By, Steve Postal, Senior Director, Policy and Regulatory Affairs at National Community Pharmacists Association (NCPA), and Editorial Director of American Society for Pharmacy Law (ASPL)

On February 3, President Trump signed into law that reform pharmacy benefit manager (PBM) practices in Medicare Part D. The law requires, among other things, the Department of Health and Human Services (HHS) to define and enforce “reasonable and relevant” Medicare Part D contract terms; allows HHS to track payment trends to pharmacies and pharmacy inclusion in PBM networks, including a new designation of essential retail pharmacies; establishes certain contract guidelines between PBMs and plans; and sets forth PBM reporting requirements.

The following is a summary of key components of the laws passed that govern PBMs that most impact pharmacies.

Reforms to Medicare Part D Plans’ “Reasonable and Relevant” Contract Terms for Pharmacies.

Overview. Beginning in plan year 2029, Part D plan sponsors – both standalone prescription drug plans (PDPs) and Medicare Advantage prescription drug plans (MA-PDPs) (collectively known as PDP sponsors) – must offer network pharmacies contract terms that are “reasonable and relevant.” Additionally, PDP sponsors will be required to let any pharmacy participate in their networks so long as they meet the “reasonable and relevant” contract terms.

Specific terms and RFI. According to the law, the Secretary of Health and Human Services will formulate the specific “reasonable and relevant” contract terms that PDP sponsors will be required to offer pharmacies. The Secretary will also issue a request for information (RFI) from the public seeking input on what constitutes reasonable and relevant terms, and the Secretary must issue this request by April 1, 2027. This RFI will seek public input on: trends in prescription drug plan and network pharmacy contract terms and conditions; current prescription drug plan and network pharmacy contracting practices; whether pharmacy reimbursement and dispensing fees paid by PDP sponsors to network pharmacies sufficiently cover the ingredient and operational costs of such pharmacies; the use and application of pharmacy quality measures by PDP sponsors for network pharmacies; PDP sponsor restrictions or limitations on the dispensing of covered part D drugs by network pharmacies (or any subsets of such pharmacies); PDP sponsor auditing practices for network pharmacies; areas in current regulations or program guidance related to contracting between prescription drug plans and network pharmacies requiring clarification or additional specificity; factors for consideration in determining the reasonableness and relevance of contract terms and conditions between prescription drug plans and network pharmacies; and other issues as determined appropriate by the Secretary.

The Secretary must establish “reasonable and relevant” terms by April 3, 2028, so they can be included in the PDP sponsor contracts offered to network pharmacies in spring 2028 for the 2029 Part D plan year.

Violations. By January 2029, the Secretary must develop the process for allowing pharmacies to report violations by PDP sponsors for violating reasonable and relevant contract terms. The Secretary is also tasked with developing a standardized template for pharmacies to submit these violations by PDP sponsors.

Frivolous allegations. If the Secretary determines that a pharmacy has submitted frivolous allegations on a routine basis that PDPs are violating reasonable and relevant contract terms, the Secretary may temporarily prohibit such pharmacy from using the allegation submission process.

Anti-retaliation. PDPs cannot retaliate against pharmacies that submit violations to the Secretary, nor can they otherwise coerce, intimidate, threaten, or interfere with the ability of a pharmacy to submit any such allegations.

Enforcement. The Secretary may impose Civil Monetary Penalties or other intermediate sanctions on PDP sponsors regarding violations of reasonable and relevant contract terms.

“Essential Retail Pharmacies” Designation in Medicare Part D

The law establishes that certain retail pharmacies be designated as “essential retail pharmacies” in Medicare Part D. An essential retail pharmacy is a pharmacy that is not an affiliated pharmacy, i.e., a pharmacy owned or controlled by a PBM that is either located in 1) a rural area in which there is no other retail pharmacy within 10 miles; 2) a suburban area in which there is no other retail pharmacy within 2 miles; or 3) an urban area in which there is no other retail pharmacy within 1 mile.

Reports. With respect to plan years beginning on or after January 1, 2028, the Secretary shall publish reports, at least once every 2 years until 2034, and periodically thereafter, on factors affecting participation of essential retail pharmacies compared to non-essential retail pharmacies in the Part D program, such as: trends in ingredient cost reimbursement, dispensing fees, incentive payments and other fees paid by PDP sponsors; trends in amounts paid to PDP sponsors; trends in essential retail pharmacy participation in pharmacy networks and preferred pharmacy networks; a comparison of cost-sharing for covered part D drugs dispensed; and a comparison of the volume of covered part D drugs dispensed. The Secretary must also publish a list of the essential retail pharmacies for each plan year on a CMS website. Part D plans or their PBMs must also identify for the Secretary the pharmacies that are affiliates of the Part D plan or PBM, so these pharmacies are not designated as essential retail pharmacies.

Contract Requirements Between PBMs and PDP Sponsors in Medicare Part D

The law mandates certain requirements for contracts between PBMs and PDP sponsors in Medicare Part D. Beginning in January 2028:

• Bona fide service fees. The PBMs and its affiliates cannot get paid in connection with the utilization of covered part D drugs in any way other than “bona fide service fees” which are meant to reflect the fair market value of the services that the PBM is providing to the PDP sponsor to administer the pharmacy benefit.
• Pass-through of manufacturer rebates and discounts. The PBMs must fully pass through rebates, discounts and other price concessions they receive from the manufacturer to the PDP sponsor.
• PBM performance against price guarantees. The PBMs shall also define, interpret, and apply, in a fully transparent and consistent manner for purposes of calculating or otherwise evaluating PBM performance against pricing guarantees or similar cost performance measurements related to rebates, discounts, price concessions or net costs, terms such as: “generic drug,” “brand name drug,” “specialty drug,” “rebate” and “discount.” The PBMs shall also identify any drugs, claims, or price concessions excluded from any pricing guarantee or other cost performance measure, and, where a pricing guarantee or other cost performance measure is based on a pricing benchmark other than the wholesale acquisition cost (as defined in section 1847A(c)(6)(B)) of a drug, calculate and provide a wholesale acquisition cost-based equivalent to the pricing guarantee or other cost performance measure.

Reporting Requirements for PBMs

Beginning in July 2028, the PBM must submit to the PDP sponsor and the Secretary each year, starting in July 2028, a comprehensive annual report that includes information such as: the number of prescription dispensed by each type of pharmacy, the average wholesale acquisition cost for each drug paid for by the PDP sponsor, direct and indirect remuneration reported by the PDP sponsor to CMS on each drug, the average NADAC and overall reimbursement for each drug, information on dispensing and payment by the PDP sponsor to its affiliate pharmacies, and benefit design parameters that encourage plan enrollees to fill prescriptions at the PBM’s affiliate pharmacies, among others.