Title 42, The Public Health and WelfareRelease 119-110
§1395w–112 Requirements for and Contracts with Prescription Drug Plan (pdp) Sponsors
Title 42 › CHAPTER 7 — SOCIAL SECURITY › SUBCHAPTER XVIII — HEALTH INSURANCE FOR AGED AND DISABLED › Part D — Voluntary Prescription Drug Benefit Program › subpart 2 — prescription drug plans; pdp sponsors; financing › § 1395w–112
Summary
PDP sponsors must be licensed in each State where they sell a Medicare drug plan or get a special waiver from the federal official in charge. They must take on the money risk for benefits they sell that are not paid for by the government, though they may buy reinsurance. If a sponsor operates without State licensure under a waiver, it must meet financial strength rules the Secretary set (rules that were to be published by January 1, 2005). A sponsor cannot enroll people or get federal payments unless it has a contract with the Secretary that makes the sponsor follow the program rules. Some rules that apply to Medicare Advantage plans also apply here. Sponsors that bid to run or actually run a “fallback” plan cannot also be given a regular plan in the same region or the next year. Pharmacies’ clean claims must be paid quickly: within 14 days for electronic claims and 30 days for other claims. If a clean claim is paid late, the sponsor must pay interest equal to the weighted average interest on 3‑month Treasury securities for the period plus 0.1 percentage point, unless there is a major emergency. Pharmacies in long‑term care settings get 30 to 90 days to submit claims. Sponsors must update any drug cost‑based pharmacy payment standard at least once every 7 days, starting with an initial update on January 1 each year. Sponsors may suspend payments when there are credible fraud allegations, and must notify the Secretary. Starting in plan years that begin on or after January 1, 2028, contracts must require pharmacy benefit managers (PBMs) who work for a sponsor to have written agreements with that sponsor. For plan years beginning on or after January 1, 2029, PBMs must agree to reimburse a sponsor for certain amounts the sponsor pays to the government if the PBM caused the violation. PBMs may only get payment that is a bona fide service fee, with limited exceptions for certain flat incentive payments and for rebates or discounts that are fully passed through to the sponsor and follow program rules. The Secretary can review compensation arrangements and can require PBMs to give back money that breaks the rules. PBMs must be transparent and send the sponsor and the Secretary an annual report by July 1 each year (first reports beginning in 2028) with detailed drug‑level data, rebate and cost information, affiliate info, and a summary in a standard template. PBMs must explain certain manufacturer contracts within 30 days, allow at least one annual audit by a sponsor‑chosen auditor, and provide records on request within set timeframes. Sponsors must pass any money they receive back from PBMs to the Secretary when required, include reimbursement and penalties for PBM breaches in their PBM contracts, and give an annual certification of compliance to the Secretary. The Secretary must set standard machine‑readable report formats by June 1, 2027, and must protect nonpublic information so it is not publicly linked to specific companies or contract prices. Definitions: affiliate (related company), bona fide service fee (flat fee tied to real services), and PBM (an entity that negotiates drug prices or manages drug benefits).
Full Legal Text
Title 42, §1395w–112
The Public Health and Welfare, Source: USLM XML via OLRC
(a)General requirements
Each PDP sponsor of a prescription drug plan shall meet the following requirements:
(1)Licensure
Subject to subsection (c), the sponsor is organized and licensed under State law as a risk-bearing entity eligible to offer health insurance or health benefits coverage in each State in which it offers a prescription drug plan.
(2)Assumption of financial risk for unsubsidized coverage
(A)In general
Subject to subparagraph (B), to the extent that the entity is at risk the entity assumes financial risk on a prospective basis for benefits that it offers under a prescription drug plan and that is not covered under section 1395w–115(b) of this title.
(B)Reinsurance permitted
The plan sponsor may obtain insurance or make other arrangements for the cost of coverage provided to any enrollee to the extent that the sponsor is at risk for providing such coverage.
(3)Solvency for unlicensed sponsors
In the case of a PDP sponsor that is not described in paragraph (1) and for which a waiver has been approved under subsection (c), such sponsor shall meet solvency standards established by the Secretary under subsection (d).
(b)Contract requirements
(1)In general
The Secretary shall not permit the enrollment under section 1395w–101 of this title in a prescription drug plan offered by a PDP sponsor under this part, and the sponsor shall not be eligible for payments under section 1395w–114 or 1395w–115 of this title, unless the Secretary has entered into a contract under this subsection with the sponsor with respect to the offering of such plan. Such a contract with a sponsor may cover more than one prescription drug plan. Such contract shall provide that the sponsor agrees to comply with the applicable requirements and standards of this part and the terms and conditions of payment as provided for in this part.
(2)Limitation on entities offering fallback prescription drug plans
The Secretary shall not enter into a contract with a PDP sponsor for the offering of a prescription drug plan (other than a fallback prescription drug plan) in a PDP region for a year if the sponsor— (A)
(B)offers a fallback prescription drug plan in any PDP region during the year; or
(C)offered a fallback prescription drug plan in that PDP region during the previous year.
For purposes of this paragraph, an entity shall be treated as submitting a bid with respect to a prescription drug plan or offering a fallback prescription drug plan if the entity is acting as a subcontractor of a PDP sponsor that is offering such a plan. The previous sentence shall not apply to entities that are subcontractors of an MA organization except insofar as such organization is acting as a PDP sponsor with respect to a prescription drug plan.
(3)Incorporation of certain medicare advantage contract requirements
Except as otherwise provided, the following provisions of section 1395w–27 of this title shall apply to contracts under this section in the same manner as they apply to contracts under section 1395w–27(a) of this title:
(A)Minimum enrollment
Paragraphs (1) and (3) of section 1395w–27(b) of this title, except that—
(i)the Secretary may increase the minimum number of enrollees required under such paragraph (1) as the Secretary determines appropriate; and
(ii)the requirement of such paragraph (1) shall be waived during the first contract year with respect to an organization in a region.
(B)Contract period and effectiveness
section 1395w–27(c) of this title, except that in applying paragraph (4)(B) of such section any reference to payment amounts under section 1395w–23 of this title shall be deemed payment amounts under section 1395w–115 of this title.
(C)Protections against fraud and beneficiary protections
section 1395w–27(d) of this title.
(D)Additional contract terms
section 1395w–27(e) of this title; except that section 1395w–27(e)(2) of this title shall apply as specified to PDP sponsors and payments under this part to an MA–PD plan shall be treated as expenditures made under part D. Notwithstanding any other provision of law, information provided to the Secretary under the application of section 1395w–27(e)(1) of this title to contracts under this section under the preceding sentence—
(i)may be used for the purposes of carrying out this part, improving public health through research on the utilization, safety, effectiveness, quality, and efficiency of health care services (as the Secretary determines appropriate), or carrying out part E of subchapter XI; and
(ii)shall be made available to Congressional support agencies (in accordance with their obligations to support Congress as set out in their authorizing statutes) for the purposes of conducting Congressional oversight, monitoring, making recommendations, and analysis of the program under this subchapter.
(E)Intermediate sanctions
section 1395w–27(g) of this title (other than paragraph (1)(F) of such section), except that in applying such section the reference in section 1395w–27(g)(1)(B) of this title to section 1395w–24 of this title is deemed a reference to this part.
(F)Procedures for termination
section 1395w–27(h) of this title.
(4)Prompt payment of clean claims
(A)Prompt payment
(i)In general
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 payment shall be issued, mailed, or otherwise transmitted with respect to all clean claims submitted by pharmacies (other than pharmacies that dispense drugs by mail order only or are located in, or contract with, a long-term care facility) under this part within the applicable number of calendar days after the date on which the claim is received.
(ii)Clean claim defined
In this paragraph, the term “clean claim” means a claim that has no defect or impropriety (including any lack of any required substantiating documentation) or particular circumstance requiring special treatment that prevents timely payment from being made on the claim under this part.
(iii)Date of receipt of claim
In this paragraph, a claim is considered to have been received—
(I)with respect to claims submitted electronically, on the date on which the claim is transferred; and
(II)with respect to claims submitted otherwise, on the 5th day after the postmark date of the claim or the date specified in the time stamp of the transmission.
(B)Applicable number of calendar days defined
In this paragraph, the term “applicable number of calendar days” means—
(i)with respect to claims submitted electronically, 14 days; and
(ii)with respect to claims submitted otherwise, 30 days.
(C)Interest payment
(i)In general
Subject to clause (ii), if payment is not issued, mailed, or otherwise transmitted within the applicable number of calendar days (as defined in subparagraph (B)) after a clean claim is received, the PDP sponsor shall pay interest to the pharmacy that submitted the claim at a rate equal to the weighted average of interest on 3-month marketable Treasury securities determined for such period, increased by 0.1 percentage point for the period beginning on the day after the required payment date and ending on the date on which payment is made (as determined under subparagraph (D)(iv)). Interest amounts paid under this subparagraph shall not be counted against the administrative costs of a prescription drug plan or treated as allowable risk corridor costs under section 1395w–115(e) of this title.
(ii)Authority not to charge interest
The Secretary may provide that a PDP sponsor is not charged interest under clause (i) in the case where there are exigent circumstances, including natural disasters and other unique and unexpected events, that prevent the timely processing of claims.
(D)Procedures involving claims
(i)Claim deemed to be clean
A claim is deemed to be a clean claim if the PDP sponsor involved does not provide notice to the claimant of any deficiency in the claim—
(I)with respect to claims submitted electronically, within 10 days after the date on which the claim is received; and
(II)with respect to claims submitted otherwise, within 15 days after the date on which the claim is received.
(ii)Claim determined to not be a clean claim
(I)In general
If a PDP sponsor determines that a submitted claim is not a clean claim, the PDP sponsor shall, not later than the end of the period described in clause (i), notify the claimant of such determination. Such notification shall specify all defects or improprieties in the claim and shall list all additional information or documents necessary for the proper processing and payment of the claim.
(II)Determination after submission of additional information
A claim is deemed to be a clean claim under this paragraph if the PDP sponsor involved does not provide notice to the claimant of any defect or impropriety in the claim within 10 days of the date on which additional information is received under subclause (I).
(iii)Obligation to pay
A claim submitted to a PDP sponsor that is not paid or contested by the sponsor within the applicable number of days (as defined in subparagraph (B)) after the date on which the claim is received shall be deemed to be a clean claim and shall be paid by the PDP sponsor in accordance with subparagraph (A).
(iv)Date of payment of claim
Payment of a clean claim under such subparagraph is considered to have been made on the date on which—
(I)with respect to claims paid electronically, the payment is transferred; and
(II)with respect to claims paid otherwise, the payment is submitted to the United States Postal Service or common carrier for delivery.
(E)Electronic transfer of funds
A PDP sponsor shall pay all clean claims submitted electronically by electronic transfer of funds if the pharmacy so requests or has so requested previously. In the case where such payment is made electronically, remittance may be made by the PDP sponsor electronically as well.
(F)Protecting the rights of claimants
(i)In general
Nothing in this paragraph shall be construed to prohibit or limit a claim or action not covered by the subject matter of this section that any individual or organization has against a provider or a PDP sponsor.
(ii)Anti-retaliation
Consistent with applicable Federal or State law, a PDP sponsor shall not retaliate against an individual or provider for exercising a right of action under this subparagraph.
(G)Rule of construction
A determination under this paragraph that a claim submitted by a pharmacy is a clean claim shall not be construed as a positive determination regarding eligibility for payment under this subchapter, nor is it an indication of government approval of, or acquiescence regarding, the claim submitted. The determination shall not relieve any party of civil or criminal liability with respect to the claim, nor does it offer a defense to any administrative, civil, or criminal action with respect to the claim.
(5)Submission of claims by pharmacies located in or contracting with long-term care facilities
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 a pharmacy located in, or having a contract with, a long-term care facility shall have not less than 30 days (but not more than 90 days) to submit claims to the sponsor for reimbursement under the plan.
(6)Regular update of prescription drug pricing standard
If the PDP sponsor of a prescription drug plan uses a standard for reimbursement of pharmacies based on the cost of a drug, each contract entered into with such sponsor under this part with respect to the plan shall provide that the sponsor shall update such standard not less frequently than once every 7 days, beginning with an initial update on January 1 of each year, to accurately reflect the market price of acquiring the drug.
(7)Suspension of payments pending investigation of credible allegations of fraud by pharmacies
(A)In general
section 1395y(o)(1) of this title shall apply with respect to a PDP sponsor with a contract under this part, a pharmacy, and payments to such pharmacy under this part in the same manner as such section applies with respect to the Secretary, a provider of services or supplier, and payments to such provider of services or supplier under this subchapter. A PDP sponsor shall notify the Secretary regarding the imposition of any payment suspension pursuant to the previous sentence, such as through the secure internet website portal (or other successor technology) established under section 1395w–28(i) of this title.
(B)Rule of construction
Nothing in this paragraph shall be construed as limiting the authority of a PDP sponsor to conduct postpayment review.
(8)Provision of information related to maximum fair prices
Each contract entered into with a PDP sponsor under this part with respect to a prescription drug plan offered by such sponsor shall require the sponsor to provide information to the Secretary as requested by the Secretary for purposes of carrying out section 1320f–3 of this title.
(9)Accountability of pharmacy benefit managers for violations of reasonable and relevant contract terms and conditions
For plan years beginning on or after January 1, 2029, 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 any pharmacy benefit manager acting on behalf of such sponsor has a written agreement with the PDP sponsor under which the pharmacy benefit manager agrees to reimburse the PDP sponsor for any amounts paid by such sponsor under section 1395w–104(b)(1)(F)(iii)(I) of this title to the Secretary as a result of a violation described in such section if such violation is related to a responsibility delegated to the pharmacy benefit manager by such PDP sponsor.
(c)Waiver of certain requirements to expand choice
(1)Authorizing waiver
(A)In general
In the case of an entity that seeks to offer a prescription drug plan in a State, the Secretary shall waive the requirement of subsection (a)(1) that the entity be licensed in that State if the Secretary determines, based on the application and other evidence presented to the Secretary, that any of the grounds for approval of the application described in paragraph (2) have been met.
(B)Application of regional plan waiver rule
In addition to the waiver available under subparagraph (A), the provisions of section 1395w–27a(d) of this title shall apply to PDP sponsors under this part in a manner similar to the manner in which such provisions apply to MA organizations under part C, except that no application shall be required under paragraph (1)(B) of such section in the case of a State that does not provide a licensing process for such a sponsor.
(2)Grounds for approval
(A)In general
The grounds for approval under this paragraph are—
(i)subject to subparagraph (B), the grounds for approval described in subparagraphs (B), (C), and (D) of section 1395w–25(a)(2) of this title; and
(ii)the application by a State of any grounds other than those required under Federal law.
(B)Special rules
In applying subparagraph (A)(i)—
(i)the ground of approval described in section 1395w–25(a)(2)(B) of this title is deemed to have been met if the State does not have a licensing process in effect with respect to the PDP sponsor; and
(ii)for plan years beginning before January 1, 2008, if the State does have such a licensing process in effect, such ground for approval described in such section is deemed to have been met upon submission of an application described in such section.
(3)Application of waiver procedures
With respect to an application for a waiver (or a waiver granted) under paragraph (1)(A) of this subsection, the provisions of subparagraphs (E), (F), and (G) of section 1395w–25(a)(2) of this title shall apply, except that clauses (i) and (ii) of such subparagraph (E) shall not apply in the case of a State that does not have a licensing process described in paragraph (2)(B)(i) in effect.
(4)References to certain provisions
In applying provisions of section 1395w–25(a)(2) of this title under paragraphs (2) and (3) of this subsection to prescription drug plans and PDP sponsors—
(A)any reference to a waiver application under section 1395w–25 of this title shall be treated as a reference to a waiver application under paragraph (1)(A) of this subsection; and
(B)any reference to solvency standards shall be treated as a reference to solvency standards established under subsection (d) of this section.
(d)Solvency standards for non-licensed entities
(1)Establishment and publication
The Secretary, in consultation with the National Association of Insurance Commissioners, shall establish and publish, by not later than January 1, 2005, financial solvency and capital adequacy standards for entities described in paragraph (2).
(2)Compliance with standards
A PDP sponsor that is not licensed by a State under subsection (a)(1) and for which a waiver application has been approved under subsection (c) shall meet solvency and capital adequacy standards established under paragraph (1). The Secretary shall establish certification procedures for such sponsors with respect to such solvency standards in the manner described in section 1395w–25(c)(2) of this title.
(e)Licensure does not substitute for or constitute certification
The fact that a PDP sponsor is licensed in accordance with subsection (a)(1) or has a waiver application approved under subsection (c) does not deem the sponsor to meet other requirements imposed under this part for a sponsor.
(f)Periodic review and revision of standards
(1)In general
Subject to paragraph (2), the Secretary may periodically review the standards established under this section and, based on such review, may revise such standards if the Secretary determines such revision to be appropriate.
(2)Prohibition of midyear implementation of significant new regulatory requirements
The Secretary may not implement, other than at the beginning of a calendar year, regulations under this section that impose new, significant regulatory requirements on a PDP sponsor or a prescription drug plan.
(g)Prohibition of State imposition of premium taxes; relation to State laws
The provisions of section 1395w–24(g) and 1395w–26(b)(3) of this title shall apply with respect to PDP sponsors and prescription drug plans under this part in the same manner as such sections apply to MA organizations and MA plans under part C.
(h)Requirements relating to pharmacy benefit managers
For plan years beginning on or after January 1, 2028:
(1)Agreements with pharmacy benefit managers
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 any pharmacy benefit manager acting on behalf of such sponsor has a written agreement with the PDP sponsor under which the pharmacy benefit manager, and any affiliates of such pharmacy benefit manager, as applicable, agree to meet the following requirements:
(A)No income other than bona fide service fees
(i)In general
The pharmacy benefit manager and any affiliate of such pharmacy benefit manager shall not derive any remuneration with respect to any services provided on behalf of any entity or individual, in connection with the utilization of covered part D drugs, from any such entity or individual other than bona fide service fees, subject to clauses (ii) and (iii).
(ii)Incentive payments
For the purposes of this subsection, an incentive payment (as determined by the Secretary) paid by a PDP sponsor to a pharmacy benefit manager or an affiliate of a pharmacy benefit manager that is performing services on behalf of such sponsor shall be deemed a “bona fide service fee” (even if such payment does not otherwise meet the definition of such term under paragraph (7)(B)) if such payment is a flat dollar amount, is consistent with fair market value (as specified by the Secretary), is related to services actually performed by the pharmacy benefit manager or affiliate of such pharmacy benefit manager, on behalf of the PDP sponsor making such payment, in connection with the utilization of covered part D drugs, and meets additional requirements, if any, as determined appropriate by the Secretary.
(iii)Clarification on rebates and discounts used to lower costs for covered part D drugs
Rebates, discounts, and other price concessions received by a pharmacy benefit manager or an affiliate of a pharmacy benefit manager from manufacturers, even if such price concessions are calculated as a percentage of a drug’s price, shall not be considered a violation of the requirements of clause (i) if they are fully passed through to a PDP sponsor and are compliant with all regulatory and subregulatory requirements related to direct and indirect remuneration for manufacturer rebates, discounts, and other price concessions under this part, including in cases where a PDP sponsor is acting as a pharmacy benefit manager on behalf of a prescription drug plan offered by such PDP sponsor.
(iv)Evaluation of remuneration arrangements
Components of subsets of remuneration arrangements (such as fees or other forms of compensation paid to or retained by the pharmacy benefit manager or affiliate of such pharmacy benefit manager), as determined appropriate by the Secretary, between pharmacy benefit managers or affiliates of such pharmacy benefit managers, as applicable, and other entities involved in the dispensing or utilization of covered part D drugs (including PDP sponsors, manufacturers, pharmacies, and other entities as determined appropriate by the Secretary) shall be subject to review by the Secretary, in consultation with the Office of the Inspector General of the Department of Health and Human Services, as determined appropriate by the Secretary. The Secretary, in consultation with the Office of the Inspector General, shall review whether remuneration under such arrangements is consistent with fair market value (as specified by the Secretary) through reviews and assessments of such remuneration, as determined appropriate.
(v)Disgorgement
The pharmacy benefit manager shall disgorge any remuneration paid to such pharmacy benefit manager or an affiliate of such pharmacy benefit manager in violation of this subparagraph to the PDP sponsor.
(vi)Additional requirements
The pharmacy benefit manager shall—
(I)enter into a written agreement with any affiliate of such pharmacy benefit manager, under which the affiliate shall identify and disgorge any remuneration described in clause (v) to the pharmacy benefit manager; and
(II)attest, subject to any requirements determined appropriate by the Secretary, that the pharmacy benefit manager has entered into a written agreement described in subclause (I) with any affiliate of the pharmacy benefit manager.
(B)Transparency regarding guarantees and cost performance evaluations
The pharmacy benefit manager shall—
(i)define, interpret, and apply, in a fully transparent and consistent manner for purposes of calculating or otherwise evaluating pharmacy benefit manager performance against pricing guarantees or similar cost performance measurements related to rebates, discounts, price concessions, or net costs, terms such as—
(I)“generic drug”, in a manner consistent with the definition of the term under section 423.4 of title 42, Code of Federal Regulations, or a successor regulation;
(II)“brand name drug”, in a manner consistent with the definition of the term under section 423.4 of title 42, Code of Federal Regulations, or a successor regulation;
(III)“specialty drug”;
(IV)“rebate”; and
(V)“discount”;
(ii)identify any drugs, claims, or price concessions excluded from any pricing guarantee or other cost performance measure in a clear and consistent manner; and
(iii)where a pricing guarantee or other cost performance measure is based on a pricing benchmark other than the wholesale acquisition cost (as defined in section 1395w–3a(c)(6)(B) of this title) of a drug, calculate and provide a wholesale acquisition cost-based equivalent to the pricing guarantee or other cost performance measure.
(C)Provision of information
(i)In general
Not later than July 1 of each year, beginning in 2028, the pharmacy benefit manager shall submit to the PDP sponsor, and to the Secretary, a report, in accordance with this subparagraph, and shall make such report available to such sponsor at no cost to such sponsor in a format specified by the Secretary under paragraph (5). Each such report shall include, with respect to such PDP sponsor and each plan offered by such sponsor, the following information with respect to the previous plan year:
(I)A list of all drugs covered by the plan that were dispensed including, with respect to each such drug—
(aa)the brand name, generic or non-proprietary name, and National Drug Code;
(bb)the number of plan enrollees for whom the drug was dispensed, the total number of prescription claims for the drug (including original prescriptions and refills, counted as separate claims), and the total number of dosage units of the drug dispensed;
(cc)the number of prescription claims described in item (bb) by each type of dispensing channel through which the drug was dispensed, including retail, mail order, specialty pharmacy, long term care pharmacy, home infusion pharmacy, or other types of pharmacies or dispensers;
(dd)the average wholesale acquisition cost, listed as cost per day’s supply, cost per dosage unit, and cost per typical course of treatment (as applicable);
(ee)the average wholesale price for the drug, listed as price per day’s supply, price per dosage unit, and price per typical course of treatment (as applicable);
(ff)the total out-of-pocket spending by plan enrollees on such drug after application of any benefits under the plan, including plan enrollee spending through copayments, coinsurance, and deductibles;
(gg)total rebates paid by the manufacturer on the drug as reported under the Detailed DIR Report (or any successor report) submitted by such sponsor to the Centers for Medicare & Medicaid Services;
(hh)all other direct or indirect remuneration on the drug as reported under the Detailed DIR Report (or any successor report) submitted by such sponsor to the Centers for Medicare & Medicaid Services;
(ii)the average pharmacy reimbursement amount paid by the plan for the drug in the aggregate and disaggregated by dispensing channel identified in item (cc);
(jj)the average National Average Drug Acquisition Cost (NADAC); and
(kk)total manufacturer-derived revenue, inclusive of bona fide service fees, attributable to the drug and retained by the pharmacy benefit manager and any affiliate of such pharmacy benefit manager.
(II)In the case of a pharmacy benefit manager that has an affiliate that is a retail, mail order, or specialty pharmacy, with respect to drugs covered by such plan that were dispensed, the following information:
(aa)The percentage of total prescriptions that were dispensed by pharmacies that are an affiliate of the pharmacy benefit manager for each drug.
(bb)The interquartile range of the total combined costs paid by the plan and plan enrollees, per dosage unit, per course of treatment, per 30-day supply, and per 90-day supply for each drug dispensed by pharmacies that are not an affiliate of the pharmacy benefit manager and that are included in the pharmacy network of such plan.
(cc)The interquartile range of the total combined costs paid by the plan and plan enrollees, per dosage unit, per course of treatment, per 30-day supply, and per 90-day supply for each drug dispensed by pharmacies that are an affiliate of the pharmacy benefit manager and that are included in the pharmacy network of such plan.
(dd)The lowest total combined cost paid by the plan and plan enrollees, per dosage unit, per course of treatment, per 30-day supply, and per 90-day supply, for each drug that is available from any pharmacy included in the pharmacy network of such plan.
(ee)The difference between the average acquisition cost of the affiliate, such as a pharmacy or other entity that acquires prescription drugs, that initially acquires the drug and the amount reported under subclause (I)(jj) for each drug.
(ff)A list inclusive of the brand name, generic or non-proprietary name, and National Drug Code of covered part D drugs subject to an agreement with a covered entity under section 256b of this title for which the pharmacy benefit manager or an affiliate of the pharmacy benefit manager had a contract or other arrangement with such a covered entity in the service area of such plan.
(III)Where a drug approved under section 355(c) of title 21 (referred to in this subclause as the “listed drug”) is covered by the plan, the following information:
(aa)A list of currently marketed generic drugs approved under section 355(j) of title 21 pursuant to an application that references such listed drug that are not covered by the plan, are covered on the same formulary tier or a formulary tier typically associated with higher cost-sharing than the listed drug, or are subject to utilization management that the listed drug is not subject to.
(bb)The estimated average beneficiary cost-sharing under the plan for a 30-day supply of the listed drug.
(cc)Where a generic drug listed under item (aa) is on a formulary tier typically associated with higher cost-sharing than the listed drug, the estimated average cost-sharing that a beneficiary would have paid for a 30-day supply of each of the generic drugs described in item (aa), had the plan provided coverage for such drugs on the same formulary tier as the listed drug.
(dd)A written justification for providing more favorable coverage of the listed drug than the generic drugs described in item (aa).
(ee)The number of currently marketed generic drugs approved under section 355(j) of title 21 pursuant to an application that references such listed drug.
(IV)Where a reference product (as defined in section 262(i) of this title) is covered by the plan, the following information:
(aa)A list of currently marketed biosimilar biological products licensed under section 262(k) of this title pursuant to an application that refers to such reference product that are not covered by the plan, are covered on the same formulary tier or a formulary tier typically associated with higher cost-sharing than the reference product, or are subject to utilization management that the reference product is not subject to.
(bb)The estimated average beneficiary cost-sharing under the plan for a 30-day supply of the reference product.
(cc)Where a biosimilar biological product listed under item (aa) is on a formulary tier typically associated with higher cost-sharing than the reference product, the estimated average cost-sharing that a beneficiary would have paid for a 30-day supply of each of the biosimilar biological products described in item (aa), had the plan provided coverage for such products on the same formulary tier as the reference product.
(dd)A written justification for providing more favorable coverage of the reference product than the biosimilar biological products described in item (aa).
(ee)The number of currently marketed biosimilar biological products licensed under section 262(k) of this title, pursuant to an application that refers to such reference product.
(V)Total gross spending on covered part D drugs by the plan, not net of rebates, fees, discounts, or other direct or indirect remuneration.
(VI)The total amount retained by the pharmacy benefit manager or an affiliate of such pharmacy benefit manager in revenue related to utilization of covered part D drugs under that plan, inclusive of bona fide service fees.
(VII)The total spending on covered part D drugs net of rebates, fees, discounts, or other direct and indirect remuneration by the plan.
(VIII)An explanation of any benefit design parameters under such plan that encourage plan enrollees to fill prescriptions at pharmacies that are an affiliate of such pharmacy benefit manager, such as mail and specialty home delivery programs, and retail and mail auto-refill programs.
(IX)The following information:
(aa)A list of all brokers, consultants, advisors, and auditors that receive compensation from the pharmacy benefit manager or an affiliate of such pharmacy benefit manager for referrals, consulting, auditing, or other services offered to PDP sponsors related to pharmacy benefit management services.
(bb)The amount of compensation provided by such pharmacy benefit manager or affiliate to each such broker, consultant, advisor, and auditor.
(cc)The methodology for calculating the amount of compensation provided by such pharmacy benefit manager or affiliate, for each such broker, consultant, advisor, and auditor.
(X)A list of all affiliates of the pharmacy benefit manager.
(XI)A summary document submitted in a standardized template developed by the Secretary that includes such information described in subclauses (I) through (X).
(ii)Written explanation of contracts or agreements with manufacturers
(I)In general
The pharmacy benefit manager shall, not later than 30 days after the finalization of any contract or agreement between such pharmacy benefit manager or an affiliate of such pharmacy benefit manager and a manufacturer (or subsidiary, agent, or entity affiliated with such manufacturer) that makes rebates, discounts, payments, or other financial incentives related to one or more covered part D drugs or other prescription drugs, as applicable, of the manufacturer directly or indirectly contingent upon coverage, formulary placement, or utilization management conditions on any other covered part D drugs or other prescription drugs, as applicable, submit to the PDP sponsor a written explanation of such contract or agreement.
(II)Requirements
A written explanation under subclause (I) shall—
(aa)include the manufacturer subject to the contract or agreement, all covered part D drugs and other prescription drugs, as applicable, subject to the contract or agreement and the manufacturers of such drugs, and a high-level description of the terms of such contract or agreement and how such terms apply to such drugs; and
(bb)be certified by the Chief Executive Officer, Chief Financial Officer, or General Counsel of such pharmacy benefit manager, or affiliate of such pharmacy benefit manager, as applicable, or an individual delegated with the authority to sign on behalf of one of these officers, who reports directly to the officer.
(III)Definition of other prescription drugs
For purposes of this clause, the term “other prescription drugs” means prescription drugs covered as supplemental benefits under this part or prescription drugs paid outside of this part.
(D)Audit rights
(i)In general
Not less than once a year, at the request of the PDP sponsor, the pharmacy benefit manager shall allow for an audit of the pharmacy benefit manager to ensure compliance with all terms and conditions under the written agreement described in this paragraph and the accuracy of information reported under subparagraph (C).
(ii)Auditor (iii) Provision of information
The PDP sponsor shall have the right to select an auditor. The pharmacy benefit manager shall not impose any limitations on the selection of such auditor.
(iv)Timing
The pharmacy benefit manager must provide information under clause (iii) and other information, data, and records relevant to the audit to such auditor within 6 months of the initiation of the audit and respond to requests for additional information from such auditor within 30 days after the request for additional information.
(v)Information from affiliates
The pharmacy benefit manager shall be responsible for providing to such auditor information required to be reported under subparagraph (C) or under clause (iii) of this subparagraph that is owned or held by an affiliate of such pharmacy benefit manager.
(2)Enforcement
(A)In general
Each PDP sponsor shall—
(i)disgorge to the Secretary any amounts disgorged to the PDP sponsor by a pharmacy benefit manager under paragraph (1)(A)(v);
(ii)require, in a written agreement with any pharmacy benefit manager acting on behalf of such sponsor or affiliate of such pharmacy benefit manager, that such pharmacy benefit manager or affiliate reimburse the PDP sponsor for any civil money penalty imposed on the PDP sponsor as a result of the failure of the pharmacy benefit manager or affiliate to meet the requirements of paragraph (1) that are applicable to the pharmacy benefit manager or affiliate under the agreement; and
(iii)require, in a written agreement with any such pharmacy benefit manager acting on behalf of such sponsor or affiliate of such pharmacy benefit manager, that such pharmacy benefit manager or affiliate be subject to punitive remedies for breach of contract for failure to comply with the requirements applicable under paragraph (1).
(B)Reporting of alleged violations
The Secretary shall make available and maintain a mechanism for manufacturers, PDP sponsors, pharmacies, and other entities that have contractual relationships with pharmacy benefit managers or affiliates of such pharmacy benefit managers to report, on a confidential basis, alleged violations of paragraph (1)(A) or subparagraph (C).
(C)Anti-retaliation and anti-coercion
Consistent with applicable Federal or State law, a PDP sponsor shall not—
(i)retaliate against an individual or entity for reporting an alleged violation under subparagraph (B); or
(ii)coerce, intimidate, threaten, or interfere with the ability of an individual or entity to report any such alleged violations.
(3)Certification of compliance
(A)In general
Each PDP sponsor shall furnish to the Secretary (at a time and in a manner specified by the Secretary) an annual certification of compliance with this subsection, as well as such information as the Secretary determines necessary to carry out this subsection.
(B)Implementation
Notwithstanding any other provision of law, the Secretary may implement this paragraph by program instruction or otherwise.
(4)Rule of construction
Nothing in this subsection shall be construed as—
(A)prohibiting flat dispensing fees or reimbursement or payment for ingredient costs (including customary, industry-standard discounts directly related to drug acquisition that are retained by pharmacies or wholesalers) to entities that acquire or dispense prescription drugs; or
(B)modifying regulatory requirements or sub-regulatory program instruction or guidance related to pharmacy payment, reimbursement, or dispensing fees.
(5)Standard formats
(A)In general
Not later than June 1, 2027, the Secretary shall specify standard, machine-readable formats for pharmacy benefit managers to submit annual reports required under paragraph (1)(C)(i).
(B)Implementation
Notwithstanding any other provision of law, the Secretary may implement this paragraph by program instruction or otherwise.
(6)Confidentiality
(A)In general
Information disclosed by a pharmacy benefit manager, an affiliate of a pharmacy benefit manager, a PDP sponsor, or a pharmacy under this subsection that is not otherwise publicly available or available for purchase shall not be disclosed by the Secretary or a PDP sponsor receiving the information, except that the Secretary may disclose the information for the following purposes:
(i)As the Secretary determines necessary to carry out this part.
(ii)To permit the Comptroller General to review the information provided.
(iii)To permit the Director of the Congressional Budget Office to review the information provided.
(iv)To permit the Executive Director of the Medicare Payment Advisory Commission to review the information provided.
(v)To the Attorney General for the purposes of conducting oversight and enforcement under this subchapter.
(vi)To the Inspector General of the Department of Health and Human Services in accordance with its authorities under the Inspector General Act of 1978 (section 406 of title 5), and other applicable statutes.
(B)Restriction on use of information
The Secretary, the Comptroller General, the Director of the Congressional Budget Office, and the Executive Director of the Medicare Payment Advisory Commission shall not report on or disclose information disclosed pursuant to subparagraph (A) to the public in a manner that would identify—
(i)a specific pharmacy benefit manager, affiliate, pharmacy, manufacturer, wholesaler, PDP sponsor, or plan; or
(ii)contract prices, rebates, discounts, or other remuneration for specific drugs in a manner that may allow the identification of specific contracting parties or of such specific drugs.
(7)Definitions
For purposes of this subsection: (A) Affiliate
(B)Bona fide service fee
The term “bona fide service fee” means a fee that is reflective of the fair market value (as specified by the Secretary, through notice and comment rulemaking) for a bona fide, itemized service actually performed on behalf of an entity, that the entity would otherwise perform (or contract for) in the absence of the service arrangement and that is not passed on in whole or in part to a client or customer, whether or not the entity takes title to the drug. Such fee must be a flat dollar amount and shall not be directly or indirectly based on, or contingent upon—
(i)drug price, such as wholesale acquisition cost or drug benchmark price (such as average wholesale price);
(ii)the amount of discounts, rebates, fees, or other direct or indirect remuneration with respect to covered part D drugs dispensed to enrollees in a prescription drug plan, except as permitted pursuant to paragraph (1)(A)(ii);
(iii)coverage or formulary placement decisions or the volume or value of any referrals or business generated between the parties to the arrangement; or
(iv)any other amounts or methodologies prohibited by the Secretary.
(C)Pharmacy benefit manager
The term “pharmacy benefit manager” means any person or entity that, either directly or through an intermediary, acts as a price negotiator or group purchaser on behalf of a PDP sponsor or prescription drug plan, or manages the prescription drug benefits provided by such sponsor or plan, including the processing and payment of claims for prescription drugs, the performance of drug utilization review, the processing of drug prior authorization requests, the adjudication of appeals or grievances related to the prescription drug benefit, contracting with network pharmacies, controlling the cost of covered part D drugs, or the provision of related services. Such term includes any person or entity that carries out one or more of the activities described in the preceding sentence, irrespective of whether such person or entity calls itself a “pharmacy benefit manager”.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The Inspector General Act of 1978, referred to in subsec. (h)(6)(A)(vi), is Pub. L. 95–452, Oct. 12, 1978, 92 Stat. 1101, which was set out in the Appendix to Title 5, Government Organization and Employees, and was substantially repealed and restated in chapter 4 (§ 401 et seq.) of Title 5 by Pub. L. 117–286, §§ 3(b), 7, Dec. 27, 2022, 136 Stat. 4206, 4361. Section 406 of Title 5 provides authorities of the Inspector General. For disposition of sections of the Act into chapter 4 of Title 5, see Disposition Table preceding section 101 of Title 5.
Amendments
2026—Subsec. (b)(9). Pub. L. 119–75, § 6223(d)(1), added par. (9). Subsec. (h). Pub. L. 119–75, § 6224(a)(1), added subsec. (h). 2022—Subsec. (b)(3)(D)(i). Pub. L. 117–169, § 11001(b)(1)(H)(i), inserted “, or carrying out part E of subchapter XI” after “appropriate)”. Subsec. (b)(8). Pub. L. 117–169, § 11001(b)(1)(F)(i), added par. (8). 2018—Subsec. (b)(7). Pub. L. 115–271 added par. (7). 2008—Subsec. (b)(3)(D). Pub. L. 110–275, § 181, inserted at end “Notwithstanding any other provision of law, information provided to the Secretary under the application of section 1395w–27(e)(1) of this title to contracts under this section under the preceding sentence—” and added cls. (i) and (ii). Subsec. (b)(4). Pub. L. 110–275, § 171(a), added par. (4). Subsec. (b)(5). Pub. L. 110–275, § 172(a)(1), added par. (5). Subsec. (b)(6). Pub. L. 110–275, § 173(a), added par. (6).
Statutory Notes and Related Subsidiaries
Effective Date
of 2018 AmendmentAmendment by section 2008(a) of Pub. L. 115–271 applicable with respect to plan years beginning on or after Jan. 1, 2020, see section 2008(e) of Pub. L. 115–271, set out as a note under section 1395w–27 of this title.
Effective Date
of 2008 AmendmentAmendment by section 171(a) of Pub. L. 110–275 applicable to plan years beginning on or after Jan. 1, 2010, see section 171(c) of Pub. L. 110–275, set out as a note under section 1395w–27 of this title. Amendment by section 172(a)(1) of Pub. L. 110–275 applicable to plan years beginning on or after Jan. 1, 2010, see section 172(b) of Pub. L. 110–275, set out as a note under section 1395w–27 of this title. Amendment by section 173(a) of Pub. L. 110–275 applicable to plan years beginning on or after Jan. 1, 2009, see section 173(c) of Pub. L. 110–275, set out as a note under section 1395w–27 of this title.
Reference
Citations & Metadata
Citation
42 U.S.C. § 1395w–112
Title 42, The Public Health and Welfare
Last Updated
Sep 23, 2026
Release point: 119-110