Medicare part D pharmacy benefit manager reforms

(a)

In general

Section 1860D–12 of the Social Security Act (42 U.S.C. 1395w–112) is amended— (1)by adding at the end the following new subsections:

(i)

Requiring standardized public bidding process for pharmacy benefit managers

(1)

Requiring annual bid solicitation

For plan years beginning on or after January 1, 2028, each contract entered into with a PDP sponsor under this part with respect to a prescription drug plan offered by such sponsor shall provide that such sponsor may only enter into a contract with a pharmacy benefit manager to provide pharmacy benefit management services on behalf of such sponsor during such plan year if such sponsor— (A)solicits bids for such pharmacy benefit management services in accordance with the process under paragraph (2); and (B)includes in the submission to the Secretary under section 1860D–11(b) with respect to such plan— (i)information sufficient to demonstrate that the sponsor accepted and considered all bids submitted by a pharmacy benefit manager containing the information described in paragraph (2)(B) in the uniform format specified by the Secretary; (ii)the information described in paragraph (2)(B) received from each such pharmacy benefit manager in connection with each such bid; and (iii)in the case that the bid selected at the conclusion of the process described in subparagraph (A) is not the bid with the lowest projected net effective cost, information sufficient to support a finding under paragraph (3) that the selection of the bid so selected is necessary to advance a significant programmatic interest identified by such sponsor. (2)

Pharmacy benefit manager services bidding process

(A)

In general

For purposes of paragraph (1)(A), a PDP sponsor solicits bids for pharmacy benefit manager services in accordance with the process described in this paragraph if the sponsor— (i)requires each bid to contain— (I)the information described in subparagraph (B) in a uniform format specified by the Secretary; and (II)an attestation of completeness and accuracy from an officer of the PDP sponsor; (ii)makes available at no cost to each pharmacy benefit manager submitting a bid such information, presented in a uniform format, as the Secretary determines necessary to enable the pharmacy benefit manager to submit a responsive bid, including— (I)projected enrollment; (II)historical utilization data; (III)formulary design parameters; and (IV)benefit design parameters; (iii)accepts all bids from pharmacy benefit managers containing the information described in paragraph (2)(B) in the uniform format specified by the Secretary, without imposing any additional conditions for participation in the bidding process; and (iv)complies with— (I)requirements for solicitation of multiple qualified bidders, evaluation criteria, justification procedures for limited competition or sole-source contracting, contract duration limits, enforcement mechanisms, and minimum documentation standards consistent with part 15 of subchapter C of chapter 1 of title 48, Code of Federal Regulations; and (II)such other requirements from the relevant provisions of chapter 33 of subtitle C of subtitle I of title 41, United States Code, and the regulations under chapter 1 of title 48, Code of Federal Regulations, as the Secretary determines appropriate. (B)

Standardized bid contents

For purposes of subparagraph (A)(i)(I), the information described in this subparagraph is, with respect to a prescription drug plan offered by a PDP sponsor, a pharmacy benefit manager, and a plan year, the following: (i)The total dollar amount that the pharmacy benefit manager expects to receive in connection with services performed on behalf of the sponsor— (I)as bona fide service fees (as defined in section 1860D–12(h)(7)(B)); (II)as incentive payments (as described under section 1860D–12(h)(1)(A)(ii)); and (III)as price concessions, including rebates, discounts, and other direct or indirect remunerations received from all pharmacy and non-pharmacy sources. (ii)With respect to covered part D drugs proposed by the pharmacy benefit manager to be included on the formulary of the plan— (I)the aggregate expected utilization of all such drugs; (II)the aggregate wholesale acquisition cost for all such drugs; (III)the aggregate amount expected to be received by the pharmacy benefit manager, from all pharmacy and non-pharmacy sources, as price concessions, including rebates, discounts, and other direct or indirect remunerations in connection with all such drugs, displayed as a percentage of such aggregate wholesale acquisition cost; (IV)of the amount described in subclause (III), the aggregate amount expected to be attributable to such drugs dispensed by a pharmacy that is an affiliate (as defined in section 1860D–12(h)(7)(A)) of the pharmacy benefit manager; (V)the aggregate net ingredient cost for all such drugs; (VI)the average payment to a pharmacy for dispensing all such drugs; and (VII)the average cost sharing, in dollars, for an enrollee in such plan with respect to all such drugs. (iii)The projected net effective cost for such year. (iv)With respect to the most recent 3-year period for which data is available, a description of any variation between the projected net effective cost and the actual net effective cost. (C)

Public availability of data on pharmacy benefit manager bids

The Secretary shall annually publish, in an aggregated, deidentified format, the information described in subparagraph (B) and submitted to the Secretary in accordance with paragraph (1)(B)(ii). (D)

Regulations

Not later than 180 days after the date of enactment of this paragraph, the Secretary shall promulgate regulations to carry out this paragraph. (3)

Finding of necessity to advance significant programmatic interest

For purposes of paragraph (1)(B)(iii), in the case that the bid for pharmacy benefit management services selected by a PDP sponsor is not the bid with the lowest projected net effective cost received by such sponsor, the Secretary may find that selection of such bid is necessary to advance a significant programmatic interest identified by such sponsor (such as the protection of beneficiary access, continuity of care, network adequacy, the prevention of service disruption, program integrity and fraud prevention, demonstrated operational capability, or demonstrated clinical outcomes) only if— (A)the Secretary determines that— (i)the programmatic interest identified by the sponsor materially benefits enrollees under the plan, or advances statutory program objectives; (ii)the programmatic interest is not already reflected in the calculation of the net effective cost of the plan; (iii)the programmatic interest cannot reasonably be achieved through selection of the bid with the lowest projected net effective cost received by the sponsor; (iv)the importance of the programmatic interest clearly outweighs the additional cost under this part; and (v)approval of the bid represents a reasonable and efficient use of Federal resources; and (B)each determination under subparagraph (A) is supported by documentation sufficient for congressional oversight, audit, and program review purposes. (4)

Treatment of sponsor acting as PBM

(A)

In general

In the case of a PDP sponsor described in subparagraph (B) that intends to provide its own pharmacy benefit management services for a year, the requirements under this subsection shall apply with respect to such sponsor as if such sponsor were entering into a contract with a pharmacy benefit manager to provide such services. (B)

PDP sponsor described

For purposes of subparagraph (A), a PDP sponsor described in this subparagraph is, with respect to a year, a PDP sponsor that provides pharmacy benefit management services on behalf of another PDP sponsor for such year. (5)

Net effective cost defined

In this subsection, the term net effective cost means, with respect to a prescription drug plan offered by a PDP sponsor and a plan year, the total cost to such sponsor of all covered part D drugs included on the formulary of the plan that are furnished to all enrollees in such plan for such year. (j)

Enhanced oversight of PDP sponsors

(1)

In general

For plan years beginning on or after January 1, 2028, each contract entered into with a PDP sponsor under this part with respect to a prescription drug plan offered by such sponsor shall require such sponsor to— (A)periodically submit to the Secretary, at such time and in such form as the Secretary may require, information sufficient to allow the Secretary to compare actual cost-sharing for enrollees in the plan to the cost-sharing described in the bid submitted under section 1860D–11(b)(2); (B)maintain a real-time cost-sharing tool that reflects, with respect to each covered part D drug included on the formulary of such plan, the actual cost of such drug (net of any price concessions, including rebates, discounts, and other direct or indirect remunerations negotiated in connection with such drug) to— (i)the sponsor; (ii)the Secretary; and (iii)the enrollee; and (C)maintain in an escrow account sufficient funds to refund to enrollees in the plan any amounts incorrectly collected for such year (as required under section 423.294 of title 42, Code of Federal Regulations (or a successor regulation)). (2)

Oversight

For plan years beginning on or after January 1, 2028, the Secretary shall carry out the following oversight activities with respect to PDP sponsors with a contract to offer a prescription drug plan under this part: (A)

Annual audits

(i)

In general

The Secretary shall audit not less than one-third of all PDP sponsors with a contract to offer a prescription drug plan under this part to verify that the prescription drug coverage provided under the plan reflects the prescription drug coverage proposed to be provided under the bid submitted under section 1860D–11(b)(2)(A). (ii)

Required components

Each audit conducted under subparagraph (A) shall include an evaluation of— (I)the cost-sharing amounts paid by enrollees under the plan, expressed as dollar amounts, and whether such amounts are consistent with the cost-sharing described in the bid submitted under section 1860D–11(b) and approved by the Secretary; and (II)in the case that such plan implements tiered cost-sharing, and provides for such cost-sharing to be imposed as coinsurance, whether the cost-sharing amounts paid by enrollees, expressed as dollar amounts, are consistent with (and do not exceed) the maximum allowable cost-sharing reflected in such bid (and marketed to enrollees at the time of plan selection), as determined on the basis of actual out-of-pocket costs. (iii)

Methodology

In conducting the audits under subparagraph (A), the Secretary may use sampling and extrapolation methodologies to the extent that such methodologies are used in connection with other audits under this part. (B)

Bid reconciliation analysis

The Secretary shall periodically compare actual costs incurred in connection with the plan to the projected costs included in the bid submitted under section 1860D–11(b)(2). Such comparison shall include— (i)a quarterly analysis of any variation between the projected and actual net effective cost (as defined in subsection (i)(5)); and (ii)an analysis of the impact of any mid-year formulary changes on the cost-sharing of enrollees in the plan. (C)

Risk-based monitoring

(i)

In general

If, pursuant to subparagraph (B)(i), the Secretary determines that the actual net effective cost incurred by a PDP sponsor for a calendar quarter varies from the projected net effective cost included in the bid submitted under section 1860D–11(b)(2)(C)(v) by more than the percentage established under clause (ii), the Secretary shall— (I)provide notice to the PDP sponsor of such variation; and (II)require the PDP sponsor to submit, not later than 30 calendar days after such notice— (aa)a written explanation of such variation; and (bb)a corrective action plan to address such variation. (ii)

Percentage

For purposes of clause (i), the Secretary shall establish, through rulemaking, a percentage (not to exceed 10 percent) that represents an acceptable level of variation between the projected and actual net effective cost for a year. In establishing such percentage, the Secretary shall take into account potential factors affecting the variation between projected and actual costs, including— (I)historical variation in spending under this part; (II)the impact of high-cost covered part D drugs on overall spending under this part; (III)changes in drug utilization, formulary composition, and clinical practice patterns; (IV)variability in price concessions, including rebates, discounts, and other direct or indirect remunerations; (V)differences between projected and actual enrollment, and differences between projected and actual enrollee characteristics; (VI)plan benefit designs and cost-sharing structures; and (VII)other factors beyond the control of the PDP sponsor, or the pharmacy benefit manager providing pharmacy benefit management services on behalf of such sponsor, that may materially affect costs. (iii)

Item-level audits

The Secretary may conduct an item-level audit of a prescription drug plan under this part, including an audit on the basis of a specific covered part D drug, a specific pharmacy, or a statistically valid sample of individual claims, for the purpose of— (I)identifying the cause of any variation between the projected and actual net effective cost for a year; (II)verifying that costs incurred under the plan are consistent with the assumptions and information included in the bid submitted under section 1860D–11(b); and (III)assessing whether pricing, reimbursement, or utilization patterns result in a differential financial benefit to a pharmacy benefit manager or an affiliate (as defined in subsection (h)(7)(A)) that is not reasonably reflected in the net effective cost or other information submitted in such bid. (D)

Formulary monitoring

(i)

In general

The Secretary shall monitor changes to the formulary of a prescription drug plan under this part throughout the plan year to identify patterns that may constitute beneficiary bait-and-switch practices. (ii)

Beneficiary bait-and-switch practice defined

In this subparagraph, the term beneficiary bait-and-switch practice means a pattern of formulary changes or related utilization management practices that, in the aggregate— (I)materially increase enrollee cost-sharing or overall costs relative to the coverage described in the bid submitted under section 1860D–11(b); (II)result in a systematic shift in utilization toward certain covered part D drugs, pharmacies, or other arrangements (including through the preferential placement of drugs or the use of pharmacies or affiliates of a pharmacy benefit manager) that were not reasonably reflected in such bid; or (III)otherwise have the effect of materially altering the prescription drug coverage offered under the plan in a manner that would reasonably be expected to affect an enrollee’s plan selection at the time of enrollment. (3)

Public reporting

The Secretary shall make publicly available a report comparing the actual costs incurred in connection with a prescription drug plan under this part to the projected costs included in bids submitted under section 1860D–11(b)(2). Such comparison shall be aggregated across all PDP sponsors, and shall describe any aggregate savings attributable to the bidding process required under subsection (i) (in relation to pharmacy benefit managers). (4)

Enforcement and penalties

(A)

Civil monetary penalties

(i)

False or misleading information

A PDP sponsor that provides false or misleading information (including a material omission) in a bid submission under section 1860D–11(b) shall be subject to a civil monetary penalty of not more than $100,000 per violation. (ii)

Failure to provide information

A PDP sponsor that fails to provide any information required to be provided under section 1860D–11(b) or subsection (i) or (j) shall be subject to a civil monetary penalty of not more than $25,000 per calendar day until such failure is corrected. (iii)

Deviation from bid projection

In the case that the actual net effective cost (as defined in subsection (i)(5)) for a prescription drug plan under this part and a plan year exceeds the projected net effective cost for such plan included in the bid submitted under section 1860D–11(b) by more than the percentage established under subsection (j)(2)(C)(ii), the PDP sponsor offering such plan shall be subject to a civil monetary penalty of not more than $10,000 per violation. In determining the amount of such penalty, the Secretary shall take into account the magnitude and duration of such deviation. (B)

Restitution

(i)

In general

In the case that the case that actual costs for a prescription drug plan under this part and a plan year (including amounts associated with enrollee cost-sharing and other amounts not directly charged to enrollees) materially exceeds the projected costs for such plan included in the bid submitted under section 1860D–11(b), the Secretary may require the PDP sponsor offering such plan to refund plan enrollees for such amounts retained by the sponsor, a pharmacy benefit manager providing pharmacy benefit management services on behalf of such sponsor, or an affiliate of such pharmacy benefit manager as are attributable to such disparity. (ii)

Coordination with refunds of amounts incorrectly collected

To the extent feasible, the Secretary shall coordinate the application of this subparagraph with the requirements under section 423.294(b) of title 42, Code of Federal Regulations (or a successor regulation). (C)

Judicial review

Any penalty imposed under this paragraph shall be subject to judicial review in the United States district court for the district in which the violation occurred, consistent with section 1128A(e).

; and

(2)in subsection (h)— (A)in the subsection heading, by inserting

agreements with

before

pharmacy benefit managers

; (B)in paragraph (1), by adding at the end the following new subparagraph:

(E)

Guarantees with respect to net effective cost and transparency

(i)

In general

The pharmacy benefit manager— (I)guarantees that the actual net effective cost (as defined in subsection (i)(5)) for the year will not exceed the projected net effective cost by more than the percentage established under subsection (j)(2)(C)(ii), with periodic reconciliation requirements on a frequency established by the Secretary; and (II)agrees that, in the case that such actual net effective cost does exceed such projected net effective cost by more than such percentage— (aa)the pharmacy benefit manager will pay to the PDP sponsor a penalty (not to exceed $10,000 per violation); and (bb)the PDP sponsor may terminate the contract without penalty. (ii)

Transparency

The pharmacy benefit manager agrees— (I)to provide to the PDP sponsor with such information as the sponsor requires to comply with the requirements under subsection (j); and (II)that, if the pharmacy benefit manager fails to provide such information to the PDP sponsor, the PDP sponsor may terminate the contract without penalty.

; and

(C)in paragraph (2)(A)— (i)in clause (ii), by striking and at the end; (ii)in clause (iii), by striking the period at the end and inserting a semicolon; and (iii)by adding at the end the following new clauses:

(iv)submit to the Secretary a copy of each such written agreement not later than the date that is 30 days after the effective date of such agreement; (v)certify to the Secretary on a quarterly basis that each pharmacy benefit manager that has entered into such an agreement is meeting all the obligations under such agreement; and (vi)in the case that any pharmacy benefit manager that has entered into such an agreement fails to meet all the obligations under such agreement, immediately report such failure to the Secretary;

(b)

Conforming amendment

Section 1860D–11(b)(2)(C) of the Social Security Act (42 U.S.C. 1395w–111(b)(2)(C)) is amended— (1)in clause (iii), by striking and at the end; (2)in clause (iv), by striking the period at the end and inserting ; and; and (3)by adding at the end the following new clause:

(v)for plan years beginning on or after January 1, 2028, the information described in section 1860D–12(i)(1)(B) (with respect to bids for pharmacy benefit manager services).

Medicare Advantage pharmacy benefit manager requirements

(a)

MA–PD compliance

Section 1857(f)(3)(G) of the Social Security Act (42 U.S.C. 1395w–27(f)(3)(G)) is amended by inserting and section 1860D–12(i) before the period at the end. (b)

Quality rating system for MA–PD plans

Section 1853(o) of the Social Security Act (42 U.S.C. 1395w–23(o)) is amended— (1)in paragraph (4)(A), by inserting and, beginning January 1, 2028, with respect to an MA–PD plan, incorporating the pharmacy benefit management services performance measure described in paragraph (8) before the period at the end; and (2)by adding at the end the following new paragraph:

(8)

Prescription drug cost performance measure

(A)

In general

For purposes of paragraph (4), the Secretary shall establish a performance measure for MA–PD plans for purposes of evaluating prescription drug cost variations. (B)

Measurement criteria

The performance measure established under subparagraph (A) shall evaluate— (i)the percentage variation between the projected and actual net effective cost (as defined in section 1860D–12(i)(5)) for a year; (ii)the timeliness and adequacy of any corrective action plans submitted in connection with such a variation (as required under section 1860D–12(j)(2)(C)(i)(II)(bb)); (iii)the extent to which implementing such corrective actions successfully reduced such variations in subsequent quarters; (iv)the frequency and magnitude of beneficiary cost-sharing increases attributable to such a variation or a formulary change; and (v)the plan’s compliance with the reconciliation and transparency reporting requirements under section 1860D–12(j). (C)

Rating scale

The Secretary shall establish a 5-star rating scale for the performance measure under this paragraph, where— (i)5 stars indicates actual costs within 2 percent of bid projections with no required corrective actions; (ii)4 stars indicates actual costs within 5 percent of bid projections with timely and effective corrective actions; (iii)3 stars indicates actual costs within 10 percent of bid projections with adequate corrective actions; (iv)2 stars indicates actual costs exceeding 10 percent of bid projections or inadequate corrective actions; and (v)1 star indicates actual costs exceeding 15 percent of bid projections, failure to submit corrective action plans, or repeated noncompliance. (D)

Integration with overall star ratings

(i)

Weighting

The performance measure established under this paragraph shall be weighted at not less than the median weight of all other measures used in calculating the overall star rating under this subsection. (ii)

Bonus payment impact

Performance on this measure shall be fully integrated into the overall star ratings calculation for purposes of quality bonus payments under paragraph (4). (E)

Public reporting

The Secretary shall publicly report each MA–PD plan’s performance on this measure as part of the annual star ratings release under paragraph (3), including— (i)specific percentage variation between projected and actual net effective costs; (ii)corrective action outcomes; and (iii)comparison to national and regional benchmarks. (F)

Beneficiary notification

(i)

Low performance notification

MA–PD plans receiving ratings of 2 stars or below on the measure established under this paragraph shall notify enrollees of their performance and provide information on alternative plan options during the annual enrollment period. (ii)

Notification format

The Secretary shall establish standardized formats for beneficiary notifications that clearly explain the implications of low ratings on such measure, including enrollee costs for premiums, deductibles, cost sharing, and overall taxpayer burden. (G)

Implementation timeline

(i)

Initial measurement

The Secretary shall begin collecting data for the performance measure established under this paragraph beginning with the first plan year beginning after the date that is 1 year after the date of enactment of the Net Effective Cost Transparency and Prescription Drug Affordability Act of 2026. (ii)

First ratings

The Secretary shall publish the first star ratings under this paragraph not later than the second plan year following the initial data collection. (iii)

Bonus payment integration

Performance on this measure shall affect quality bonus payments beginning with the third plan year following initial data collection. (H)

Application to standalone part D plans

The Secretary shall establish a comparable performance measurement and public reporting system for prescription drug plans under part D, using the same measurement criteria and rating scale established under this paragraph.