The PBM Reform Act of 2025 layers new rules across Medicare Part D, Medicaid, and employer-sponsored group plans to make pharmacy payments and PBM contracts visible and, in many cases, pass payments straight through to dispensing pharmacies. It requires Medicare PDPs to accept any pharmacy that meets reasonable, CMS‑defined contract terms, creates a new category of “essential retail pharmacies” for monitoring, sets an allegation and enforcement process for improper contract terms, and compels PBMs to report detailed drug‑level and revenue data to plan sponsors and the federal government.
For Medicaid the bill orders a national pharmacy price survey, forbids spread pricing in managed care and PBM arrangements (requiring ingredient cost plus an allowable dispensing fee and bona fide administrative fees), and requires states and contractors to provide granular data. The measure also compels semiannual reporting from PBM contractors to group health plans (and extends parallel oversight into ERISA/IRS code) and funds CMS, OIG, GAO and MedPAC work to implement and study the new regime.
These changes reshape how PBMs, plans, pharmacies, manufacturers and states account for rebates, fees and payments.
At a Glance
What It Does
Requires PDP sponsors to permit any willing pharmacy under CMS standards; directs CMS to publish standards for ‘reasonable and relevant’ contract terms and to create an allegation/enforcement process. Imposes PBM transparency, auditing and limit‑of‑income rules for Part D and MA–PD; mandates semiannual reporting from PBM contractors to group plans and strong data disclosures. Forces Medicaid managed care/PBM arrangements to use pass‑through pricing and funds a national pharmacy acquisition cost survey.
Who It Affects
Medicare Part D sponsors and MA organizations, pharmacy benefit managers and their affiliates, independent and chain pharmacies (especially rural/underserved ‘essential retail’ locations), state Medicaid agencies and managed‑care contractors, large group plan sponsors and insurers, and federal oversight entities (CMS, OIG, GAO, MedPAC).
Why It Matters
The bill shifts the market toward visibility of rebates, fees and pharmacy payments, curbs spread pricing in Medicaid, and creates legal exposure for sponsors and PBMs that fail to disclose or that retain improperly classified revenue. Compliance and contract design will change; payers and pharmacies will get new data streams that could alter network participation, formulary placement and beneficiary cost‑sharing.
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
The bill attacks PBM business practices and pharmacy network design from multiple angles rather than with one single instrument. For Medicare Part D it replaces the existing subparagraph on pharmacy participation: plan sponsors must permit any pharmacy meeting plan contract terms, and CMS must define what contract terms count as “reasonable and relevant.” CMS must first collect industry input (an RFI by April 1, 2027) and publish binding standards by the first Monday in April 2028, with the new participation rules effective for plan years starting January 1, 2029.
The bill creates a specific tracking category—“essential retail pharmacies”—based on geographic isolation (no other retail pharmacy within specified mile thresholds) and public‑health designations. CMS will publish lists of those pharmacies (starting with plan year 2028), require PDPs and MA organizations to report affiliate lists and certain incentive payments, and issue biennial reports comparing reimbursement, participation and volume between essential and non‑essential pharmacies.To enforce the new Part D contracting standards the bill instructs CMS to create a pharmacy allegation submission process by January 1, 2028.
Pharmacies will use a standardized template and may generally submit one allegation per contract per plan year (with an extra submission allowed if the contract is modified). PDPs must provide contract offers and relevant documents to CMS; allegation submissions are exempt from FOIA; CMS may investigate and apply civil monetary penalties or intermediate sanctions; anti‑retaliation protections are explicit.The bill imposes a novel PBM accountability regime for Part D and MA–PD plans effective for plan years beginning January 1, 2028.
PBMs and their affiliates must limit income to bona fide, flat‑dollar service fees (defined by CMS by rule and not tied to drug price except in narrow, specified circumstances), fully pass through rebates to the sponsor when required, and disgorge prohibited remuneration. PBMs must file extensive annual, machine‑readable drug‑level reports to PDP sponsors and CMS (detailing NDCs, claims counts, WAC or average WAC per days‑supply, rebates, DIR and other remuneration, amounts retained by PBM affiliates, dispensing channel splits, and more).
PDP sponsors get audit rights and may require PBM contractual indemnities; CMS and OIG will have access to the data but must protect party‑identifiable trade information.For employer/group coverage the bill adds parallel reporting and enforcement through the Public Health Service Act, ERISA and the tax code. Entities providing PBM services to group plans must furnish semiannual reports (or quarterly at a plan’s request) with similar drug‑ and channel‑level detail.
The Secretary will define standard, machine‑readable formats and may assess civil money penalties ($10,000/day for noncompliance; up to $100,000 per false item).In Medicaid the bill requires a CMS‑run national survey of pharmacy acquisition costs (retail and specified non‑retail types) using a contractor that must report monthly. States must require pharmacies to respond to the surveys and CMS can impose civil monetary penalties (up to $100,000 per violation) for refusal or false reporting.
The law also mandates pass‑through pricing in managed care/PBM contracts: ingredient cost plus a professional dispensing fee and a bona fide administrative fee, with any spread pricing or post‑sale deductions disallowed when claiming Federal matching funds. CMS will publish aggregated 340B and covered‑entity information and the Inspector General will study related pricing patterns.
The Five Things You Need to Know
CMS must issue a request for information by April 1, 2027 and publish standards for “reasonable and relevant” Part D pharmacy contract terms by the first Monday in April 2028.
The bill defines an ‘essential retail pharmacy’ by location: rural (no other retail pharmacy within 10 miles), suburban (no other retail pharmacy within 2 miles), or urban (no other retail pharmacy within 1 mile), and requires CMS to post a public list beginning plan year 2028.
The Part D pharmacy allegation process limits routine submissions to once per plan year per contract (with a narrow exception for contract modifications), exempts allegations from FOIA, and explicitly bans sponsor retaliation against reporting pharmacies.
PBMs must deliver annual, machine‑readable reports to PDP sponsors and CMS containing drug‑level metrics (including NDC, claims, dosage units, average WAC per day’s supply, rebates and total DIR, average pharmacy reimbursement by channel, and total manufacturer‑derived revenue retained by the PBM/affiliate); PDP sponsors may select the auditor and the PBM has 6 months to produce audit materials.
Medicaid rules require a CMS monthly survey to set national average drug acquisition benchmarks (retail and specified non‑retail), compel pharmacy participation, and allow penalties up to $100,000 per pharmacy per violation for nonresponse or knowingly false responses; states may not base retail payment methods on non‑retail pricing data.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Medicare Part D: any‑willing‑pharmacy, standards, and essential retail pharmacy monitoring
This provision replaces the prior restrictive participation clause with an any‑willing‑pharmacy rule tied to CMS’s definition of reasonable and relevant contract terms; CMS must collect industry input (RFI) in 2027 and publish standards in April 2028. It also creates an enforceable category—essential retail pharmacies—using geography and medically underserved status to identify pharmacies meriting special monitoring. Practically, PDPs and MA organizations must submit affiliate lists and expanded incentive reporting so CMS can publish comparisons of reimbursement, volume and network participation for essential versus other pharmacies. Employers and plan counsel should watch the affiliate reporting requirement: sponsors must provide lists of pharmacies that are affiliates of the sponsor or of any PBM acting on its behalf, which will force more transparent corporate mapping of ownership and common control.
Allegation process and enforcement for Part D contracting
CMS must create a pharmacy allegation submission system by January 1, 2028 with a standardized template and evidence rules. The process limits routine allegations to one per plan year per contract (with a narrow exception for contract modifications), bars FOIA disclosure of submissions, and authorizes CMS to investigate and use existing plan enforcement tools (including civil monetary penalties via cross‑references to the 1857 and 1860D enforcement authorities). The statute expressly prohibits sponsor retaliation and empowers CMS to temporarily bar pharmacies that file frivolous claims from using the system. For PDP sponsors this creates a new potential liability stream (penalties and administrative work) and obliges them to preserve and deliver contract documents to CMS on request.
Part D PBM accountability: income limits, reporting, audits and disgorgement
The bill requires written agreements between PDP sponsors and PBMs that bind PBMs (and their affiliates) to: (1) limit remuneration to bona fide flat‑dollar service fees except for narrowly defined, pass‑through rebate arrangements; (2) define and consistently apply terms used in pricing guarantees; (3) deliver annual, machine‑readable drug‑level reports to PDP sponsors and CMS; and (4) submit to sponsor‑initiated audits with the sponsor choosing the auditor and a 6‑month timeline to produce materials. The provision empowers CMS/OIG to review compensation arrangements for fair market value, requires PBMs to disgorge improper revenue, and obligates PDP sponsors to demand contract clauses that shift civil‑money penalty exposure back to PBMs when violations relate to delegated responsibilities.
Group‑plan and ERISA/PHSA/Tax‑code oversight: semiannual reporting and penalties
This part overlays similar reporting and enforcement on group health plans and issuers through the Public Health Service Act, ERISA and the tax code. PBMs servicing group plans must produce semiannual reports (quarterly at a plan’s election) to the plan with detailed drug‑ and therapeutic‑class information, channel splits, formulary justifications, and aggregate net and gross spending. The Secretary must define a standard machine‑readable format and may levy civil monetary penalties ($10,000 per day for noncompliance; up to $100,000 per false information item). Privacy safeguards are prescribed; plans must provide summary documents to participants and allow claims‑level disclosure on request. This creates a repeated, regulated transparency requirement for commercially negotiated PBM arrangements in the employer market.
Medicaid pharmacy acquisition survey, reporting, OIG oversight and funding
CMS must conduct a national pharmacy price survey (monthly reporting by a contractor) to establish national average drug acquisition cost benchmarks. States must compel retail and applicable non‑retail pharmacies to participate; CMS will publish response rates and aggregated results and the HHS Inspector General must study survey data and related internal transfer pricing issues. CMS is directed to increase appropriations to support the survey and implementation; pharmacies that refuse or provide false survey data face civil money penalties (up to $100,000 per violation). The statute also requires data broken out by whether pharmacies are affiliates of wholesalers or PBMs to detect related‑party pricing distortions.
Medicaid pass‑through pricing and ban on spread pricing
Contracts between states and managed‑care entities or PBMs that cover outpatient drugs must use a transparent pass‑through pricing model: payments limited to ingredient cost plus a professional dispensing fee at least equal to what the State would pay and a bona fide administrative fee reflecting fair market value. Any retained spread between what the entity charges and what pharmacies receive (after allowing the authorized admin fee) is ineligible for Federal Medicaid matching. CMS must publish aggregated data on payments to covered entities (including 340B categories). The Medicaid pass‑through requirement applies to contracts with effective dates on or after 18 months post enactment and is designed to eliminate the retained‑spread model in managed care.
This bill is one of many.
Codify tracks hundreds of bills on Healthcare across all five countries.
Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Rural and otherwise isolated 'essential' retail pharmacies — the bill protects their right to join Part D networks, requires CMS monitoring and creates a public list that makes exclusion harder and reimbursement disparities visible.
- Medicare Part D and MA–PD enrollees in underserved areas — improved pharmacy access and explicit protections against network narrowing are intended to preserve local dispensing options and choice.
- State Medicaid programs and beneficiaries — the pass‑through pricing mandate and the national acquisition‑cost survey give states clearer benchmarks and limit spread‑pricing leakage that raised per‑prescription costs.
- Plan sponsors and large employers — access to standardized, machine‑readable PBM and drug‑level data improves contract oversight and bargaining leverage versus PBMs.
- Federal oversight bodies (CMS, OIG, GAO, MedPAC) — dedicated appropriations and data streams enable more granular oversight, studies, and enforcement of PBM and payer conduct.
Who Bears the Cost
- Pharmacy benefit managers and affiliates — face limits on non‑service revenue, mandatory disgorgement, audit exposure, new reporting burden and contract liability for delegated violations.
- PDP sponsors and MA organizations — required to accept pharmacies meeting CMS standards, to collect and submit affiliate/incentive data, and to include PBM indemnities; they may face increased administrative and legal costs.
- Pharmacies (all sizes) — must respond to Medicaid acquisition surveys and to Part D allegation processes; independent and small pharmacies may also absorb compliance costs to document contracts and claims data.
- State Medicaid programs and managed‑care contractors — must change contract templates, implement pass‑through payments, and manage new reporting flows (though some implementation funding is provided federally).
- PBM clients and group plans — gathering, storing and handling semiannual drug‑level reports and conducting sponsor‑led audits will increase administrative overhead for plan sponsors and insurers.
Key Issues
The Core Tension
The central dilemma: transparency and pass‑through pricing aim to eliminate hidden spreads and ensure payments reach dispensing pharmacies, but forcing disclosure and tight limits on PBM remuneration risks disrupting negotiated discounts, contractual innovation and potentially raising list prices or administrative costs if parties cannot find new, legitimate commercial models that preserve net savings.
The bill seeks to pry open PBM contracts and payment flows by mandating data disclosure, prohibiting undisclosed spreads in Medicaid, and restricting PBM revenue to bona fide service fees. That design raises practical and legal frictions.
First, the statute requires extremely granular, drug‑level data from PBMs, affiliates and sponsors; defining the precise scope of reportable ‘remuneration’ and reconciling proprietary contract terms with public‑reporting obligations will be administratively complex. The statute protects some information from public disclosure, but sponsors and PBMs will still face risks as regulators and competitors parse standardized files.
Expect disputes over what constitutes fair market value for service fees, and litigation over whether certain payments are legitimate pass‑throughs or disguised remuneration.
Second, the anti‑spread pricing rules for Medicaid and the PBM limitation on income could shrink PBM revenue lines and prompt PBMs to restructure commercial arrangements in ways that are hard to observe (for example, shifting compensation into non‑reportable services or to affiliates outside the statute’s direct reach). Enforcing disgorgement and fair‑market‑value reviews depends on CMS and OIG capacity; the bill supplies funding, but oversight will still require sophisticated audits and possibly new regulation to operationalize definitions.
Finally, the standardization and public reporting obligations create friction with other federal and state rules (DIR reporting, 340B confidentiality, state rate‑setting) and may produce short‑term network churn as sponsors renegotiate contracts to comply.
Try it yourself.
Ask a question in plain English, or pick a topic below. Results in seconds.