Dispensing Fees: A Hidden Tax on Tennessee Employees

Every time an employee on an employer-sponsored health plan fills a prescription, their employer is paying a tax they may not even be aware of – the dispensing fee.  

What is a Dispensing Fee? 

A dispensing fee is paid to a pharmacist every time a prescription is filled. This fee, around $1.78 when set by the market, covers the cost of operating a pharmacy – electricity, rent, staffing, and other costs. In Tennessee, the General Assembly artificially increased the cost of the dispensing fee by 540%. 

What happened in Tennessee? 

In 2022, the General Assembly attempted to help independent pharmacists by artificially inflating the cost of a dispensing fee. Now, every single time a prescription is filled at a low-volume pharmacy – that is, a pharmacy that fills 65,000 or fewer prescriptions per year – the pharmacy charges almost $14. That $14 is direct profit to the pharmacy, paid out of the pocket of either employers or employees. 

What does this do to the market? 

By mandating above-average-market dispensing fees, this legislation is effectively punishing employers for offering health coverage. Lawmakers should be seeking to make healthcare more affordable for all Tennessee employers, not picking and choosing which pharmacists can charge exorbitant additional fees. 

The higher dispensing fees for low-volume pharmacies also incentivize pharmacists not to fill more than 65,000 prescriptions in a given year. When filling 65,001 or more prescriptions, pharmacists receive the lower, market-driven dispensing fee rate of approximately $1.75. They would have to fill 520,000 prescriptions – 8 times the 65,000 limit - to break even. 

Why this matters to you: 

The dispensing fee is designed to reimburse low-volume pharmacies with revenue they might be missing out on due to high-volume competitors. While this seems like an equitable solution, especially to Tennessee’s state legislators, employers are the ones bearing the cost with every prescription an employee fills. 

One Tennessee-based manufacturer with 6,000 employees saw a $680,000 increase in benefit costs in 2025 - $70,000 of which came from dispensing fees at low-volume pharmacies. This manufacturer is now considering whether the cost of doing business in Tennessee is too high. 

For employers, especially small business owners, artificially high dispensing fees make it harder to offer competitive benefits. The rising costs mean choosing between shrinking coverage or raising employee premiums, neither of which serve Tennessee’s working families. 

The Bottom Line 

Tennessee’s reputation as a business-friendly state is in jeopardy. Dispensing fees may seem like small policy details, but when they add up to tens of thousands of dollars in extra costs, that can be the difference between a business ending the year in the red or in the black. That’s exactly the kind of costly, unnecessary mandate TEBA was created to fight, because when policies like this go unchecked, it’s everyday Tennesseans who pay the price. 

Join TEBA HERE today and help protect the benefits that Tennessee families rely on.