What This Bill Does
This bill changes how states pay for prescription drugs through their Medicaid program. It requires states to use a "pass-through pricing model" where pharmacy benefit managers and managed care entities must pass payments directly to pharmacies without keeping extra money in between. The bill also requires the federal government to survey pharmacy drug prices and make that pricing information public.
Who It Affects
States running Medicaid programs, pharmacy benefit managers (PBMs) that handle drug payments, managed care entities that cover Medicaid members, pharmacies dispensing covered drugs, and individuals enrolled in Medicaid who receive prescription drugs.
Key Provisions
• States must require contracts with pharmacy benefit managers and managed care entities to use pass-through pricing where payment includes only the drug's ingredient cost plus a professional dispensing fee, and all money must go directly to the pharmacy without the PBM or entity keeping a spread (Sec. 2(a)(6)(A)).
• Payment to pharmacy benefit managers for administrative services is limited to a reasonable administrative fee that covers the actual cost of providing those services (Sec. 2(a)(6)(B)).
• Pharmacy benefit managers and entities must give states and the federal government access to all costs, payments, fees, discounts, rebates and other money related to drug dispensing (Sec. 2(a)(6)(C)).
• Spread pricing is prohibited, meaning pharmacy benefit managers cannot charge or claim more money than what they actually pay to pharmacies (Sec. 2(a)(6)(D)).
• The federal government must conduct monthly surveys of retail community pharmacy drug prices to determine national average drug acquisition costs and make this information publicly available, including response rates and pharmacy sampling information (Sec. 2(b)(1)(F) and (G)).
• The federal government must report to Congress within one year examining how states define and pay for specialty drugs and whether specialty pharmacies should be included in national price surveys (Sec. 2(b)(1)(H)).
What Changes
If this bill becomes law, states will no longer be able to contract with pharmacy benefit managers or managed care entities that keep profits from the difference between what they charge and what they pay pharmacies. All drug payments must flow directly through to the pharmacies. States will receive detailed cost and payment information for all drugs covered under Medicaid. Pharmacy prices used to calculate Medicaid reimbursement will be based on actual national survey data that is made public. Pharmacy benefit managers can only charge states a reasonable fee for administrative work, not profits from drug pricing.
Important Definitions
Pass-through pricing model: A payment system where the pharmacy benefit manager or managed care entity receives only the ingredient cost of the drug, a professional dispensing fee, and a reasonable administrative fee, and must pass all of this money directly to the pharmacy.
Spread pricing: When a pharmacy benefit manager or entity charges the state more money than it actually pays to the pharmacy, keeping the difference as profit.
Ingredient cost: The cost of the actual drug itself.
Professional dispensing fee: Payment for the pharmacist's work in dispensing the drug, which must be at least as much as the state would pay if buying the drug directly.
Pharmacy benefit manager (PBM): An entity that manages prescription drug benefits on behalf of health plans and states.
Effective Date
The pass-through pricing requirements apply to contracts entered into or renewed on or after 18 months after the bill becomes law (Sec. 2(a)(3)). The pharmacy payment and survey requirements take effect on the first day of the first quarter that begins on or after 18 months after the bill becomes law (Sec. 2(b)(2)).
II
118TH CONGRESS
1ST SESSION
S. 1038
To amend title XIX of the Social Security Act to improve transparency
and prevent the use of abusive spread pricing and related practices
in the Medicaid program.
IN THE SENATE OF THE UNITED STATES
MARCH 29, 2023
Mr. WELCH (for himself and Mr. MARSHALL) introduced the following bill;
which was read twice and referred to the Committee on Finance
A BILL
To amend title XIX of the Social Security Act to improve
transparency and prevent the use of abusive spread pric-
ing and related practices in the Medicaid program.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
2
SECTION 1. SHORT TITLE.
3
This Act may be cited as the ‘‘Drug Price Trans-
4
parency in Medicaid Act of 2023’’.
5
SEC. 2. IMPROVING TRANSPARENCY AND PREVENTING THE
6
USE OF ABUSIVE SPREAD PRICING AND RE-
7
LATED PRACTICES IN MEDICAID.
8
(a) PASS-THROUGH PRICING REQUIRED.—
9
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(1) IN GENERAL.—Section 1927(e) of the So-
1
cial Security Act (42 U.S.C. 1396r–8(e)) is amended
2
by adding at the end the following:
3
‘‘(6) PASS-THROUGH
PRICING
REQUIRED.—A
4
contract between the State and a pharmacy benefit
5
manager (referred to in this paragraph as a ‘PBM’),
6
or a contract between the State and a managed care
7
entity or other specified entity (as such terms are
8
defined in section 1903(m)(9)(D)) that includes pro-
9
visions making the entity responsible for coverage of
10
covered outpatient drugs dispensed to individuals en-
11
rolled with the entity, shall require that payment for
12
such drugs and related administrative services (as
13
applicable), including payments made by a PBM on
14
behalf of the State or entity, is based on a pass-
15
through pricing model under which—
16
‘‘(A) any payment made by the entity or
17
the PBM (as applicable) for such a drug—
18
‘‘(i) is limited to—
19
‘‘(I) ingredient cost; and
20
‘‘(II) a professional dispensing
21
fee that is not less than the profes-
22
sional dispensing fee that the State
23
plan or waiver would pay if the plan
24
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•S 1038 IS
or waiver was making the payment di-
1
rectly;
2
‘‘(ii) is passed through in its entirety
3
by the entity or PBM to the pharmacy or
4
provider that dispenses the drug; and
5
‘‘(iii) is made in a manner that is con-
6
sistent with section 1902(a)(30)(A) and
7
sections 447.512, 447.514, and 447.518 of
8
title 42, Code of Federal Regulations (or
9
any successor regulation) as if such re-
10
quirements applied directly to the entity or
11
the PBM, except that any payment by the
12
entity or the PBM (as applicable) for the
13
ingredient cost of a covered outpatient
14
drug dispensed by providers and phar-
15
macies referenced in clauses (i) or (ii) of
16
section 447.518(a)(1) of title 42, Code of
17
Federal Regulations (or any successor reg-
18
ulation) shall be the same as the payment
19
amount for the ingredient cost when dis-
20
pensed by providers and pharmacies not
21
referenced in such clauses, and in no case
22
shall payment for the ingredient cost of a
23
covered outpatient drug be based on the
24
actual acquisition cost of a drug dispensed
25
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by providers and pharmacies referenced in
1
such clauses or take into account a drug’s
2
status as a drug purchased at a discounted
3
price by a provider or pharmacy referenced
4
in such clauses;
5
‘‘(B) payment to the entity or the PBM
6
(as applicable) for administrative services per-
7
formed by the entity or PBM is limited to a
8
reasonable administrative fee that covers the
9
reasonable cost of providing such services;
10
‘‘(C) the entity or the PBM (as applicable)
11
shall make available to the State, and the Sec-
12
retary upon request, all costs and payments re-
13
lated to covered outpatient drugs and accom-
14
panying administrative services incurred, re-
15
ceived, or made by the entity or the PBM, in-
16
cluding ingredient costs, professional dispensing
17
fees, administrative fees, post-sale and post-in-
18
voice fees, discounts, or related adjustments
19
such as direct and indirect remuneration fees,
20
and any and all other remuneration; and
21
‘‘(D) any form of spread pricing whereby
22
any amount charged or claimed by the entity or
23
the PBM (as applicable) is in excess of the
24
amount paid to the pharmacies on behalf of the
25
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•S 1038 IS
entity, including any post-sale or post-invoice
1
fees, discounts, or related adjustments such as
2
direct and indirect remuneration fees or assess-
3
ments (after allowing for a reasonable adminis-
4
trative fee as described in subparagraph (B)) is
5
not allowable for purposes of claiming Federal
6
matching payments under this title.’’.
7
(2)
CONFORMING
AMENDMENT.—Section
8
1903(m)(2)(A)(xiii)
of
such
Act
(42
U.S.C.
9
1396b(m)(2)(A)(xiii)) is amended—
10
(A) by striking ‘‘and (III)’’ and inserting
11
‘‘(III)’’;
12
(B) by inserting before the period at the
13
end the following: ‘‘, and (IV) pharmacy benefit
14
management services provided by the entity, or
15
provided by a pharmacy benefit manager on be-
16
half of the entity under a contract or other ar-
17
rangement between the entity and the phar-
18
macy benefit manager, shall comply with the re-
19
quirements of section 1927(e)(6)’’; and
20
(C) by moving the left margin 2 ems to the
21
left.
22
(3) EFFECTIVE DATE.—The amendments made
23
by this subsection apply to contracts between States
24
and managed care entities, other specified entities,
25
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•S 1038 IS
or pharmacy benefits managers that are entered into
1
or renewed on or after the date that is 18 months
2
after the date of enactment of this Act.
3
(b) ENSURING ACCURATE PAYMENTS
TO PHAR-
4
MACIES UNDER MEDICAID.—
5
(1) IN GENERAL.—Section 1927(f) of the Social
6
Security Act (42 U.S.C. 1396r–8(f)) is amended—
7
(A) by striking ‘‘and’’ after the semicolon
8
at the end of paragraph (1)(A)(i) and all that
9
precedes it through ‘‘(1)’’ and inserting the fol-
10
lowing:
11
‘‘(1) DETERMINING PHARMACY ACTUAL ACQUI-
12
SITION COSTS.—The Secretary shall conduct a sur-
13
vey of retail community pharmacy drug prices to de-
14
termine the national average drug acquisition cost as
15
follows:
16
‘‘(A) USE
OF
VENDOR.—The Secretary
17
may contract services for—
18
‘‘(i) with respect to retail community
19
pharmacies, the determination of retail
20
survey prices of the national average drug
21
acquisition cost for covered outpatient
22
drugs based on a monthly survey of such
23
pharmacies; and’’;
24
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•S 1038 IS
(B) by adding at the end of paragraph (1)
1
the following:
2
‘‘(F) SURVEY
REPORTING.—In order to
3
meet the requirement of section 1902(a)(54), a
4
State shall require that any retail community
5
pharmacy in the State that receives any pay-
6
ment, reimbursement, administrative fee, dis-
7
count, or rebate related to the dispensing of
8
covered outpatient drugs to individuals receiv-
9
ing benefits under this title, regardless of
10
whether such payment, fee, discount, or rebate
11
is received from the State or a managed care
12
entity directly or from a pharmacy benefit man-
13
ager or another entity that has a contract with
14
the State or a managed care entity, shall re-
15
spond to surveys of retail prices conducted
16
under this subsection.
17
‘‘(G) SURVEY INFORMATION.—Information
18
on national drug acquisition prices obtained
19
under this paragraph shall be made publicly
20
available and shall include at least the fol-
21
lowing:
22
‘‘(i) The monthly response rate of the
23
survey including a list of pharmacies not in
24
compliance with subparagraph (F).
25
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‘‘(ii) The sampling frame and number
1
of pharmacies sampled monthly.
2
‘‘(iii) Information on price concessions
3
to the pharmacy, including discounts, re-
4
bates, and other price concessions, to the
5
extent that such information is available
6
during the survey period.
7
‘‘(H)
REPORT
ON
SPECIALTY
PHAR-
8
MACIES.—
9
‘‘(i) IN GENERAL.—Not later than 1
10
year after the effective date of this sub-
11
paragraph, the Secretary shall submit a re-
12
port to Congress examining specialty drug
13
coverage and reimbursement under this
14
title.
15
‘‘(ii) CONTENT OF REPORT.—Such re-
16
port shall include a description of how
17
State Medicaid programs define specialty
18
drugs and specialty pharmacies, how much
19
State Medicaid programs pay for specialty
20
drugs, how States and managed care plans
21
determine payment for specialty drugs, the
22
settings in which specialty drugs are dis-
23
pensed (such as retail community phar-
24
macies or specialty pharmacies), to what
25
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•S 1038 IS
extent acquisition costs for specialty drugs
1
are captured in the national average drug
2
acquisition cost survey or through another
3
process, examples of specialty drug dis-
4
pensing fees to support the services associ-
5
ated with dispensing specialty drugs, and
6
recommendations as to whether specialty
7
pharmacies should be included in the sur-
8
vey of retail prices to ensure national aver-
9
age drug acquisition costs capture drugs
10
sold at specialty pharmacies and how such
11
specialty pharmacies should be defined.’’;
12
(C) in paragraph (2)—
13
(i) in subparagraph (A), by inserting
14
‘‘, including payments rates under Med-
15
icaid managed care plans,’’ after ‘‘under
16
this title’’; and
17
(ii) in subparagraph (B), by inserting
18
‘‘and the basis for such dispensing fees’’
19
before the semicolon; and
20
(D) in paragraph (4), by inserting ‘‘, and
21
$5,000,000 for fiscal year 2025 and each fiscal
22
year thereafter,’’ after ‘‘2010’’.
23
(2) EFFECTIVE DATE.—The amendments made
24
by this subsection take effect on the first day of the
25
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•S 1038 IS
first quarter that begins on or after the date that is
1
18 months after the date of enactment of this Act.
2
Æ
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