New Medicaid Rules Ban PBM 'Spread Pricing,' Mandate Monthly Pharmacy Cost Surveys

The “Protecting Pharmacies in Medicaid Act” is a major policy shakeup aimed at fixing how prescription drugs get paid for under Medicaid. Essentially, this bill tries to make sure that the money intended for filling prescriptions actually makes it to the pharmacy, not just to the middlemen.

The New Rulebook for Drug Costs

Section 2 of this bill changes the game by requiring the government to figure out the actual cost of drugs. Right now, Medicaid often pays based on estimated costs, which can leave community pharmacies shortchanged. To fix this, the Secretary of Health and Human Services must now mandate monthly surveys of pharmacies to nail down the national average drug acquisition cost. Think of it as a mandatory, ongoing audit of every pharmacy’s invoice prices.

This isn't optional. If your local pharmacy accepts Medicaid, they must respond to these surveys, whether they’re a small independent shop or part of a big chain. The bill specifically sets up two separate cost benchmarks: one for retail community pharmacies and another for "applicable non-retail pharmacies" (like mail-order or specialty shops). If a pharmacy refuses to comply or gives bad data, the Secretary can hit them with a civil money penalty of up to $100,000 per violation. That penalty is serious enough to shut down a small business, so compliance is going to be a huge, non-negotiable priority for every pharmacy manager.

Putting the Brakes on Spread Pricing

Section 3 targets one of the most controversial practices in drug benefits: spread pricing. This is where Pharmacy Benefit Managers (PBMs)—the companies that manage drug benefits for insurance plans—charge the state (or managed care entity) a high price for a drug but only reimburse the dispensing pharmacy a fraction of that amount, pocketing the "spread." This bill bans that practice for Medicaid contracts.

Moving forward, PBMs and managed care entities must use a transparent "pass-through" model. This means they have to pass the full ingredient cost plus a professional dispensing fee directly to the pharmacy that filled the prescription. The PBM can only keep a separate, fair market value administrative fee for their services. For example, if a state pays the PBM $50 for a generic drug, the PBM must pay the pharmacy the ingredient cost plus the dispensing fee—they can’t just pay the pharmacy $35 and keep the remaining $15 as profit spread. This provision directly impacts the profitability of PBMs, forcing them to rely only on transparent administrative fees.

What This Means for Everyday Life

For the average person, this bill is designed to stabilize the pharmacy ecosystem. If small, independent pharmacies are being reimbursed more accurately and fairly, they are less likely to close, which is vital for drug access, especially in rural or underserved areas. It means the $30 you pay in co-pay and the money the state pays are more likely to go toward the drug and the pharmacist's service, not just padding the middleman's balance sheet.

However, there’s a catch in the implementation. The Secretary is allowed to put these rules into effect immediately using program instructions, bypassing the usual public notice and comment requirements of the Administrative Procedure Act (APA). While this speeds up reform, it means that pharmacies, PBMs, and states won't get a chance to provide input or push back on the specific details of the new mandatory surveys and pricing rules before they become law. Given the severity of the $100,000 non-compliance penalty, the lack of public vetting before implementation (which starts as early as six months after enactment for retail pharmacies) is a serious concern for those who have to navigate the new system.