New Bill Targets Medicaid Drug Costs: Mandates Price Surveys and Bans PBM 'Spread Pricing'

This legislation, the Protecting Pharmacies in Medicaid Act, overhauls how Medicaid pays for prescription drugs, aiming for more accurate pricing and increased transparency.

It amends the Social Security Act with two main goals: first, to make sure pharmacies are paid based on what drugs actually cost, and second, to stop middlemen from pocketing hidden markups in the Medicaid system.

Getting the Price Right: Setting the Benchmark

The bill directs the federal government (specifically, the Secretary of Health and Human Services, or HHS) to establish a National Average Drug Acquisition Cost (NADAC). Think of this as a national benchmark for what pharmacies are truly paying for medications.

• How? Through mandatory surveys of all pharmacies (both retail and non-retail, like mail-order or specialty pharmacies) that receive Medicaid payments. Pharmacies must respond, or face hefty fines up to $100,000 per violation (Sec 2).
• Transparency: Key details about these prices, like how they were calculated and how many pharmacies responded, will be made public.
• The Catch: States are explicitly told not to use pricing data from non-retail pharmacies (which often get lower prices) when setting payment rates for your local retail pharmacy.
• Timeline: These changes generally kick in 6 months after the bill becomes law, but the requirement for non-retail pharmacies to participate in surveys is delayed until 18 months after enactment.

This aims to ensure the price Medicaid pays for the drug ingredient reflects market reality, rather than just estimates, potentially helping stabilize payments for local pharmacies.

Cutting Out Hidden Markups: The End of Spread Pricing?

The second major piece tackles "spread pricing". This happens when a Pharmacy Benefit Manager (PBM) – the company hired by Medicaid plans to manage prescriptions – charges the state Medicaid program more for a drug than it pays the pharmacy that actually dispensed it, keeping the difference or "spread".

This bill requires contracts between states and PBMs (or similar entities) to use a transparent, pass-through pricing model (Sec 3):

• Payment = Cost + Fee: Payments for drugs must be limited to the ingredient cost plus a professional dispensing fee, similar to what the state would pay directly.
• Full Pass-Through: This entire amount must go directly to the pharmacy.
• Admin Fees Capped: Payments to PBMs for their administrative work are limited to the "fair market value" – no hiding profits there.
• Disclosure Required: PBMs have to tell the state and HHS exactly what they paid for drugs and what they received for admin services, broken down drug-by-drug.

Essentially, this bans PBMs from using spread pricing to make money off Medicaid drug claims for federal matching purposes. The goal is to ensure taxpayer dollars pay for medicine and pharmacy services, not hidden PBM markups. These PBM contract rules apply 18 months after enactment.

Rollout and Oversight

The bill gives HHS significant authority to implement these changes quickly, allowing them to issue guidance and instructions directly, bypassing some standard regulatory processes (like the Administrative Procedure Act and Paperwork Reduction Act waivers mentioned in Sec 2 & 3). This speeds things up but means less public comment period on the specific implementation details.

The HHS Inspector General also gets $5 million in 2026 to study the survey data and how drug costs vary. Overall, the government is allocating $9 million annually starting in FY 2026 for these survey and pricing activities. The changes aim to bring more clarity and potentially lower costs to the complex world of Medicaid drug pricing.