This bill requires the Department of Health and Human Services to conduct monthly national surveys of pharmacy acquisition costs, establishes reporting and penalty regimes for pharmacies that refuse or falsify survey responses, and authorizes IG studies of affiliated pharmacy transactions. It also amends Medicaid law to require transparent pass‑through pricing in contracts with managed care entities, bans using spread pricing to claim Federal Medicaid matching funds, and adds a statutory definition of “pharmacy benefit manager.”
In Medicare, the bill forces Part D plan sponsors to permit any willing pharmacy (subject to standards set by CMS), requires periodic publication of “essential retail pharmacy” lists, and creates extensive PBM disclosure, audit, and anti‑retaliation rules for PDP sponsors and PBMs — including annual machine‑readable reports, disgorgement for improper remuneration, and new enforcement authorities. The legislation pairs operational mandates with funding and directed studies (GAO, MedPAC, OIG) designed to reveal price flows through the supply chain and to give CMS data needed for enforcement.
At a Glance
What It Does
Mandates a monthly national pharmacy acquisition‑cost survey and public reporting; requires Medicaid pass‑through pricing (ingredient cost + dispensing fee) and disallows spread pricing for Federal match; adds statutory PBM definitions and reporting duties. For Medicare Part D, it requires any‑willing‑pharmacy participation standards, identifies ‘essential retail pharmacies,’ demands annual PBM data reports in machine‑readable form, and creates audit/disgorgement and enforcement mechanisms.
Who It Affects
Retail community pharmacies and non‑retail (mail/specialty) pharmacies, pharmacy benefit managers and their affiliates, State Medicaid programs and managed care entities, PDP sponsors and MA–PD organizations, drug manufacturers, auditors, and consultants who contract across the prescription drug supply chain.
Why It Matters
The bill targets two revenue practices — spread pricing in Medicaid and opaque PBM revenue in Medicare Part D — and seeks to realign reimbursements with actual pharmacy acquisition costs. It shifts where commercial confidentiality ends and regulator access begins, potentially changing PBM business models, pharmacy margins, Medicaid expenditures, and how Part D plans contract with pharmacies.
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What This Bill Actually Does
The bill rewrites several parts of Titles XVIII and XIX of the Social Security Act to pry open price flows in the prescription‑drug supply chain and to constrain practices that separate payer charges from pharmacy payments. It directs HHS to run a monthly survey that collects actual acquisition cost data from retail community pharmacies and designated non‑retail pharmacy types, to publish aggregated results and survey metadata (including response rates and sampling methods), and to require survey participation as a condition of receiving Medicaid‑related payments.
HHS may hire a vendor to operate the survey and must differentiate data by pharmacy type and affiliation; refusal, falsification, or noncompliance can trigger civil monetary penalties up to specified limits.
On Medicaid contracting the bill requires States to include pass‑through pricing language in contracts with PBMs, managed care plans, or other specified entities that cover outpatient drugs. Under that model entities must pass the drug ingredient cost and a professional dispensing fee through to dispensing pharmacies (with limited exceptions for 340B purchases and a narrowly defined administrative fee).
Any form of spread pricing — where an entity charges Medicaid more than it pays pharmacies, after accounting for allowable administrative fees — cannot be used to claim Federal matching funds. The statute also defines “pharmacy benefit manager” and supplies timelines for when contract provisions become effective.For Medicare Part D the bill imposes an “any willing pharmacy” framework for PDP sponsors, but requires CMS to set standards for what constitutes reasonable and relevant contract terms; those standards must be published in 2027 and apply to plan years starting January 1, 2028.
The bill creates the concept of an “essential retail pharmacy” based on geographic isolation thresholds, requires CMS to publish a biennial report comparing reimbursement, network participation, and dispensing volume trends for essential versus non‑essential pharmacies, and directs PDP sponsors and MA organizations to submit affiliate lists and incentive payment data to CMS.A major operational arm of the bill is the Part D PBM accountability package. PBMs acting for PDP sponsors must enter written agreements that (a) bar revenue sources other than bona fide flat service fees (with limited rules for passing through manufacturer price concessions), (b) require yearly machine‑readable reports to the sponsor and CMS that break out drug‑level reimbursement, rebates, NADAC, channel of dispensing, enrollee out‑of‑pocket spending, retained PBM revenue, and affiliate dispensing shares, and (c) grant sponsors audit rights (including auditor selection and access to affiliate data).
CMS gains disgorgement authority, may require PDP sponsors to obtain reimbursement from PBMs, and may apply civil monetary penalties and intermediate sanctions where plan terms or PBM conduct violate statutory standards.Finally, the bill funds and directs oversight and analytic work: OIG grants to study affiliated transfer pricing effects, a GAO study of price‑related compensation and payment structures across the retail supply chain, and MedPAC reports and recommendations based on the new data. The text makes multiple exemptions from the Paperwork Reduction Act and allows CMS to implement many provisions by program instruction.
The Five Things You Need to Know
The Secretary must run a monthly national survey of pharmacy acquisition costs (retail and specified non‑retail types), publish aggregated results and sampling details, and report pharmacies that fail to respond.
The Secretary can impose civil monetary penalties on pharmacies for refusal, false data, or other noncompliance; penalties may be assessed per violation and up to $100,000 per violation, with size and business‑type considerations.
Medicaid contracts with PBMs, managed care entities, or other specified organizations must use a transparent pass‑through pricing model where ingredient cost and a professional dispensing fee are passed in full to the dispensing pharmacy; spread pricing cannot be claimed for Federal matching funds.
For Medicare Part D, PDP sponsors must permit any willing pharmacy meeting plan terms to join networks; CMS must finalize 'reasonable and relevant' contracting standards by April 2027 for plan years beginning in 2028 and establish an allegation, investigation, and enforcement process.
PBMs serving Part D plans must submit annual, machine‑readable reports (by July 1) containing drug‑level dispense counts, NADAC, average plan reimbursements by channel, rebates and DIR‑style amounts, retained PBM revenue, and affiliate dispensing shares, and they are subject to sponsor audits, disgorgement, and anti‑retaliation protections.
Section-by-Section Breakdown
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Monthly pharmacy acquisition‑cost survey and enforcement
This provision requires HHS to establish a monthly survey infrastructure (vendor permitted) to calculate national average drug acquisition cost benchmarks for retail community pharmacies and specified non‑retail pharmacy types. The vendor must update CMS monthly and tag data by pharmacy type and affiliation; CMS must publish aggregated results and metadata, including response rates and noncompliant pharmacy lists. The statute makes survey response mandatory for pharmacies receiving Medicaid‑related payments and authorizes civil money penalties for refusal, falsification, or other noncompliance, with penalty considerations tied to pharmacy size and business structure.
Who counts as an applicable non‑retail pharmacy and affiliate
The bill adds a definition for ‘applicable non‑retail pharmacy’ to capture licensed pharmacies that are not community retail outlets — for example, mail and specialty dispensers — while excluding nursing home, hospital, clinic, charitable, government, and low‑dispensing pharmacies. It also defines ‘affiliate’ to target entities owned, controlled by, or under common ownership with a PBM or managed care entity; those definitions feed the survey tagging, the IG oversight work, and the limits on how states may use non‑retail pricing data to set retail reimbursement.
Mandatory pass‑through pricing in Medicaid; ban on spread pricing for Federal match
The new paragraph requires Medicaid contracts with PBMs and managed care entities to adopt pass‑through pricing: payments must be ingredient cost plus a professional dispensing fee and must be passed in full to dispensing pharmacies, subject only to fraud/waste corrections and specific 340B reporting rules. Administrative fees must reflect fair market value. Importantly, any spread (the amount a PBM or entity charges in excess of what it pays the pharmacy, after allowed fees) is ineligible for Federal matching — putting the liability for improper spread on States and entities and creating a statutory lever to curb spread pricing.
Any‑willing‑pharmacy standard, CMS contracting standards, and essential retail pharmacies
The bill replaces the existing contracting paragraph to require PDP sponsors to permit any pharmacy that meets plan standard terms to participate, with CMS required to define when contract terms are ‘reasonable and relevant’ (regulations/guidance due April 2027). It also creates the statutory category of ‘essential retail pharmacy’ using geographic isolation thresholds (1 mile urban, 2 miles suburban, 10 miles rural), mandates CMS publishing of a list of those pharmacies, requires PDP sponsors/MA organizations to report affiliate lists and incentive payments, and directs biennial reporting on reimbursement and network trends for essential versus other pharmacies.
PBM restrictions, disclosure, audits, disgorgement, and sponsor liability
This package compels written agreements between PDP sponsors and PBMs that limit PBM remuneration to bona fide flat service fees (with a narrow safe harbor for fully passed‑through manufacturer concessions), require annual, machine‑readable drug‑level reports to sponsors and CMS (reimbursements, NADAC, rebate/DIR reporting, dispense channel splits, retained PBM revenue, affiliate dispensing), and guarantee sponsor audit rights including access to affiliate data. It authorizes disgorgement of impermissible remuneration, requires sponsors to recover penalties from PBMs for delegated violations, and adds anti‑retaliation protections for pharmacies making allegations.
Directed oversight, funded IG studies, GAO study, and MedPAC reporting
The bill funds an OIG study into how affiliate transfer pricing and related party transactions influence reported pharmacy costs and appropriates funds to CMS for implementation. It directs GAO to study compensation/payment structures tied to drug prices across the retail supply chain and to report recommendations, and it requires MedPAC to analyze PBM agreements using the newly available data and to produce initial and follow‑up reports to Congress.
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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
- Independent community pharmacies — will get statutory backing for survey‑based acquisition benchmarks, the Medicaid pass‑through requirement, and Part D any‑willing‑pharmacy protections that can improve reimbursement transparency and strengthen bargaining position versus PBMs and plan networks.
- State Medicaid programs — gain a statutory tool to eliminate spread pricing from contracts and better align payments with pharmacies’ acquisition costs, reducing overpayment risk and giving CMS data to detect aberrant pricing.
- Medicare beneficiaries in underserved areas — the essential retail pharmacy designation and any‑willing‑pharmacy rule aim to preserve local pharmacy access and limit network narrowing in rural, suburban, and urban neighborhoods with few alternatives.
- PDP sponsors and plan fiduciaries — receive more granular data and stronger audit rights to assess PBM performance, rebate pass‑through, and affiliate behavior, enabling better contract oversight and recovery of improper PBM funds.
- Oversight bodies (OIG, GAO, MedPAC, CMS) — obtain new datasets and statutory authority to study and act on price flows, enabling targeted enforcement and policymaking.
Who Bears the Cost
- Pharmacy benefit managers — face loss of spread revenue, narrower options to extract price‑linked fees, new reporting burdens, audit exposure, possible disgorgement obligations, and contractual liability to PDP sponsors for delegated violations.
- PBM‑affiliated pharmacies and vertically integrated chains — may lose internal pricing advantages from transfer pricing or face scrutiny of internal transactions; affiliates must produce data and may be audited.
- PDP sponsors and MA organizations — must accept any willing pharmacy under new standards, incorporate stronger contractual protections, collect and submit affiliate lists and incentive data, and enforce audit/disgorgement provisions (administrative and legal costs).
- States and CMS — will incur implementation and enforcement costs despite directed appropriations; States must re‑negotiate contracts to comply with pass‑through rules and handle reporting requirements.
- Manufacturers, brokers, consultants, and auditors — will face disclosure expectations and higher scrutiny of compensation arrangements; some intermediary revenue models may need redesign.
Key Issues
The Core Tension
The central dilemma is transparency versus market adaptation: the bill demands visibility and limits on spread pricing to protect pharmacies and public dollars, but PBMs and affiliates can restructure fees, shift costs, or tighten networks in response. Regulators must choose precise, enforceable definitions (bona fide fees, fair market value, excluded price concessions) that close loopholes without unintentionally incentivizing other opaque or efficiency‑reducing workarounds.
The bill forces commercial data out of opaque contracts and into government hands, but it does so while exempting key data collection from the Paperwork Reduction Act and allowing CMS to implement many provisions by program instruction. That reduces procedural delay but raises legitimate questions about the administrative rulemaking needed to define central terms: 'bona fide service fee,' 'fair market value,' which price concessions can be publicly disclosed, and how to measure and reconcile NADAC, wholesale acquisition cost, and actual acquisition cost in multi‑channel markets.
Those definitional choices will determine whether PBMs reorganize fees into compliant but economically equivalent instruments, or whether the law achieves a substantive shift in revenue allocation.
The bill's pass‑through requirement and the prohibition on using spread pricing to claim Federal match blunt a common Medicaid payment practice, but could produce second‑order effects. Entities may raise administrative fees, PDP sponsors may alter benefit designs or steer patients to lower‑cost channels, and 340B arrangements create an explicit carve‑out that requires annual 340B reporting — leaving room for gaming at the boundaries.
Confidentiality protections for supplier bios and Secretarial limits on public identification are designed to protect trade secrets, but they also constrain independent researchers and insurers from fully analyzing market impacts. Finally, civil money penalties and disgorgement create enforcement teeth, but success depends on CMS's resources, regulation precision, and the legal contours of existing state contracts and pre‑existing private litigation.
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