Q&A: CMS to Begin Enforcing Fair Pharmacy Reimbursement, Contracting

If signed into law, the Consolidated Appropriations Act of 2026 (HR 7148) gives the Centers for Medicare & Medicaid Services (CMS) the power to regulate pharmacy benefit manager (PBM) contracting while also disincentivizing them from driving up the list prices of drugs.

“It's really taking almost a 180 when it comes to what CMS’ role is expected to be in the pharmacy-PBM relationship,” Jesse Dresser, Esq, partner in the Life Sciences Department and head of the Pharmacy Practice Group at Frier Levitt Attorneys at Law, told Drug Topics. “They’re going from basically a hands-off approach of ‘We can't interfere, we're not going to interfere,’ to ‘[Our] responsibility is to make sure things are fair between the PBMs and the pharmacies, and here are the tools to get it done.’”

Dresser joined us for this week’s episode of Over the Counter powered by Drug Topics to add necessary nuance to a federal statute that could forever change the distribution of prescription drugs in the US. Learn more from a Frier Levitt representative, who was involved with drafting the legislation, on where the future of pharmacy may be headed upon the signing of this new bill.

READ MORE: How New Federal Spending Bill Bolsters CMS Oversight, PBM Transparency

Drug Topics: How does this bill legally compel CMS to move from being a passive observer to an active enforcer?

Jesse Dresser: One of the hallmarks of the regulation that now is explicitly stated in the law is that current conditions have to be reasonable and relevant. Now, what constituted reasonable and relevant was a big question mark. There had been some unenforceable guidance put out by CMS in the past that talked about different things that might go to whether or not something was reasonable and relevant, but there wasn't a clear set of standards or guideposts that could be utilized. One of the things that this law does is explicitly says that CMS is to be responsible for setting standards as to what constitutes reasonable and relevant terms and conditions, and to actually adjudicate whether terms and conditions are reasonable and relevant. They've given a number of factors that CMS is expected to utilize when evaluating whether terms and conditions, on the whole, are reasonable and relevant.

One of the core factors is current prescription drug plan and pharmacy network contracting practices. It’s looking at what the industry is doing across the board, both under the Medicare Part D space and in the commercial space. This is an area that's the first place to look. Another one, unsurprisingly, is whether the pharmacy's reimbursement rate for the drug costs, along with dispensing fees, sufficiently covers the ingredient cost for the drug—the pharmacy's cost for the products—as well as reasonable operational expenses for that pharmacy. Reimbursing a pharmacy below their acquisition cost theoretically shouldn't fly any longer, nor should it be okay to pay a pharmacy exactly what it costs them to buy the drug. How could the pharmacy keep its lights on if it's not making any margin based on the cost of drugs when it's dispensing that product?

They also look at things like the application of pharmacy quality measures. This was a big area of focus in the DIR fee space, where PBMs were using quality measures to determine reimbursement—looking at how and under what circumstances they were using those quality measures. It’s also looking at any limitations that are being placed on pharmacies being able to dispense drugs, whether it is on a drug-by-drug basis, a pharmacy-by-pharmacy basis, or a subset of pharmacy type. For example, if they are trying to limit specialty drugs to specialty pharmacies, or trying to exclude certain subclasses of providers, that's going to be something that's considered by CMS. They're also, interestingly, going to look at auditing practices and examining how they tie into whether or not terms and conditions, on the whole, are reasonable and relevant. If they give everyone great terms to come in—great reimbursement rate, great participation—but then they selectively audit only independent pharmacies and really make it unbearable to be a network, that could be an issue. Then there are other factors that CMS can determine along the way in whether or not terms are reasonable and relevant on the whole.

What's interesting is there is now a framework for pharmacies to submit complaints and make reports, both pharmacies and other third parties, that terms and conditions aren't reasonable and relevant, or that there are violations by PBMs of these requirements. CMS [would] now have the ability to impose sanctions, issue penalties, and actually take disciplinary action against Part D plan sponsors and PBMs relative to some of these things. CMS is also going to get a big body of data regarding drug utilization, cost measures, dispensing by affiliate pharmacies, steering, and broker and consultant relationships. They'll be in a better position with that data to be able to protect pharmacies and investigate PBMs. Ultimately, the bill also calls on CMS, the Office of the Inspector General, and the Medicare Payment Advisory Commission (MedPAC) to together investigate PBM abuses and submit reports to Congress.

It's really taking almost a 180 when it comes to what CMS’ role is expected to be in the pharmacy-PBM relationship. They’re going from basically a hands-off approach of ‘We can't interfere, we're not going to interfere,’ to ‘[Our] responsibility is to make sure things are fair between the PBMs and the pharmacies, and here are the tools to get it done.’

Drug Topics: One of the most significant provisions in the law is the delinking of PBM compensation from drug list prices. Can you explain what this was designed to achieve and how it will benefit community pharmacies in the long-run?

Jesse Dresser: The notion of delinking PBM reimbursement from list prices is essentially trying to remove that perverse financial incentive that aligned a PBM’s profits and revenue with the list price of the drug. The higher the list price of the drug, the more the PBM made. How does that work? That works in a couple ways. If a PBM is getting and keeping rebates, even a portion of rebates, and there is a spread between a list price and a net price, the bigger that spread is—and in turn, the bigger the list price of that drug is to create that spread—the more money the PBM makes. If a drug costs $1 and they get it down to 50 cents, and the PBM gets to keep 10% of that rebate, they're getting 10% of 50 cents; they're getting 5 cents. Imagine if that same drug, instead of being $1 was $1,000, and the rebate was exactly the same, they brought it down to 50 cents. That PBM was getting a much, much larger number, even if the percentage is the same or even smaller, because of the increased cost of the drug.

There had been this big focus by PBMs on getting reimbursement based on the list price of a drug, whether it be from rebates, through other things like data fees, administrative fees, and other types of fees that PBMs were bringing in based on the overall cost or price of the drug. Where this law seeks to change things is to now say PBMs can no longer derive any revenue—including PBMs and their affiliates, which would include rebate GPOs, rebate aggregators, and upstream entities that PBMs have used to try to get around rebate pass-through laws—tied in any way to the cost or the price of the drug. Their only revenue that can come in this space is from modified service fees. Modified service fees essentially have to be fair-market-value fees for services actually provided and which are commercially reasonable. This notion that PBMs are going to be deriving revenue based on the list price the drug is going to go away. Instead, they're going to have to demonstrate their value and only be compensated based on the fair market value of those services actually rendered.

This requirement was driven more towards and aimed more at trying to break that spiral or cycle where PBMs demand higher shares of the list price, forcing manufacturers to raise their list price. The hope here, I think, is that manufacturers will no longer have that pressure, because PBMs will no longer have that financial incentive to drive up the overall price of the drug. As a result, the PBMs’ revenue and business should be focused more on how efficiently they can deliver their administration of pharmacy benefits.

I think where this helps pharmacy providers, though, is it shifts the dynamic from PBMs preferring drugs that give them the best financial model and financial outcome, and more towards drugs that just make sense. Rather than pursuing a drug that a pharmacy is destined to lose money on—based on economics because the PBM is now getting a big rebate and maybe it's not the best for the patient—now, it's going to go to a drug that maybe is just the best for the patient and most appropriate for the pharmacy to be able to afford and dispense. I think that's one of the ways that pharmacies could stand to benefit from some of this delinking language that's now in the new bill.

READ MORE: Pharmacy Law Lowdown: Legislative Shifts in 2026 PBM Reform

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