and minimal accountability. While federal and state lawmakers have begun to take a more aggressive stance—through legislation, oversight hearings, and agency investigations—regulatory reform remains a slow process. In the meantime, pharmacies must take control of their own defense.

PBM terminations based on “affiliation” are a growing trend, and independent pharmacy owners must understand the risk this poses. It is no longer enough to ensure that your own pharmacy is compliant. You must also be aware of how your business relationships, ownership interests, and shared infrastructure may be interpreted by PBMs looking for reasons to reduce their network exposure.

Pharmacies that are prepared—legally, operationally, and strategically—stand the best chance of surviving this wave of terminations. Those that ignore the warning signs risk being swept away.

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If your pharmacy has received a termination notice or if you operate multiple locations and are concerned about PBMs targeting affiliated pharmacies, contact our firm. We represent pharmacies across the country in PBM audits, network disputes, and litigation, and we have successfully reversed terminations involving complex ownership structures. Let us help you protect what you’ve built.