[Senate Report 118-122]
[From the U.S. Government Publishing Office]


                                                      Calendar No. 266
118th Congress     }                                    {       Report
                                 SENATE
 1st Session       }                                    {      118-122

======================================================================



 
          THE MODERNIZING AND ENSURING PBM ACCOUNTABILITY ACT

                                _______
                                

                December 7, 2023.--Ordered to be printed

                                _______
                                

   Mr. Wyden, from the Committee on Finance, submitted the following

                              R E P O R T

                         [To accompany S. 2973]

    The Committee on Finance, to which was referred the bill 
(S. 2973) to amend titles XVIII and XIX of the Social Security 
Act to establish requirements relating to pharmacy benefit 
managers under Medicare and Medicaid programs, and for other 
purposes, reports favorably thereon with an amendment, in the 
nature of a substitute, and that the bill, as amended, do pass.

                                CONTENTS

                                                                    Page
 I. LEGISLATIVE BACKGROUND............................................ 1
II. EXPLANATION OF THE BILL........................................... 6
III.BUDGET EFFECTS OF THE BILL....................................... 20
IV. VOTES OF THE COMMITTEE........................................... 21
 V. REGULATORY IMPACT AND OTHER MATTERS.............................. 21
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............ 21

                       I. LEGISLATIVE BACKGROUND

    The Committee on Finance, having considered S. 2973, a bill 
to amend titles XI, XVIII, and XIX of the Social Security Act 
to lower prescription drug prices and strengthen safeguards 
related to prescription drugs, and for other purposes, reported 
favorably thereon that the bill as modified by the Committee do 
pass.

General Background on Pharmacy Benefit Managers

    Pharmacy benefit managers (PBMs) manage prescription drug 
benefits and pharmacy networks on behalf of health plans, 
employers, and other payers. PBMs may perform a variety of 
functions for their clients, including processing prescription 
drug claims, negotiating discounts with pharmaceutical 
manufacturers, developing formularies (covered drug lists), 
establishing pharmacy networks, and reimbursing pharmacies that 
dispense prescription drugs to patients.
    PBMs emerged in the late 1960s and early 1970s as claims 
processors, as more and more health insurers began to offer 
prescription drug benefits. Up until the 1990s, PBMs primarily 
filled this limited administrative role. As the scope and cost 
of prescription drugs grew, claims processing became digitized, 
and programs like Medicare Part D expanded drug coverage in the 
U.S., plan sponsors began delegating additional functions to 
PBMs.\1\
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    \1\Motheral, Brenda. et al. ``Changes in PBM Business Practices in 
2019: True Innovation or More of the Same?'' Journal of Managed Care 
and Specialty Pharmacy. October 2020. https://www.jmcp.org/doi/
10.18553/jmcp.2020.20213?url_ver=Z39.88-
2003𝔯_id=ori%3Arid%3Acrossref
.org𝔯_dat=cr_pub++0pubmed&.
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    Today, the PBM market is concentrated in three companies--
CVS Caremark, Express Scripts, and OptumRx--which control 
approximately 80 percent of the U.S. prescription drug 
claims.\2\\3\ This degree of concentration gives the dominant 
PBMs market power over data, drug coverage, and contracting. 
Many PBMs are also vertically integrated with other components 
of the prescription drug supply chain, such as health plans, 
pharmacies (retail, specialty, and mail-order), wholesalers, 
distributors, and provider services.\4\\5\ While the extent and 
types of mergers vary, each of the three largest PBMs is 
integrated with a health plan and at least one pharmacy 
channel.\6\
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    \2\Mader, Josh. ``Pharmacy Benefit Mangers: Market Landscape and 
Strategic Imperatives.'' Health Industries Research. https://
www.hirc.com/PBM-market-landscape-and-imperatives.
    \3\Myshko, Denise and Peter Wehrwein. ``Beyond the Big Three 
PBMs.'' Managed Healthcare Executive. December 2022. https://
www.managedhealthcareexecutive.com/view/beyond-the-big-three-pbms.
    \4\Fein, Adam. ``Drug Channels News Roundup, December 2022: 
Vertical Integration Updated, Walgreens vs. Pharmacy, Cash-Pay Rx, 
Curing 340B, and Deductible Season.'' Drug Channels. December 2022. 
https://www.drugchannels.net/2022/12/drug-channels-news-roundup-
december
.html.
    \5\Dresser, Jesse. ``Considerations for Maintaining Payer Network 
Access in the World of Vertical Integration--Part 1: The Pharmacy 
Benefits Landscape.'' Pharmacy Times. August 2022. https://
www.pharmacytimes.com/view/considerations-for-maintaining-payer-
network-access
-in-the-world-of-vertical-integration-part-1-the-pharmacy-benefits-
landscape.
    \6\Fein, Adam. ``Mapping the Vertical Integration of Insurers, 
PBMs, Specialty Pharmacies, and Providers: A 2022 Update.'' Drug 
Channels. October 2022. https://www.drugchannels.net/2022/10/mapping-
vertical-integration-of.html.
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PBM Compensation

    PBMs operate in a multi-sided market--meaning they may earn 
revenue on both sides of a single transaction, from both their 
traditional clients (e.g. health plans, employers, and payers) 
and the vendors or contractors with whom they negotiate (e.g. 
pharmaceutical manufacturers, pharmacies). Any multi-sided 
market introduces the potential for conflicts of interest and 
perverse incentives.
    PBMs often receive compensation from health plans in the 
form of fees per prescription dispensed (flat fees or 
percentage of drug price), flat per member per month (PMPM) 
fees, and retention of a portion of manufacturer rebates. PBMs 
also often guarantee health plans a certain level of rebates. 
Client fees account for a substantial portion of PBM revenue, 
including in Part D.\7\\8\
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    \7\``Medicare Part D: Use of Pharmacy Benefit Managers and Efforts 
to Manage Drug Expenditures and Utilization.'' U.S. Government 
Accountability Office. July 2019. https://www.gao.gov/assets/gao-19-
498.pdf.
    \8\``Understanding the Evolving Business Models and Revenue of 
Pharmacy Benefit Managers.'' PBM Accountability Project. December 2021. 
https://b11210f4-9a71-4e4c-a08f-cf43a83bc1df.usr
files.com/ugd/b11210_264612f6b98e47b3a8502054f66bb2a1.pdf.
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    PBMs also receive revenue from the pharmaceutical 
manufacturers. PBMs leverage the volume of covered lives they 
serve across all of their health plan clients to negotiate 
lower prices and secure larger discounts, rebates, and fees 
from manufacturers. PBMs may retain a portion of these 
discounts. Manufacturers also pay PBMs administrative fees for 
access to services and data.
    Historically, a significant portion of PBM compensation 
came from retaining a percentage of the rebates they negotiate 
with drug manufacturers. In recent years, as critiques about 
the lack of transparency around rebate retention have grown, 
PBMs appear to be passing more rebates through to their 
clients. Between 2017 and 2019, PBM-retained rebates decreased 
from $4 billion to $1.6 billion in gross profits.\9\ In 2016 
the Government Accountability Office (GAO) found that PBMs 
passed through all or most rebates to plan sponsors within Part 
D.\10\
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    \9\3 Axis Advisors. ``Understanding the Evolving Business Models 
and Revenue of Pharmacy Benefit Managers.'' PBM Accountability Project. 
December 2021. https://b11210f4-9a71-4e4c-a08f-
cf43a83bc1df.usrfiles.com/ugd/
b11210_264612f6b98e47b3a8502054f66bb2a1.pdf.
    \10\ ``Medicare Part D: Use of Pharmacy Benefit Managers and 
Efforts to Manage Drug Expenditures and Utilization.'' U.S. Government 
Accountability Office. July 2019. https://www.gao.gov/assets/gao-19-
498.pdf.
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    PBM compensation structures have evolved over the years. 
Administrative fees paid by manufacturers are a growing revenue 
source for PBMs. They appear to be replacing rebate retention 
as a key source of PBM revenue. These fees may be less likely 
than rebates to be passed through, or shared, by PBMs to health 
plans.11}12 A PEW survey found that administrative 
fees paid by manufacturers to PBMs have increased as rebate 
retention has declined, offsetting potentially over $2 billion 
in lost rebates to PBMs between 2014 and 2016.\13\ Another 
report found that, from 2017 to 2019, PBM gross profits from 
administrative fees increased by 51 percent, from $3.8 billion 
to $5.7 billion.\14\ In Part D, GAO found that non-rebate 
revenue paid to PBMs by manufacturers, including administrative 
fees, accounted for $516.5 million in 2016.\15\
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    \11\Feldman, Robin. ``Perverse Incentives: Why Everyone Prefers 
High Drug Prices--Except for Those Who Pay the Bills.'' Harvard Journal 
on Legislation. 2020. https://repository
.uchastings.edu/cgi/
viewcontent.cgi?article=2773&context=faculty_scholarship.
    \12\Part D plans are required to report bona fide service fees in 
excess of fair market value paid to PBMs as Direct and Indirect 
Remuneration (DIR), regardless of whether such amounts as passed onto 
the Part D plan.
    \13\``The Prescription Drug Landscape Explored.'' Pew. March 2019. 
https://www.pewtrusts.org/en/research-and-analysis/reports/2019/03/08/
the-prescription-drug-landscape-explored.
    \14\3 Axis Advisors. ``Understanding the Evolving Business Models 
and Revenue of Pharmacy Benefit Managers.'' PBM Accountability Project. 
December 2021. https://b11210f4-9a71-4e4c-a08f-
cf43a83bc1df.usrfiles.com/ugd/
b11210_264612f6b98e47b3a8502054f66bb2a1.pdf.
    \15\``Medicare Part D: Use of Pharmacy Benefit Managers and Efforts 
to Manage Drug Expenditures and Utilization.'' U.S. Government 
Accountability Office. July 2019. https://www.gao.gov/assets/gao-19-
498.pdf.
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    Administrative fees paid to PBMs are often based on a 
percentage of Wholesale Acquisition Cost (WAC), or a drug's 
list price, and volume of utilization, mirroring the structure 
of post-sale rebates.16}17 For example, the Senate 
Finance Committee's landmark insulin investigation identified 
contracts between PBMs and manufacturers that required the 
manufacturer to pay the PBM an administrative fee of up to five 
percent of the drug's WAC per claim dispensed. The report also 
uncovered internal manufacturer correspondence suggesting that 
decreasing WAC prices would create business disadvantages with 
PBM partners as it would lead to reduced PBM fee revenue.\18\
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    \16\Feldman, Robin. ``Perverse Incentives: Why Everyone Prefers 
High Drug Prices--Except for Those Who Pay the Bills.'' Harvard Journal 
on Legislation. 2020. https://repository
.uchastings.edu/cgi/
viewcontent.cgi?article=2773&context=faculty_scholarship.
    \17\3 Axis Advisors. ``Understanding the Evolving Business Models 
and Revenue of Pharmacy Benefit Managers.'' PBM Accountability Project. 
December 2021. https://b11210f4-9a71-4e4c-a08f-
cf43a83bc1df.usrfiles.com/ugd/
b11210_264612f6b98e47b3a8502054f66bb2a1.pdf.
    \18\Senate Finance Committee. ``Insulin: Examining the Factors 
Driving the Rising Cost of a Century Old Drug.'' U.S. Senate. January 
2021. https://www.finance.senate.gov/imo/media/doc/Grassley-
Wyden%20Insulin%20Report%20(FINAL%201).pdf.
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    Experts have noted that payments from manufacturers to PBMs 
may create conflicts of interest between PBMs and their health 
plan clients. Furthermore, linking PBM payment to a drug's list 
price could create incentives for PBMs to drive utilization of 
higher-priced drugs, rather than lower-priced, clinically 
equivalent alternatives, to achieve higher rebates and higher 
administrative fees.19}20}21
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    \19\Feldman, Robin. ``Perverse Incentives: Why Everyone Prefers 
High Drug Prices--Except for Those Who Pay the Bills.'' Harvard Journal 
on Legislation. 2020. https://repository
.uchastings.edu/cgi/
viewcontent.cgi?article=2773&context=faculty_scholarship.
    \20\Shepherd, Joanna. ``Pharmacy Benefit Managers, Rebates, and 
Drug Prices: Conflicts of Interest in the Market for Prescription 
Drugs.'' The Yale Law and Policy Review. January 2019. https://
papers.ssrn.com/sol3/papers.cfm?abstract_id=3313828.
    \21\Purchaser Business Group on Health. ``Pharmacy Benefit Tactics 
Drive Up Drug Prices, Limit Access, Contribute to Health Risks.'' 
December 2022. https://www.pbgh.org/wp-content/upl
oads/2022/12/Pharmacy-Benefit-Tactics-Drive-Up-Drug-Prices-Limit-
Access-Contribute-to-Health
-Risks.pdf.
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PBM Contracting with Pharmacies

    PBMs create pharmacy networks and reimburse pharmacies on 
behalf of their health plan clients. Pharmacy networks may 
comprise retail, mail-order, and specialty pharmacies. 
Pharmacies contract with PBMs to determine drug dispensing 
reimbursement rates. In Medicare, the contractually set 
pharmacy reimbursement rate is known as the ``negotiated 
price.'' This generally covers a drug's ``ingredient cost'' and 
a dispensing fee, as well as other costs, such as sales 
tax.\22\ In Part D, beneficiary cost sharing for drugs 
dispensed by network pharmacies is based on a percentage of 
each plan sponsor's negotiated price, unless a flat copay 
applies.
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    \22\42 C.F.R. Sec. 423.100.
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    Part D plan sponsors are required to establish pharmacy 
networks sufficient to ensure access to Medicare covered drugs 
for all enrollees. As part of the ``Any Willing Pharmacy'' 
requirements established by Congress, Part D plan sponsors must 
permit any pharmacy that is willing to accept the Part D 
sponsor's standard contracting terms and conditions to 
participate in the sponsor's network.23}24}25
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    \23\42 U.S.C. Sec. 1395w-104(b)(1)(A).
    \24\42 C.F.R. Sec. 423.505(b)(18).
    \25\CMS, ``Medicare Program: Contract Year 2019 Policy and 
Technical Changes to Medicare Advantage, Medicare Cost Plan, Medicare 
Fee-for-Service, Medicare Prescription Drug Benefit Programs, and PACE 
Program,'' 83 Federal Register, April 16, 2018, p. 16589, https://
www.govinfo.gov/content/pkg/FR-2018-04-16/pdf/2018-07179.pdf.
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    PBMs recently began imposing retrospective, post-sale fees 
on pharmacies for not meeting contractually specified quality 
metrics or as a condition of preferred network participation. 
These fees tend to substantially increase PBM revenue, ranging 
from 1.5 percent to 11 percent of a manufacturer list price, 
and are generally levied on pharmacies three to six months 
after dispensing.\26\ These fees must be disclosed to the 
Centers for Medicare and Medicaid Services (CMS) as part of 
Direct and Indirect Remuneration (DIR) reporting. According to 
CMS, pharmacy DIR fees grew by 107,400 percent between 2010 and 
2020.\27\ In April 2022, CMS finalized rulemaking that requires 
Part D plan sponsors (and PBM contractors) to include such fees 
from network pharmacies in the negotiated price, with the goals 
of making PBM reimbursement to pharmacies more transparent, and 
lowering cost sharing for beneficiaries. This rule takes effect 
on January 1, 2024.\28\
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    \26\``Pharmacy Benefit Manager Expose: How PBMs Adversely Impact 
Cancer Care While Profiting at the Expense of Patients, Providers, 
Employers, and Taxpayers.'' Frier Levitt, LLC. February 2022. https://
www.frierlevitt.com/articles/pharmacy-benefit-manager-expose-how-pbms-
adversely-impact-cancer-care-while-profiting-at-the-expense-of-
patients-providers-employers-and-taxpayers/.
    \27\``Medicare Program; Contract Year 2023 Policy and Technical 
Changes to the Medicare Advantage and Medicare Prescription Drug 
Benefit Programs; Policy and Regulatory Revisions in Response to the 
COVID-19 Public Health Emergency; Additional Policy and Regulatory 
Revisions in Response to the COVID-19 Public Health Emergency.'' 
Centers for Medicare and Medicaid Services. https://public-
inspection.federalregister.gov/2022-09375.pdf.
    \28\``CY 2023 Medicare Advantage and Part D Final Rule (CMS-4192-
F).'' Centers for Medicare and Medicaid Services. April 2022. https://
www.cms.gov/newsroom/fact-sheets/cy-2023-medicare-advantage-and-part-d-
final-rule-cms-4192-f.
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    Evidence suggests that some PBMs engage in a practice known 
as ``spread pricing,'' which occurs when PBMs charge their 
health plan clients a higher amount than what the PBM actually 
reimburses the pharmacy for the same dispensed drug--with the 
PBM retaining the difference.\29\ Across markets, PBM clients 
often lack line of sight into the extent of such spreads. 
Spread pricing has been widely documented in Medicaid. For 
example, a 2018 audit of Ohio's Medicaid program found that 
PBMs were charging the state an average nine percent spread 
across all drugs, with some spreads in excess of 30 percent for 
certain generics.\30\ Similar behavior has been documented in 
other state Medicaid programs, prompting many state lawmakers 
and regulators to intervene.\31\ Spread pricing is less common 
in Medicare Part D.\32\
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    \29\Garfield, Rachel, Rachel Dolan, and Elizabeth Williams. ``Costs 
and Savings under Federal Policy Approaches to Address Medicaid 
Prescription Drug Spending.'' June 2021. KFF. https://www.kff.org/
medicaid/issue-brief/costs-and-savings-under-federal-policy-approaches-
to-address-medicaid-prescription-drug-spending/.
    \30\Meltzer, Rose. ``Ohio Cracks Down on PBM Contracts After Audit 
Shows Egregious Spread Pricing in Medicaid.'' Fierce Healthcare. August 
2018. https://www.fiercehealthcare.com/regul
atory/ohio-takes-action-after-finding-pbms-engaged-egregious-spread-
pricing-medicaid.
    \31\Arkansas, Delaware, Georgia, Kentucky, Louisiana, Maine, 
Michigan, Minnesota, New York, Oklahoma, and Virginia have all passed 
laws seeking to curb spread pricing.
    \32\``Medicare Part D: Use of Pharmacy Benefit Managers and Efforts 
to Manage Drug Expenditures and Utilization.'' GAO. July 2019. https://
www.gao.gov/assets/gao-19-498.pdf.
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Senate Finance Committee Engagement on PBM Issues

    In 2015, then-Ranking Member Ron Wyden and senior Finance 
Committee member (and then-Chairman of the Judiciary Committee) 
Chuck Grassley conducted an 18-month investigation into the 
pricing of Sovaldi and Harvoni, Gilead's breakthrough hepatitis 
C drugs. The Senate Finance Committee has worked for many years 
to increase transparency throughout prescription drug pricing 
and hold actors across the supply chain accountable for 
predatory pricing practices. They uncovered that Gilead had set 
a high list price for the drug treatments to maximize revenue 
and profit, even though Gilead's internal analysis showed a 
lower price would enable more patients to access the treatment. 
In 2018, Finance Committee Ranking Member Ron Wyden released 
``A Tangled Web: Examination of the Drug Supply and Payment 
Chains,'' a report which examined how financial arrangements 
between different entities in the pharmaceutical delivery 
system have continually pushed drug prices higher. In 2021, 
then-Chairman Grassley and Ranking Member Wyden released 
``Insulin: Examining the Factors Behind the Rising Cost of a 
Century Old Drug,'' a report based on an investigation into how 
contracts and financial transactions between insulin 
manufacturers and PBMs influence prescription drug prices and 
drug spending.
    In addition to producing written work products on drug 
pricing issues, the Finance Committee has held a series of 
hearing on these matters. In 2019, the Finance Committee held 
three hearings on drug pricing, including a hearing in which 
executives from the nation's five largest PBMs testified. 
Building on the Finance Committee's long-standing consideration 
of practices across the prescription drug supply chain that may 
raise drug prices, patient out-of-pocket costs, and total drug 
spending across Finance Committee jurisdiction programs, 
including in Medicare Part D and Medicaid, on March 30, 2023, 
Finance Committee Chairman Ron Wyden and Ranking Member Mike 
Crapo convened a hearing entitled ``Pharmacy Benefit Managers 
and the Prescription Drug Supply Chain: Impact on Patients and 
Taxpayers.''
    On April 20, 2023, Chairman Wyden and Ranking Member Crapo 
released the ``Bipartisan Framework for Reducing Prescription 
Drug Costs by Modernizing the Supply Chain and Ensuring 
Meaningful Relief at the Pharmacy Counter.'' The framework 
outlined four key challenges facing federal prescription drug 
programs, including: (1) misaligned incentives that drive up 
drug prices and costs; (2) insufficient transparency that 
distorts the market; (3) hurdles to pharmacy access; and (4) 
behind-the-scenes practices that impede market competition and 
increase costs throughout the pharmaceutical supply chain. The 
framework also identified potential legislative solutions to 
modernize and enhance federal prescription drug programs and to 
help address these concerns.
    On July 24, 2023, Chairman Wyden released a Chairman's Mark 
entitled the ``Modernizing and Ensuring PBM Accountability 
Act'' that contained bipartisan Finance Committee member 
policies. These policies, in addition to further proposals and 
modifications contained in the July 26, 2023, Modification to 
the Chairman's Mark, comprise the reported bill described 
below.

                      II. EXPLANATION OF THE BILL


               SECTION 1. SHORT TITLE; TABLE OF CONTENTS

    This section sets out the name of the bill--the 
``Modernizing and Ensuring PBM Accountability Act''--and lists 
the Table of Contents of the legislation.

SECTION 2. ARRANGEMENTS WITH PHARMACY BENEFIT MANAGERS WITH RESPECT TO 
                PRESCRIPTION DRUG PLANS AND MA-PD PLANS

Current Law

    Medicare Part D is a voluntary outpatient prescription drug 
benefit, enacted in the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA; Pub. L. 108-
173), effective January 1, 2006. Congress designed Part D as a 
market-based program. Private insurers submit annual contract 
bids to CMS to provide outpatient prescription coverage to 
Medicare beneficiaries. Medicare beneficiaries can choose a 
stand-alone Part D plan (PDP) or obtain drug coverage through a 
Medicare Advantage (Part C) plan with a Part D component (MA-PD 
plan). All Part D plans must provide coverage that meets or 
exceeds the minimum standard benefit that defines the range of 
drugs covered by Medicare Part D and maximum enrollee cost 
sharing, including deductibles and prescription co-insurance or 
copayments. Enrollee premiums are based on each plan's annual 
cost for offering Part D benefits. Part D plan sponsors may 
augment plan benefits as long as their plans meet the standard 
benefit specified at SSA 1860D-2(b).
    Part D plan sponsors often contract with PBMs to design and 
administer Part D benefits. Since the program inception, 
Congress expected that PBMs, already in use in the commercial 
insurance market, would play a role in Part D to help control 
prices and costs. PBMs also perform a variety of other core 
functions for Part D plan sponsors, including developing 
formularies (covered drug lists), contracting with pharmacies 
to establish networks, negotiating price concessions from 
pharmaceutical manufacturers, operating mail order and 
specialty drug pharmacies, and administering electronic payment 
for prescription drug claims. Initially, most plans contracted 
with independent PBMs, however, recently, many insurers that 
offer Part D plans have merged or affiliated with PBMs.
    Federal statutes and regulations govern annual CMS 
contracting with Part D plan sponsors.\33\ PBM contract terms 
and service agreements with Part D plan sponsors vary from 
sponsor to sponsor, including with regard to the level and type 
of compensation (i.e., flat fees or retention of volume-based 
rebates), whether a contract includes PBM performance 
incentives, whether a contract includes Part D plan drug price 
guarantees and the specifications of such guarantees, and 
definitional terms. Neither statute or regulation govern the 
forms of compensation PBMs can generate from plan sponsors and 
entities in the supply chain related to prescription drugs 
dispensed under Part D. Further, PBM revenue streams have 
evolved considerably since 2003, when the MMA was enacted.
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    \33\Part D contract regulations are at 42 CFR Sec. 423.505.
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    Under current law, Part D plans and their PBMs must report 
all price concessions that affect the price of Part D drugs to 
CMS via two main mechanisms:
          (i) Prescription Drug Event (PDE): A PDE report is 
        generated each time a beneficiary fills a prescription 
        at a network pharmacy. The PDE includes information on 
        the negotiated price, including the amount paid to the 
        pharmacy for the drug, the quantity dispensed, the out-
        of-pocket spending by the beneficiary, and any coverage 
        by qualified third parties, such as other insurers.
          (ii) Direct and Indirect Remuneration (DIR): DIR 
        reporting applies to price concessions that are not 
        passed on to enrollees at the point of sale. DIR 
        includes discounts, rebates, pharmacy fees, and other 
        price concessions or similar benefits from 
        manufacturers, pharmacies, or similar entities that are 
        obtained by an intermediary organization, such as a 
        PBM, with which the Part D plan sponsor has 
        contracted.\34\
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    \34\42 CFR Sec. 423.308.
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Provisions

    These provisions would require that, beginning in plan year 
2026, each Part D plan sponsor must have a written agreement 
with any PBM acting on its behalf under which the PBM agrees to 
meet the requirements outlined below. All of these requirements 
would apply to MA-PD plans, as well as PDPs.
    These provisions also would define ``pharmacy benefit 
manager'' as any entity that acts as a price negotiator or 
group purchaser, manages prescription drug benefits, processes 
and pays prescription drug claims, performs drug utilization 
reviews, processes prior authorization requests, adjudicates 
drug plan appeals or grievances, contracts with network 
pharmacies, controls the cost of covered Part D drugs, or 
provides related services on behalf of a Part D plan. These 
provisions would define an ``affiliate'' as any entity owned 
by, controlled by, or related under a common ownership 
structure with a PBM.
            I. Bona Fide Service Fees
    This provision would require that a PBM and any affiliate 
of a PBM may not derive remuneration for services provided in 
connection with the use of Part D covered drugs, except in the 
form of bona fide service fees. The provision would define a 
``bona fide service fee'' as a fee that reflects the fair 
market value for a bona fide, itemized service. A bona fide 
service fee would be required to be a flat dollar amount not 
based on the drug's price or other related drug price 
benchmarks and factors. Remuneration would be subject to audit, 
including by the Department of Health and Human Services (HHS) 
Office of the Inspector General (OIG), to ensure compliance 
with these requirements.
    Part D plan sponsors could continue to collect rebates, 
discounts, or price concessions that lower net costs for 
covered part D drugs. Nothing in this provision would be 
construed as prohibiting a PBM from reimbursing entities that 
acquire prescription drugs for the ingredient cost of the 
products.\35\
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    \35\In general, the ingredient cost is the amount paid by the 
pharmacy or wholesaler for the drug. It does not include pharmacy 
dispensing fees.
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            II. Transparency Regarding Guarantees and Cost Performance 
                    Evaluations
    This provision would institute transparency standards for 
written agreements between Part D plan sponsors and PBMs. 
Specifically, the provision would require PBMs to define and 
apply drug and drug pricing terms in written agreements with 
plan sponsors in a transparent and consistent manner for the 
purposes of calculating or evaluating PBM performance against 
pricing guarantees or similar cost performance measurements. 
PBMs would also have to identify any exceptions to such 
guarantees and provide a calculation of such guarantees using 
either the WAC or an equivalent, in addition to any other 
benchmarks used.
            III. PBM Data Reporting Requirements
    This provision would set out new requirements for PBMs to 
annually report drug price and other information to Part D 
plans and to HHS. PBMs would be required to include several 
categories of information in their reports, including the 
following:
           Lists of all drugs covered;
           Information about dispensing of such drugs;
           Information about enrollee cost sharing and 
        access to generics and biosimilars, including the 
        relative formulary tier placement of such generics and 
        biosimilars, if a plan covers the brand-name drugs or 
        biologic reference products;
           Information on financial relationships 
        between the PBM and other entities in the drug pricing 
        supply chain;
           Information related to net and gross prices 
        and total drug spending; and
           Information about the PBM's affiliates.
    PBMs that are affiliated with a pharmacy must also report 
the following categories of information:
           Information related to dispensing and drug 
        costs by affiliate pharmacies;
           Information related to drug acquisition 
        costs; and
           Information related to drugs subject to 340B 
        arrangements.
    This provision would also require PBMs or their affiliates 
to provide Part D plans with a written explanation of contracts 
or arrangements with a drug manufacturer (or affiliate) that 
makes rebates, discounts, payments, or other financial 
incentives related the drug manufacturer's drug(s) contingent 
upon coverage, formulary placement, or utilization management 
conditions on other prescription drugs. The PBM would be 
required to provide this information shortly after the contract 
or arrangement with the drug manufacturer is finalized. The 
written agreement must be certified and would include 
information about the manufacturers and drugs subject to such 
arrangement.
            IV. Confidentiality
    This provision would bar the HHS Secretary from publicly 
disclosing information obtained from a Part D sponsor or PBM 
under the required agreements and reports that is not otherwise 
publicly available, except in limited circumstances, including:
           By the HHS Secretary to carry out this part;
           To the GAO, the Congressional Budget Office 
        (CBO), the HHS OIG, and the Medicare Payment Advisory 
        Commission (MedPAC); and
           To permit oversight and enforcement by 
        government agencies.
    These agencies would not be permitted to report on or 
disclose the information in a way that would identify a 
specific supply chain stakeholder or prices for specific drugs.
            V. Audit Rights
    This provision would permit audits, by an auditor of the 
Part D plan sponsor's choice, of a PBM, no less than once a 
year, if requested by a Part D sponsor, including to ensure the 
accuracy of drug price information reported under these 
provisions. The PBM would be required to provide information to 
the auditor necessary to perform the audit and confirm the 
accuracy of PBM reporting, including information owned or held 
by a PBM's affiliate, in a timely manner. The HHS Secretary 
would be allowed to include reasonable restrictions on how the 
information is reported to prevent redisclosure.
            VI. Enforcement
    This provision would require a PBM to:
           Disgorge remuneration received by the PBM, 
        or an affiliate of such PBM, in violation of the bona 
        fide service fee requirements;
           Reimburse the Part D sponsor for any civil 
        money penalty imposed on the sponsor due to the failure 
        of the PBM to meet the requirements of these 
        provisions; and
           Be subject to punitive remedies for breach 
        of contract for failing to comply with the requirements 
        of these provisions.
    This provision would also require each Part D sponsor to 
provide the HHS Secretary an annual certification of compliance 
with the provisions outlined above, as well as such additional 
information as the Secretary determines necessary to carry out 
this subsection.
            VII. Funding
    This provision would provide $20 million to CMS for FY 2026 
and $5 million to the HHS OIG to carry out the provision. The 
funds would remain available until expended.
            VIII. GAO Report on Certain Pricing Requirements
    This provision would require GAO to conduct a study of 
federal and state reporting requirements for health plans and 
PBMs regarding the transparency of prescription drug costs and 
prices. Study results would be required to include 
recommendations for legislation and administrative actions to 
streamline and reduce burden with respect to the reporting 
requirements for health plans and PBMs.
            IX. MedPAC Reports on PBM Reported Information
    This provision would require MedPAC to issue two reports 
and related recommendations to Congress on the information 
being reported by PBMs under this section, including: (1) an 
initial analysis of information reported by PBMs during the 
early years of implementation; and (2) a second analysis 
several years later analyzing changes in trends revealed in the 
information reported over time.

SECTION 3. ENSURING FAIR ASSESSMENT OF PHARMACY PERFORMANCE AND QUALITY 
                         UNDER MEDICARE PART D

Current Law

    Part D plan sponsors and PBMs create contracted networks of 
retail pharmacies that dispense covered drugs at negotiated 
reimbursement rates. Part D regulations\36\ require plan 
sponsors to have standard pharmacy contracts with reasonable 
and relevant terms and conditions of participation, and to 
allow any willing pharmacy to participate in their basic 
pharmacy network. Actual contract terms vary across Part D 
plans, however, meaning that retail pharmacies, which often 
contract with multiple Part D plans, may have to navigate 
differing plan contracts, payment rates, and other terms.
---------------------------------------------------------------------------
    \36\42 CFR Sec. 423.505.
---------------------------------------------------------------------------
    Many plans and PBMs use quality measures to evaluate 
pharmacy performance in various areas, such as medication 
adherence and generic dispensing. In recent years, however, 
pharmacies have reported that the quality measures imposed by 
plans and PBMs are unpredictable, assessing items outside the 
scope of the pharmacy practice, and/or measuring outcomes over 
which pharmacies have limited control.\37\
---------------------------------------------------------------------------
    \37\Frier Levitt and the National Association of Specialty 
Pharmacy. ```Performance' Based DIR Fees: A Rigged System with 
Disparate Effect on Specialty Pharmacies, Medicare Part D Beneficiaries 
and the U.S. Healthcare System.'' March 20, 2017. https://
communityoncology.org/re
search-publications/studies/performance-based-dir-fees-a-rigged-system-
with-disparate-effect-on-specialty-pharmacies-medicare-part-d-
beneficiaries-and-the-us-healthcare-system/.
---------------------------------------------------------------------------

Provision

    This provision would require the HHS Secretary to institute 
standard Part D measures for assessing network pharmacy 
performance, beginning in 2025. Under the provision, a Part D 
sponsor that wanted to institute fees, price concessions, or 
incentive payments based on network pharmacy performance would 
only be able to do so if the plan sponsor/PBM used performance 
measures that were: (1) established or adopted by the HHS 
Secretary; and (2) relevant to the pharmacy, as determined by 
pharmacy type.
    The HHS Secretary would be required to establish or adopt 
standardized pharmacy performance measures that were: (1) 
evidence-based and reasonable; and (2) focused on pharmacy 
performance related to patient health outcomes and other areas 
that pharmacies can reasonably impact, as determined by the 
Secretary. The Secretary's determination may be based on data 
and information from relevant stakeholders.
    Rather than establishing some or all of the required 
performance measures, the Secretary may adopt measures endorsed 
by a multi-stakeholder consensus organization (such as the 
Pharmacy Quality Alliance), that has participation from 
pharmacies, health plans, PBMs, and CMS. The performance 
measure list would be subject to periodic evaluation and 
revision by the Secretary.
    This provision would provide $4 million to CMS in FY 2025 
to carry out the provision. The funds would remain available 
until expended.

 SECTION 4. PROMOTING TRANSPARENCY FOR PHARMACIES UNDER MEDICARE PART D

Current Law

    Just as drug pricing and formulary coverage vary among Part 
D plans, Part D plan reimbursements to pharmacies also differ 
according to formulary requirements, plan specifications, and a 
plan's negotiated price for a covered drug. Pharmacies dispense 
billions of Part D drugs each year, and payments from Part D 
plan sponsors are processed in real time at the point of sale 
through electronic systems that aggregate plan-specific data, 
including the drug ingredient cost, dispensing fees, cost-
sharing requirements, and other third-party sources of payment.
    In recent years, CMS has noted a sharp rise in pharmacy 
fees and other price concessions that plan sponsors and PBMs 
extracted from retail pharmacies after the point of sale and 
reported as DIR. Part D pharmacy DIR includes administrative 
fees, network access fees, and fees for not meeting plan 
quality metrics. Part D plan sponsors may provide incentive 
payments to pharmacies for meeting specified goals, but CMS 
data indicate that extracted fees, or penalties, far outpace 
additional compensation to pharmacies. According to CMS, 
pharmacy fees are the fastest-growing category of DIR, 
accounting for nearly 5 percent of gross Part D drug costs 
($9.5 billion) in 2020, compared to 0.01 percent ($8.9 million) 
in 2010. The increase in fees, as well as their post-point of 
sale nature, have made it difficult for pharmacies to 
accurately predict their total reimbursement for dispensing a 
covered drug.\38\ Differences in reporting of negotiated prices 
among Part D plans can also affect beneficiary cost sharing, 
CMS payments to plans, and, according to CMS, can even diminish 
competition between Part D plans.
---------------------------------------------------------------------------
    \38\CMS, ``Medicare Program: Contract Year 2023 Policy and 
Technical Changes to the Medicare Advantage and Medicare Prescription 
Drug Benefit Programs,'' 87 Federal Register, May 2022, p. 1413, 
https://www.federalregister.gov/d/2022-09375/p-1413.
---------------------------------------------------------------------------
    In May 2022, CMS issued a final rule, effective in 2024, to 
help address the uncertainties in pharmacy reimbursement caused 
by PBM fees. The rule changes the definition of ``negotiated 
price'' to include the lowest possible reimbursement that a 
network pharmacy will receive in total for dispensing a 
drug.\39\ Part D plan sponsors are required to take the rule 
change into account when submitting 2024 contract bids.
---------------------------------------------------------------------------
    \39\CMS, ``Medicare Program: Contract Year 2023 Policy and 
Technical Changes to the Medicare Advantage and Medicare Prescription 
Drug Benefit Programs,'' 87 Federal Register, May 2022.
---------------------------------------------------------------------------

Provision

    This provision would establish a process by which Part D 
plan sponsors provide their network pharmacies with 
comprehensive information about the pricing of prescription 
drug claims. The new system would be required to take effect in 
2025.
    This provision would provide $2 million for FY 2025 to CMS 
to carry out the provision. The funds would remain available 
until expended.

  SECTION 5. PREVENTING THE USE OF ABUSIVE SPREAD PRICING IN MEDICAID

Current Law

    State Medicaid programs reimburse statutorily defined 
retail community pharmacies for covered outpatient drugs (CODs) 
dispensed to Medicaid beneficiaries. The payment to retail 
community pharmacies has two components: (1) an amount to cover 
the cost of acquiring the drug (ingredient cost); and (2) an 
amount for the pharmacist's professional services in filling a 
prescription (dispensing fee).
    The Patient Protection and Affordable Care Act (ACA, Pub. 
L. 111-148) required drug manufacturers that participate in the 
Medicaid Drug Rebate Program to provide rebates on CODs that 
are dispensed to beneficiaries covered under a managed care 
organization (MCO) that contracts with the state Medicaid 
program. Most MCOs and other entities that provide Medicaid 
prescription drug benefits contract with PBMs to manage and 
administer their drug benefits. Generally, MCOs pay PBMs for 
drugs supplied to Medicaid beneficiaries based on a published 
price, such as a percentage of the average wholesale price 
(AWP), while PBMs separately determine pharmacy reimbursement. 
Although the difference (spread) between the MCO payments to 
PBMs and the PBM payments to pharmacies may be small for each 
individual drug, it can be substantial when aggregated across 
all drugs dispensed by an MCO.
    Contracts between Medicaid MCOs and PBMs are sometimes 
based on the margin (spread) between the amount charged to the 
MCO for a COD and the amount paid by a PBM to the pharmacy 
provider.\40\ Effective April 2017, the Centers for Medicare 
and Medicaid Services required prescription drug benefits under 
fee-for-service (FFS) Medicaid programs to use a drug pass-
through pricing model, but this requirement does not apply to 
Medicaid MCOs. Under pass-through pricing PBMs charge their MCO 
clients the actual amount it reimburses the pharmacy for CODs, 
then passes back all the rebates from manufacturers, and only 
collects explicit administrative fees as income. Although CMS 
has issued spread pricing guidance,\41\ federal statute does 
not prohibit the use of spread pricing in contracts between 
Medicaid MCOs and PBM or other entities.\42\
---------------------------------------------------------------------------
    \40\Centers for Medicare and Medicaid Services (CMS), Medicaid 
Program; Misclassification of Drugs, Program Administration and Program 
Integrity Updates Under the Medicaid Drug Rebate Program, 88 Federal 
Register 34249, May 26, 2023.
    \41\CMS, Center for Medicaid and CHIP Services Informational 
Bulletin, Medical Loss Ratio (MLR) Requirements Related to Third-Party 
Vendors, May 19, 2019.
    \42\CMS, Medicaid Program; Misclassification of Drugs, Program 
Administration and Program Integrity Updates Under the Medicaid Drug 
Rebate Program, 88 Federal Register 34250, May 26, 2023.
---------------------------------------------------------------------------

Provision

    The provision requires a pass-through pricing model for 
CODs reimbursed under Medicaid, including when services are 
provided under contract with MCOs. This section would require 
payment for PBM services to be limited to the ingredient cost 
and a professional dispensing fee equivalent to no less than 
the professional dispensing fee paid under FFS through a state 
plan or waiver and passed through in its entirety to the 
dispensing pharmacy. The provision would allow an exception to 
the pass-through payment requirement for drugs purchased by 
340B covered entities.
    Payments to PBMs for administrative services would be 
limited to the fair market value of those services. PBMs and 
other entities would be required to make available to state 
Medicaid programs, and the Secretary upon request, all 
specified costs and payments related to CODs and accompanying 
administrative services.
    This provision would also prohibit any form of spread 
pricing that exceeds the amount paid to pharmacies or providers 
on behalf of the state for purpose of claiming federal Medicaid 
matching payments. State Medicaid programs would be prohibited 
from making payments to certain specified health plans unless 
the contract between the state and the entity met the Medicaid 
Drug Rebate Program and other prescription drug requirements.
    This provision would apply to state Medicaid program 
contracts between MCOs, other specified entities, and PBMs with 
an effective date that begins 18 months after this law's 
enactment date.

   SECTION 6. ENSURING ACCURATE PAYMENTS TO PHARMACIES UNDER MEDICAID

Current Law

    State Medicaid programs reimburse statutorily defined 
retail community pharmacies for CODs dispensed to Medicaid 
beneficiaries based on two components: (1) the cost of the 
medicine, the ingredient cost; and (2) a payment for the cost 
to the pharmacy of administering and filling a prescription 
(i.e., the professional dispensing fee). State Medicaid 
programs, subject to CMS approval, determine pharmacy 
ingredient payment rates, as well as professional dispensing 
fees.
    For multiple source drugs with generic equivalent products, 
state Medicaid programs are subject to annual aggregate upper 
limits on payments. Prices available for multiple source drugs 
can vary widely, so upper payment limits ensure states pay 
competitive prices. State Medicaid programs are required to 
have a CMS-approved methodology to determine multiple source 
drug payments, including addressing the ingredient costs and 
pharmacy dispensing fees. Medicaid regulations require states 
to base the ingredient cost component for multiple source drugs 
on each product's actual acquisition cost (AAC). State Medicaid 
programs have discretion in determining AAC, such as using a 
state administered pharmacy survey to determine a drug's 
average cost or using the results of a national drug 
acquisition cost survey of retail community pharmacies 
authorized in Medicaid statute.
    The Deficit Reduction Act of 2005 (DRA, Pub. L. 109-171) 
amended SSA Section 1927 by adding a new subsection (f) that 
required the Department of Health and Human Services Secretary 
(the Secretary) to retain a contractor to survey retail 
community pharmacies. To implement the survey, CMS contracted 
for the National Average Drug Acquisition Cost (NADAC) survey. 
NADAC is a monthly survey of acquisition costs paid for most 
CODs, including multiple source and single source (brand name) 
drugs and biological products. CMS, through a contractor, 
surveys a national random sample of retail community pharmacies 
monthly and has been publishing NADAC data since November 2013. 
Pharmacy participation in NADAC is voluntary, but to provide a 
national estimate of average acquisition costs, it is important 
that the sample is representative of all geographic areas and 
different pharmacy types such as independent and chain 
pharmacies.

Provision

    This provision would require the Secretary to survey retail 
community pharmacies drug prices in the 50 states and the 
District of Columbia to determine national average drug 
acquisition costs. Retail community pharmacies that receive 
payment related to the dispensing of CODs to individuals 
receiving benefits under Medicaid would be required to respond 
to the survey. The Secretary would be authorized to use a 
vendor to conduct the NADAC survey of Medicaid CODs. 
Information on national drug acquisition prices obtained 
through the NADAC survey would be publicly available, as would 
other specified information on the NADAC survey. The NADAC 
survey also would identify information on price concessions to 
the pharmacy.
    The HHS Secretary may enforce noncompliance with the NADAC 
survey through monetary penalties or by fully or partially 
suspending Medicaid payments until the pharmacy complies. State 
Medicaid programs would be required to report additional 
information including the basis for setting drug dispensing 
fees as well as payment rates under Medicaid managed care 
plans.
    This provision would be effective 18 months after this 
law's enactment date. The Secretary would receive a $5 million 
appropriation in FY 2024 and each fiscal year thereafter to 
conduct the NADAC survey.

SECTION 7. HHS OIG STUDY AND REPORT ON DRUG PRICE MARK-UPS IN MEDICARE 
                                 PART D

Current Law

    The past several decades have seen rapid consolidation in 
the health care sector, including among PBMs. The early 2000s 
saw horizontal integration as freestanding PBMs merged. More 
recently, there has been vertical integration, with major PBMs 
now owned by, or affiliated with, retail pharmacy chains, 
insurers, and health care providers such as hospitals. As a 
result of the consolidation, the three largest PBMs were 
expected to account for nearly 80 percent of prescription 
claims processed in 2022.\43\ In addition, some PBMs have 
entered into strategic agreements with insurers and retail 
pharmacies to provide certain services to insurers and retail 
pharmacies.
---------------------------------------------------------------------------
    \43\Adam J. Fein, ``The Top Pharmacy Benefit Managers of 2022: 
Market Share and Trends for the Biggest Companies,'' Drug Channels, May 
23, 2023, https://www.drugchannels.net/2023/05/the-top-pharmacy-
benefit-managers-of.html.
---------------------------------------------------------------------------
    It can be difficult to determine the pricing structure and 
flow of funds within these vertically integrated entities. 
MedPAC's June 2023 report, however, included an analysis that 
suggested vertically integrated organizations, such as pharmacy 
benefit managers affiliated with a health plan and at least one 
pharmacy channel, appear to be paying their affiliate 
pharmacies more than other pharmacies. Specifically, in 
comparing Part D payments between plan-sponsor-affiliated 
(vertically integrated) pharmacies and non-affiliated (non-
vertically integrated) pharmacies, MedPAC found that in 71 
percent of cases, plans incurred the highest average net drug 
costs for transactions with their pharmacy affiliates.\44\ 
Other recent studies have found that Part D may be overpaying 
for certain medicines relative to purchases made by entities 
such as Costco or the Mark Cuban Cost Plus Drug Company, 
potentially by billions of dollars.\45\
---------------------------------------------------------------------------
    \44\MedPAC June 2023 Report: https://www.medpac.gov/wp-content/
uploads/2023/06/Jun23_ MedPAC_Report_To_Congress_SEC.pdf.
    \45\Lalani, H. et al. (July 2022). ``Potential Medicare Part D 
Savings on Generic Drugs From the Mark Cuban Cost Plus Drug Company.'' 
Annals of Internal Medicine. Available at: https://
pubmed.ncbi.nlm.nih.gov/35724381/; Trish, E. et al. (July 2021), 
``Comparison of Spending on Common Generic Drugs by Medicare vs Costco 
Members.'' JAMA. Available at: https://jamanetwork.com/journals/
jamainternalmedicine/article-abstract/2781810?guestAccessKey=89d9
de51-fc11-4451-97aa-90b352b7867b.
---------------------------------------------------------------------------

Provision

    This provision would require the HHS OIG to study how 
vertical integration between Part D plans, PBMs, and pharmacies 
affects Part D plan negotiated prices (i.e., the prices Part D 
plans charge the Medicare program for drugs dispensed to Part D 
enrollees). The study would include an analysis of the 
following:
           Affiliate acquisition costs within 
        vertically integrated entities;
           Transfer pricing and margin created between 
        affiliates;
           The impact of such transactions on Part D; 
        and
           Other issues determined to be relevant and 
        appropriate by the Inspector General.
    The Inspector General would submit the study under a 
specified timeframe to the Senate Finance and House Energy and 
Commerce and Ways and Means Committees. The provision would 
provide $5.2 million to the HHS OIG for FY 2024 to carry out 
the provision, to remain available until expended.

                  SECTION 8. MEDICARE IMPROVEMENT FUND

Current Law

    The Medicare Improvements for Patient and Providers Act 
(MIPPA) established the Medicare Improvement Fund (MIF), 
available to the Secretary to make improvements under the 
original fee-for-service program under Parts A and B for 
Medicare beneficiaries. Under current law, $180 million is 
available for services furnished during and after FY 2022.

Provision

    This provision would direct $1.726 billion in savings to 
the MIF.

             SECTION 9. P&T COMMITTEE CONFLICTS OF INTEREST

Current Law

    Under the Part D statute, pharmacy and therapeutic (P&T) 
committees must develop and review formularies of covered drugs 
for prescription drug plans. The statute stipulates that at 
least one practicing pharmacist and at least one practicing 
physician on every such P&T committee must be free of conflicts 
of interest with respect to the PDP sponsor, but neither 
statute nor regulations and guidance extend these limitations 
to PBMs explicitly, and a number of oversight reports have 
indicated inconsistent or unclear enforcement and compliance 
with respect to conflict of interest provisions under Part D.

Provision

    This provision would amend Section 1860D-4 of the Social 
Security Act (SSA) to require that at least one practicing 
physician and one practicing pharmacist is independent and free 
of conflict with respect to any pharmacy benefit manager.

          SECTION 10. ENHANCING PBM TRANSPARENCY REQUIREMENTS

Current Law

    The Social Security Act (SSA) includes a set of reporting 
requirements for pharmacy benefit managers, including with 
respect to generic dispensing rates (including by pharmacy 
dispensing channel), rebates and price concessions received 
from drug manufacturers (and the amount of such concessions 
passed along), and prescription volume, among other data 
elements. These reporting requirements currently exclude 
transparency regarding service fees collected and retained by 
PBMs. Additionally, the codification of these requirements 
largely predated the establishment and, in some cases, 
acquisition of certain downstream PBM affiliates that serve as 
rebate negotiators and aggregators for a growing share of the 
PBM market.

Provision

    This provision would amend Section 1150A of the SSA to 
expand the type of entities that must report data to the HHS 
Secretary to include certain PBM affiliates, to add data 
elements that would be required to be reported (to include fees 
received from manufacturers), and to add a requirement for CMS 
to produce an annual report with confidentiality protections.

   SECTION 11. FACILITATING MIDYEAR FORMULARY CHANGES FOR BIOSIMILARS

Current Law

    In the case of small-molecule drugs, a Part D plan may 
generally make a negative formulary change (i.e., placement on 
a higher or otherwise less favorable tier) with respect to the 
reference product for a generic drug if said plan 
simultaneously (or prior to doing so) places the generic drug 
on the formulary, subject to a number of guidelines and 
beneficiary safeguards. With respect to biologics, however, CMS 
has not established regulatory or subregulatory guidelines 
along these lines. A number of reports from HHS OIG, MedPAC, 
and other entities suggest that greater biosimilar uptake and 
adoption under Part D would produce both gross and net savings 
for beneficiaries and the Medicare program.

Provision

    This provision would allow PDP sponsors to change the 
preferred or tiered cost-sharing status of a reference 
biological product if such sponsor adds a biosimilar for such 
reference product to the formulary. The PDP sponsor would need 
to submit a request to the Secretary in order to make such a 
change. This provision would take effect beginning in plan year 
2025.

         SECTION 12. STRENGTHENING PHARMACY ACCESS FOR SENIORS

Current Law

    Current Part D statute, regulations, and guidance bar PDP 
sponsors from inappropriately steering beneficiaries towards 
affiliated pharmacies, including specialty pharmacies. Through 
guidance, for instance, CMS has established criteria for the 
limited circumstances under which a sponsor may subject the 
dispensing a covered part D drug to a subset of network 
pharmacies.

Provision

    This provision would mitigate PBMs from steering patients 
to PBM-owned pharmacies for medicines that do not qualify as 
``limited access drugs'' by codifying a portion of the Part D 
manual. The provision would also increase transparency of PBM 
practices in the prescription drug supply chain related to the 
dispensing of limited access drugs.

 SECTION 13. INITIATING MEANINGFUL PATIENT REVIEW OF VARIOUS EXISTING 
                           PART D REGULATIONS

Current Law

    The Part D statute includes a number of beneficiary 
protections with respect, for instance, to prescription drug 
plan disclosures, utilization management requirements, and 
appeals processes. Beneficiary experience, however, varies on 
these fronts, as well as on navigation of comparison tools and 
other resources provided by CMS or by PDP sponsors.

Provision

    This provision would direct CMS to conduct beneficiary-
focused listening sessions open to the public on potential 
Medicare Part D improvements.

 SECTION 14. REPORTING ON ENFORCEMENT AND OVERSIGHT OF PHARMACY ACCESS 
                              REQUIREMENTS

Current Law

    The Part D statute includes a number of requirements 
related to ensuring pharmacy access for beneficiaries. The 
``any willing pharmacy'' provision, for instance, specifies 
that a PDP sponsor must permit any pharmacy willing to meet its 
terms and conditions into its network, and regulations further 
stipulate that these terms must be reasonable and relevant, 
including with respect to reasonable reimbursement.

Provision

    This provision would require the HHS Secretary to publish 
biennial reports on enforcement actions and oversight 
activities undertaken by the Department with respect to the 
pharmacy access requirements under section 1860D 4(b)(1) of the 
Social Security Act.

 SECTION 15. STUDY ON PRICE LINKED COMPENSATION ACROSS THE SUPPLY CHAIN

Current Law

    As numerous government oversight reports in the past have 
illustrated, a wide range of stakeholders included in the 
outpatient prescription drug supply chain engage in 
compensation arrangements tied to drug prices or other related 
benchmarks.

Provision

    This provision would require GAO to complete a study of 
compensation and payment structures related to drug prices in 
the retail prescription drug supply chain.

        SECTION 16. REPORTS ON INAPPROPRIATE PHARMACY REJECTIONS

Current Law

    PDP sponsors employ a number of cost-containment measures, 
including utilization management tools (i.e., prior 
authorization, step therapy, quantity limits). Under current 
law, CMS must approve the use of these mechanisms. In practice, 
however, oversight agencies, including HHS OIG, have found that 
inappropriate pharmacy rejections and coverage denials 
sometimes prevent beneficiaries from accessing covered part D 
drugs, sometimes as a result of the use of unapproved 
utilization management tools, as well as other factors. 
Moreover, a number of data collection efforts and other 
initiatives intended to identify such practices have lapsed in 
recent years.

Provision

    This provision would require the Secretary to publicly post 
a biennial report related to preventing, identifying, or 
addressing inappropriate pharmacy rejections and inappropriate 
coverage denials under Part D.

                  SECTION 17. STUDY ON DRUG SHORTAGES

    Current Law According to the American Society of Health-
System Pharmacists (ASHP), active drug shortages had risen to 
301 at the end of the first quarter of 2023, up from 271 at the 
close of Q1 2021.\46\\47\ ASHP reports that ``[o]ngoing and 
active shortages are the highest since 2014.''\48\ A March 2023 
majority staff report from the Senate Homeland Security and 
Government Affairs Committee (HSGAC) found that new medication 
shortages increased by close to 30 percent between 2021 and 
2022.\49\ While some shortages conclude fairly quickly, others 
persist for years. With some exceptions, federal health care 
programs generally do not include comprehensive provisions 
explicitly related to drug shortages, although a range of 
agencies and experts have cited economic dynamics and factors 
as playing a role in such shortages.
---------------------------------------------------------------------------
    \46\https://www.ashp.org/drug-shortages/shortage-resources/drug-
shortages-statistics.
    \47\Note: FDA also maintains a list of drug shortages, although the 
agency's criteria differ. https://www.accessdata.fda.gov/scripts/
drugshortages/default.cfm.
    \48\https://www.ashp.org/drug-shortages/shortage-resources/drug-
shortages-statistics.
    \49\https://www.hsgac.senate.gov/wp-content/uploads/Drug-Shortages-
HSGAC-Majority-Staff-Re
port-2023-03-22.pdf.
---------------------------------------------------------------------------

Provision

    This provision would require GAO to complete a study of 
factors across the outpatient prescription drug supply chain 
that influence prescription drug shortages.

    SECTION 18. REPORT ON BIOSIMILAR AND GENERIC ACCESS UNDER PART D

Current Law

    Part D has generally offered high generic dispensing rates, 
while the retail outpatient biosimilar market has only begun to 
emerge in recent years. A number of agencies, including HHS 
OIG, have found that biosimilar uptake and adoption in Part D 
plans has remained relatively low, particularly with respect to 
low-wholesale acquisition cost (WAC) options that would 
translate into lower cost sharing for beneficiaries.

Provision

    This provision would direct HHS OIG to conduct a study and 
generate a report on biosimilar and generic drug access under 
Part D, including with respect to Part D plan features that 
discourage or encourage low-priced biosimilar and generic drug 
adoption and utilization under the program, along with trends 
in such adoption and utilization.

                    III. BUDGET EFFECTS OF THE BILL


                         A. COMMITTEE ESTIMATES

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and section 308(a)(1) of the 
Congressional Budget and Impoundment Control Act of 1974, as 
amended (the ``Budget Act''), the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of the Modernizing and Ensuring PBM Accountability 
Act, as reported. The spending effects of the bill will be 
included in the statement from the Congressional Budget Office 
that will be provided separately, as described in Part C below.

                          B. BUDGET AUTHORITY

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that the extent to which the provisions of the 
bill as reported involve new or increased budget authority or 
affect levels of tax expenditures will be included in the 
statement from the Congressional Budget Office that will be 
provided separately, as described in Part C below.

            C. CONSULTATION WITH CONGRESSIONAL BUDGET OFFICE

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The statement from the 
Congressional Budget Office will be provided separately.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that, with a 
majority present, the Modernizing and Ensuring PBM 
Accountability Act was ordered favorably reported by a roll 
call vote of 26 ayes and 1 nay on July 26, 2023.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. REGULATORY IMPACT

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill.

Impact on individuals and businesses, personal privacy and paperwork

    In carrying out the provisions of the bill, individuals and 
businesses across the drug supply chain including drug 
manufacturers, PBMs, health plans, and pharmacies that provide 
prescription drugs to individuals with Medicare or Medicaid 
coverage will be subject to new reporting requirements. The 
requirements range from PBMs reporting drug cost and dispensing 
information to pharmacies reporting acquisition cost 
information. The new information will be reported to Part D 
plan sponsors and the HHS Secretary. In some cases, the 
Secretary will share certain reported information with other 
entities and the public.
    The provisions of the bill do not impact personal privacy.

                     B. UNFUNDED MANDATES STATEMENT

    The Committee adopts as its own the estimate of federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act of 1995 (Pub. L. 104-4), which will be provided separately.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                  [all]