CMS’ Proposed Drug Pricing Transparency Rule Impacting PBMs and Other PBM Updates Banner Image

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CMS’ Proposed Drug Pricing Transparency Rule Impacting PBMs and Other PBM Updates

October 12, 2023

The United States Centers for Medicare & Medicaid Services (“CMS”) has proposed new rulemaking (88 FR 34238) to increase drug price transparency by drug manufacturers and pharmacy benefit managers (“PBMs”). Specifically, the proposed rule seeks to increase drug pricing transparency by:

  1. establishing a Medicaid drug price verification survey which would require manufacturers to submit certain detailed pricing information to CMS;
  2. requiring PBMs to report the cost of dispensing and administering drugs to managed care plans separately from any additional costs charged by the PBM; and
  3. granting CMS increased oversight of drug classifications in Medicaid and the ability to require corrective actions from manufacturers if a drug is incorrectly classified as brand name rather than generic.

Significantly, the proposed rule would grant CMS the discretion to publish non-proprietary drug pricing information reported to it by a drug manufacturer or a PBM. Manufacturers and PBMs that fail to provide specific information or decline to provide the information requested would be referred to the U.S. Department of Health and Human Services (“HHS”) Office of the Inspector General for possible imposition of civil monetary penalties.

A fact sheet for the CMS proposed rule may be accessed here.

CMS’ proposed rule follows a growing trend among state governments seeking greater pricing transparency from drug manufacturers and PBMs. Florida recently passed its Prescription Drug Reform Act, which institutes regulatory best practices for PBMs operating in Florida and grants Florida the authority to examine and investigate PBMs for possible rule violations. Similarly, earlier this year New Jersey enacted statutes aimed at promoting drug pricing transparency by (i) establishing a new data and transparency system within the Division of Consumer Affairs to collect, analyze, and report on the entire process of drug pricing across the supply chain (S-1615); and (ii) increasing state oversight of PBMs by requiring licensure by the NJ Dept. of Banking and Insurance (“DOBI”) and regulating PBM usage of rebates (A-536).

Some state laws seeking to regulate PBMs have faced challenges such as Oklahoma Patient’s Right to Pharmacy Choice Act (“PRCA”). Enacted in 2019, the PRCA broadly sought to regulate the activities of PBMs by, among other things, establishing any willing provider (“AWP”) requirements, restricting certain discount strategies, and empaneling an Oklahoma Insurance Department advisory committee to oversee PBMs. However, the Tenth Circuit recently invalidated several provisions of the PRCA due to preemption by the federal Employee Retirement Income Security Act ("ERISA") and Medicare Part D. Specifically, the Tenth Circuit invalidated the following PRCA provisions:

  • Access Standards: Requiring PBMs to ensure that certain percentages of their retail pharmacy network beneficiaries live within stipulated distances of an in-network and/or preferred pharmacy.
  • AWP Provision: Requiring PBM pharmacy networks to admit providers at preferred participation status level if the provider is willing to accept the corresponding terms and conditions.
  • Discount Prohibition: Prohibiting PBMs from restricting an individual’s choice of in-network pharmacy and PBM use of cost-share/copay discounts to incentivize in-network pharmacies.
  • Probation Prohibition: Prohibiting PBMs from denying, limiting, or terminating a pharmacy’s contract based on the probation status of a licensed pharmacist employed by the pharmacy.

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