Protecting Pharmacies in Medicaid Act

Bill Number: S. 927
Origin Chamber: Senate
Congress: 119th Congress, Session 1
Policy Area: Health
Status: Introduced
Latest Action: 2025-03-11: Read twice and referred to the Committee on Finance.
Last Updated: 2025-09-02T17:38:32Z

AI-Generated Summary

Purpose of the Legislation

The Protecting Pharmacies in Medicaid Act (S. 927) aims to improve the accuracy of payments made to pharmacies for prescription drugs under Medicaid, a joint federal-state health program for low-income individuals. It does this by requiring surveys of actual drug costs and mandating transparent pricing in contracts involving pharmacy benefit managers (PBMs—intermediaries that negotiate drug prices and manage benefits). The goal is to ensure fair reimbursements to pharmacies and eliminate "spread pricing," a practice where PBMs or similar entities charge states or plans more than they pay pharmacies, keeping the difference as profit.

Key Provisions

Drug Acquisition Cost Surveys (Section 2):
Requires the Secretary of Health and Human Services (HHS) to survey monthly the actual costs pharmacies pay to acquire covered outpatient drugs (prescription drugs not requiring hospitalization).
Surveys cover retail community pharmacies (traditional brick-and-mortar stores) and "applicable non-retail pharmacies" (e.g., mail-order or specialty pharmacies that handle complex drugs, excluding hospital, nursing home, or low-volume pharmacies).
States must require pharmacies receiving Medicaid-related payments to respond to surveys; non-compliance can result in civil penalties up to $100,000 per violation.
Survey data must be publicly reported, including response rates, sampling methods, and details on discounts or rebates (without revealing trade secrets).
Prohibits using non-retail pharmacy pricing data to set payments for retail pharmacies.
Provides $9 million annually starting in fiscal year 2026 for HHS to conduct surveys, plus $5 million for oversight by the HHS Inspector General, who will study cost variations and report to Congress.

Ban on Abusive Spread Pricing (Section 3):
Mandates "transparent pass-through pricing" in state contracts with PBMs, managed care organizations (health plans that coordinate care for Medicaid enrollees), or similar entities.
Payments to pharmacies must be limited to the drug's ingredient cost plus a professional dispensing fee (at least as high as the state would pay directly), passed through fully without markup (except for administrative fees at fair market value).
Requires full disclosure of all costs, fees, discounts, and adjustments related to drugs; spread pricing (charging more than paid to pharmacies) is banned for federal reimbursement claims.
For drugs under the 340B program (a federal discount program for safety-net providers), payments can exceed actual costs under specific conditions, with annual reporting to HHS.
HHS must publish aggregated data on 340B excess payments by state and provider type annually.

Definitions and Implementation:
Defines key terms like "applicable non-retail pharmacy," "affiliate" (entities under common ownership with PBMs or plans), and "pharmacy benefit manager."
HHS must issue guidance by January 1, 2027, to identify non-retail pharmacies and distinguish types (e.g., mail-order vs. specialty).
Effective dates: Surveys start 6 months after enactment for retail pharmacies and 18 months for non-retail; pricing rules apply to new contracts 18 months after enactment.
Allows HHS to implement via instructions without standard rulemaking (exempt from Administrative Procedure Act) or paperwork approvals (exempt from Paperwork Reduction Act).

Significant Changes to Existing Law

Amendments to Social Security Act Section 1927 (Drug Pricing and Reimbursement):
Expands existing national survey requirements (previously limited) to include non-retail pharmacies and mandates monthly updates, differentiation by pharmacy type, and public reporting.
Introduces new penalties, oversight studies, and appropriations not previously required.
Adds pass-through pricing mandates and spread pricing bans, building on but strengthening current transparency rules for PBMs and managed care contracts.
Amendments to Section 1903 (Federal Matching Payments):
Ties federal funding to compliance with new pricing rules in managed care and PBM contracts, closing loopholes that allowed spread pricing in federal reimbursements.
These changes shift from voluntary or state-specific practices to uniform federal standards, emphasizing actual acquisition costs over estimated ones.

Potential Impacts

On Government Agencies: HHS gains responsibilities for surveys, guidance, data publication, and enforcement, supported by new funding; this could increase administrative workload but improve program integrity. States must update contracts and ensure pharmacy compliance, potentially reducing improper federal payments. The HHS Inspector General will conduct ongoing audits, aiding oversight.
On Citizens (Medicaid Enrollees): Could lead to more stable pharmacy reimbursements, potentially improving drug access and reducing pharmacy closures in underserved areas. May lower overall Medicaid drug costs through transparency, indirectly benefiting enrollees via sustained program funding.
On International Relations: No direct impacts; the bill focuses on domestic U.S. health policy.
Broader Effects: Federal and state governments may save billions in Medicaid spending by curbing overpayments; however, initial implementation costs could arise from surveys and contract changes.

Main Stakeholders Affected

Pharmacies: Retail and non-retail pharmacies benefit from accurate, fair payments but face new survey reporting burdens and penalties for non-compliance.
Pharmacy Benefit Managers (PBMs) and Managed Care Entities: Must adopt transparent pricing, eliminating profit from spread pricing, which could reduce their revenues but promote fairer competition.
States and Medicaid Programs: Required to enforce surveys and revise contracts; gain tools for cost control but may need to adjust budgets for dispensing fees.
Federal Government (HHS and Inspector General): Oversees implementation, surveys, and reporting; receives new funding for these roles.
Medicaid Beneficiaries and Providers: Enrollees may see indirect benefits through program sustainability; 340B-eligible providers (e.g., hospitals serving low-income patients) must report excess payments.
Wholesalers and Drug Manufacturers: Indirectly affected via scrutiny of affiliate relationships and price concessions in surveys.

Notable Legal, Constitutional, or Political Implications

Legal Implications: Establishes enforceable civil penalties (modeled on existing Medicare fraud rules) and contract requirements, providing HHS with clear authority to audit and recover funds. Exemptions from standard procedural laws speed implementation but could limit public input. Ensures consistency with federal regulations on drug pricing (e.g., referencing Code of Federal Regulations sections on actual acquisition costs).
Constitutional Implications: Neutral; aligns with Congress's spending power under the Constitution to regulate federal-state programs like Medicaid without infringing on states' rights, as states retain flexibility in contracts.
Political Implications: Bipartisan sponsorship (Democrats and Republicans) suggests broad support for addressing pharmacy payment issues. Promotes transparency in a politically charged area of healthcare costs, potentially reducing waste without altering core Medicaid eligibility or benefits.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Welch, Peter [D-VT]

Cosponsors (3)

Sen. Marshall, Roger [R-KS], Sen. Warner, Mark R. [D-VA], Sen. Cassidy, Bill [R-LA]