PBM Reform Bill Bans Medicaid Spread Pricing and Forces Medicare Plans to Accept Local Pharmacies

The aptly named PBM Reform Act of 2025 is the legislative equivalent of putting Pharmacy Benefit Managers (PBMs) in the corner and telling them to write 'I will be transparent' 100 times. This comprehensive bill targets the opaque practices of PBMs across Medicare, Medicaid, and private insurance, aiming to deliver better access and fairer pricing.

The Open-Door Policy for Medicare Pharmacies

If you’re on Medicare, Section 2 is a big deal for your local drugstore. Starting in 2029, if a pharmacy is willing to meet the standard contract terms set by a Medicare prescription drug plan (PDP), the plan must let them into the network. No more arbitrary exclusions. This is essentially an ‘all-in’ rule designed to prevent PBMs from shutting out independent pharmacies. To make sure this works, the Secretary of HHS has until April 2028 to define what those 'reasonable and relevant' contract terms actually are. Until then, PBMs have time to adjust their playbook.

On top of that, the bill defines and tracks "essential retail pharmacies"—those not owned by the PBM and located in medically underserved, rural, suburban, or urban areas where competition is sparse (e.g., no other pharmacy within 10 miles in a rural spot). The government will compare how much these essential pharmacies are paid versus others, shining a spotlight on payment disparities. If a small-town pharmacy owner feels they’re getting squeezed, Section 2 also sets up a formal, confidential complaint process starting in 2028, backed by civil penalties for plans that retaliate.

Medicare: No More Hidden Fees, Just 'Bona Fide Service Fees'

Section 3 tackles the core issue of PBM profit models in Medicare Part D. Currently, PBMs often receive manufacturer rebates and keep a portion, which critics say inflates drug prices. This bill changes the game starting in 2028: PBMs can only be paid through "bona fide service fees" that reflect the fair market value of the services they actually perform. Critically, any rebates or discounts the PBM gets from drug manufacturers must be passed fully back to the plan sponsor.

If a PBM takes money that isn't a bona fide service fee, they must "disgorge" (pay back) that money to the plan. Think of it as a corporate clawback. This provision puts direct pressure on PBMs' revenue streams and is designed to ensure that savings from manufacturers flow back to the plan, potentially reducing costs for Medicare and, eventually, beneficiaries. The bill also requires PBMs to provide massive annual data dumps to the government and plan sponsors, detailing everything from drug dispensing channels to the total revenue the PBM retained for every single drug.

Medicaid: Banning the ‘Spread’ That Hurts Taxpayers

For Medicaid programs, Section 6 targets the practice known as “spread pricing.” Here’s how spread pricing works: the PBM charges the state Medicaid program one price for a drug but pays the dispensing pharmacy a much lower price, pocketing the difference (the “spread”).

This bill bans it. Any contract between a state and a PBM must now use a transparent "pass-through" model. The PBM can only pay the pharmacy the ingredient cost plus a professional dispensing fee (which must be at least the state’s standard rate). The PBM’s administrative costs must be limited to a separate, fair market value fee. This means states and taxpayers will know exactly what they are paying for—no more hidden profits baked into drug costs. These rules kick in 18 months after the law is enacted.

To ensure fair reimbursement rates across the country, Section 5 also mandates the government create a National Average Drug Acquisition Cost (NADAC) by surveying both retail and non-retail pharmacies (like mail-order houses) on what they actually pay for drugs. This data will be used to set better reimbursement rates for pharmacies and will be enforced with stiff penalties ($100,000 per violation) for pharmacies that refuse to participate in the survey.

Private Insurance Gets a Transparency Boost

If you get your insurance through work (a group health plan), Section 4 mandates significant new transparency. PBMs must now provide detailed reports to the plan sponsor every six months. These reports must disclose the contracted price the plan paid the PBM, the price the PBM paid the pharmacy, and the difference between the two. They also have to detail total rebates and fees the PBM received from manufacturers. This is crucial: it gives employers the data they need to audit their PBMs and potentially negotiate better contracts, which could eventually translate to lower premiums or out-of-pocket costs for employees.

The Bottom Line

This bill is a massive undertaking to pull back the curtain on PBM economics. While it primarily benefits Medicare and Medicaid programs, the transparency requirements spill over into commercial insurance, giving plan sponsors—your employer—the tools to hold PBMs accountable. For independent pharmacies, it promises fairer contracts and better access to major networks. For consumers, the hope is that by forcing rebates and savings to flow back to the plans, drug costs will stabilize or decrease over time. The biggest challenge? Making sure the agencies (CMS and HHS) can actually enforce these complex new rules against powerful PBMs, especially since the Secretary has broad authority to define key terms like 'reasonable contract standards' and 'bona fide fees.'