House Energy and Commerce Subcommittee Proposes Changes to Pricing and Reporting Requirements for Pharmacies and PBMs

The House Energy and Commerce Subcommittee Republican proposal for Medicaid and other health programs (the “HEC Proposal”) includes several changes aimed at increasing reporting requirements regarding drug pricing by pharmacies and Pharmacy Benefit Managers (“PBMs”) and eliminating certain pricing practices by PBMs.  The changes include the following: 

1.       Accuracy and Transparency of Drug Pricing

The package would mandate the Secretary to conduct monthly surveys of drug acquisition costs that include both retail community and non-retail pharmacies (defined as licensed pharmacies that are not retail pharmacies, including pharmacies that dispense medications through the mail and specialty pharmacies).  The surveys will determine the national average consumer purchase price (minus discounts, rebates, and concessions) for covered outpatient drugs, with the data differentiating between purchase prices for retail and non-retail pharmacies.  Any pharmacy that receives Medicaid-related payments (either from the state, an MCO, or a PBM) will be required to respond to the surveys.  Those that do not, or that provide false information, may face civil monetary penalties of up to $100,000 per violation.  The Secretary is granted permission to hire a vendor to conduct the surveys, and the data gathered from the surveys must be publicly released.

2. Stopping Spread Pricing by PBMs

The package would also institute reforms aimed at stopping the practice of spread pricing by PBMs.  Generally, PBMs or other managed care entities would be limited to collecting a fair market value administrative fee for their services and would be required to pass through in full payments to dispensing pharmacies.  Payment by the PBM to a dispensing pharmacy would be strictly limited to the ingredient cost of the drug and a professional dispensing fee (which cannot be less than what the State would be required to pay under its State Plan), and PBMs would be required disclose to the State or Secretary upon demand all payments and costs associated with each covered outpatient drug.  Any form of spread pricing would be prohibited for purposes of claiming Federal matching payments.  The package includes an exception for covered outpatient drugs dispensed by a 340B covered entity.

3. Medicare Part D Reform for PBMs

The package would also introduce reforms to Medicare Part D aimed at limiting the role of PBMs to administrators.  PBMs (and their affiliates) would be required to enter into written contracts with Prescription Drug Plans (“PDPs”) that (1) limit their income to bona fide services fees; (2) limit incentive payments to those that are a flat dollar amount, consistent with fair market value, and tied to services actually performed; and (3) require them to fully pass through rebates and discounts received from drug manufacturers to the PDP and to comply with Medicare rules on direct and indirect renumeration.  The package would also impose annual reporting requirements on PBMs, including but not limited to a list of all covered drugs dispensed on behalf of a plan, the number of plan enrollees for whom the drug was dispensed, the average wholesale acquisition cost of the drug, the average wholesale price for the drug, the total out of pocket spending by enrollees, and the total rebates paid by the manufacturer on the drug.   

We will continue to monitor updates as Congress continues to look to reform Medicaid and other federal health programs. Stakeholders may wish to consider providing input to federal decision makers.  For more information on the current federal proposals and their impact on healthcare entities, please contact Felicia Sze or Avi Rutschman.