II 

118TH CONGRESS 

1ST SESSION S. 1038 

To amend title XIX of the Social Security Act to improve transparency 

and prevent the use of abusive spread pricing and related practices 

in the Medicaid program. 

IN THE SENATE OF THE UNITED STATES 

MARCH 29, 2023 

Mr. WELCH (for himself and Mr. MARSHALL) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend title XIX of the Social Security Act to improve 

transparency and prevent the use of abusive spread pricing and related practices in the Medicaid program. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Drug Price Trans5 parency in Medicaid Act of 2023’’. 

6 SEC. 2. IMPROVING TRANSPARENCY AND PREVENTING THE 

7 USE OF ABUSIVE SPREAD PRICING AND RE8 LATED PRACTICES IN MEDICAID. 

9 (a) PASS-THROUGH PRICING REQUIRED.— 


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1 (1) IN GENERAL.—Section 1927(e) of the So2 cial Security Act (42 U.S.C. 1396r–8(e)) is amended 

3 by adding at the end the following: 

4 ‘‘(6) PASS-THROUGH PRICING REQUIRED.—A 

5 contract between the State and a pharmacy benefit 

6 manager (referred to in this paragraph as a ‘PBM’), 

7 or a contract between the State and a managed care 

8 entity or other specified entity (as such terms are 

9 defined in section 1903(m)(9)(D)) that includes pro10 visions making the entity responsible for coverage of 

11 covered outpatient drugs dispensed to individuals en12 rolled with the entity, shall require that payment for 

13 such drugs and related administrative services (as 

14 applicable), including payments made by a PBM on 

15 behalf of the State or entity, is based on a pass16 through pricing model under which— 

17 ‘‘(A) any payment made by the entity or 

18 the PBM (as applicable) for such a drug— 

19 ‘‘(i) is limited to— 

20 ‘‘(I) ingredient cost; and 

21 ‘‘(II) a professional dispensing 

22 fee that is not less than the profes23 sional dispensing fee that the State 

24 plan or waiver would pay if the plan 


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1 or waiver was making the payment di2 rectly; 

3 ‘‘(ii) is passed through in its entirety 

4 by the entity or PBM to the pharmacy or 

5 provider that dispenses the drug; and 

6 ‘‘(iii) is made in a manner that is con7 sistent with section 1902(a)(30)(A) and 

8 sections 447.512, 447.514, and 447.518 of 

9 title 42, Code of Federal Regulations (or 

10 any successor regulation) as if such re11 quirements applied directly to the entity or 

12 the PBM, except that any payment by the 

13 entity or the PBM (as applicable) for the 

14 ingredient cost of a covered outpatient 

15 drug dispensed by providers and phar16 macies referenced in clauses (i) or (ii) of 

17 section 447.518(a)(1) of title 42, Code of 

18 Federal Regulations (or any successor reg19 ulation) shall be the same as the payment 

20 amount for the ingredient cost when dis21 pensed by providers and pharmacies not 

22 referenced in such clauses, and in no case 

23 shall payment for the ingredient cost of a 

24 covered outpatient drug be based on the 

25 actual acquisition cost of a drug dispensed 


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1 by providers and pharmacies referenced in 

2 such clauses or take into account a drug’s 

3 status as a drug purchased at a discounted 

4 price by a provider or pharmacy referenced 

5 in such clauses; 

6 ‘‘(B) payment to the entity or the PBM 

7 (as applicable) for administrative services per8 formed by the entity or PBM is limited to a 

9 reasonable administrative fee that covers the 

10 reasonable cost of providing such services; 

11 ‘‘(C) the entity or the PBM (as applicable) 

12 shall make available to the State, and the Sec13 retary upon request, all costs and payments re14 lated to covered outpatient drugs and accom15 panying administrative services incurred, re16 ceived, or made by the entity or the PBM, in17 cluding ingredient costs, professional dispensing 

18 fees, administrative fees, post-sale and post-in19 voice fees, discounts, or related adjustments 

20 such as direct and indirect remuneration fees, 

21 and any and all other remuneration; and 

22 ‘‘(D) any form of spread pricing whereby 

23 any amount charged or claimed by the entity or 

24 the PBM (as applicable) is in excess of the 

25 amount paid to the pharmacies on behalf of the 


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1 entity, including any post-sale or post-invoice 

2 fees, discounts, or related adjustments such as 

3 direct and indirect remuneration fees or assess4 ments (after allowing for a reasonable adminis5 trative fee as described in subparagraph (B)) is 

6 not allowable for purposes of claiming Federal 

7 matching payments under this title.’’. 

8 (2) CONFORMING AMENDMENT.—Section 

9 1903(m)(2)(A)(xiii) of such Act (42 U.S.C. 

10 1396b(m)(2)(A)(xiii)) is amended— 

11 (A) by striking ‘‘and (III)’’ and inserting 

12 ‘‘(III)’’; 

13 (B) by inserting before the period at the 

14 end the following: ‘‘, and (IV) pharmacy benefit 

15 management services provided by the entity, or 

16 provided by a pharmacy benefit manager on be17 half of the entity under a contract or other ar18 rangement between the entity and the phar19 macy benefit manager, shall comply with the re20 quirements of section 1927(e)(6)’’; and 

21 (C) by moving the left margin 2 ems to the 

22 left. 

23 (3) EFFECTIVE DATE.—The amendments made 

24 by this subsection apply to contracts between States 

25 and managed care entities, other specified entities, 


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1 or pharmacy benefits managers that are entered into 

2 or renewed on or after the date that is 18 months 

3 after the date of enactment of this Act. 

4 (b) ENSURING ACCURATE PAYMENTS TO PHAR5 MACIES UNDER MEDICAID.— 

6 (1) IN GENERAL.—Section 1927(f) of the Social 

7 Security Act (42 U.S.C. 1396r–8(f)) is amended— 

8 (A) by striking ‘‘and’’ after the semicolon 

9 at the end of paragraph (1)(A)(i) and all that 

10 precedes it through ‘‘(1)’’ and inserting the fol11 lowing: 

12 ‘‘(1) DETERMINING PHARMACY ACTUAL ACQUI13 SITION COSTS.—The Secretary shall conduct a sur14 vey of retail community pharmacy drug prices to de15 termine the national average drug acquisition cost as 

16 follows: 

17 ‘‘(A) USE OF VENDOR.—The Secretary 

18 may contract services for— 

19 ‘‘(i) with respect to retail community 

20 pharmacies, the determination of retail 

21 survey prices of the national average drug 

22 acquisition cost for covered outpatient 

23 drugs based on a monthly survey of such 

24 pharmacies; and’’; 


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1 (B) by adding at the end of paragraph (1) 

2 the following: 

3 ‘‘(F) SURVEY REPORTING.—In order to 

4 meet the requirement of section 1902(a)(54), a 

5 State shall require that any retail community 

6 pharmacy in the State that receives any pay7 ment, reimbursement, administrative fee, dis8 count, or rebate related to the dispensing of 

9 covered outpatient drugs to individuals receiv10 ing benefits under this title, regardless of 

11 whether such payment, fee, discount, or rebate 

12 is received from the State or a managed care 

13 entity directly or from a pharmacy benefit man14 ager or another entity that has a contract with 

15 the State or a managed care entity, shall re16 spond to surveys of retail prices conducted 

17 under this subsection. 

18 ‘‘(G) SURVEY INFORMATION.—Information 

19 on national drug acquisition prices obtained 

20 under this paragraph shall be made publicly 

21 available and shall include at least the fol22 lowing: 

23 ‘‘(i) The monthly response rate of the 

24 survey including a list of pharmacies not in 

25 compliance with subparagraph (F). 


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1 ‘‘(ii) The sampling frame and number 

2 of pharmacies sampled monthly. 

3 ‘‘(iii) Information on price concessions 

4 to the pharmacy, including discounts, re5 bates, and other price concessions, to the 

6 extent that such information is available 

7 during the survey period. 

8 ‘‘(H) REPORT ON SPECIALTY PHAR9 MACIES.— 

10 ‘‘(i) IN GENERAL.—Not later than 1 

11 year after the effective date of this sub12 paragraph, the Secretary shall submit a re13 port to Congress examining specialty drug 

14 coverage and reimbursement under this 

15 title. 

16 ‘‘(ii) CONTENT OF REPORT.—Such re17 port shall include a description of how 

18 State Medicaid programs define specialty 

19 drugs and specialty pharmacies, how much 

20 State Medicaid programs pay for specialty 

21 drugs, how States and managed care plans 

22 determine payment for specialty drugs, the 

23 settings in which specialty drugs are dis24 pensed (such as retail community phar25 macies or specialty pharmacies), to what 


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1 extent acquisition costs for specialty drugs 

2 are captured in the national average drug 

3 acquisition cost survey or through another 

4 process, examples of specialty drug dis5 pensing fees to support the services associ6 ated with dispensing specialty drugs, and 

7 recommendations as to whether specialty 

8 pharmacies should be included in the sur9 vey of retail prices to ensure national aver10 age drug acquisition costs capture drugs 

11 sold at specialty pharmacies and how such 

12 specialty pharmacies should be defined.’’; 

13 (C) in paragraph (2)— 

14 (i) in subparagraph (A), by inserting 

15 ‘‘, including payments rates under Med16 icaid managed care plans,’’ after ‘‘under 

17 this title’’; and 

18 (ii) in subparagraph (B), by inserting 

19 ‘‘and the basis for such dispensing fees’’ 

20 before the semicolon; and 

21 (D) in paragraph (4), by inserting ‘‘, and 

22 $5,000,000 for fiscal year 2025 and each fiscal 

23 year thereafter,’’ after ‘‘2010’’. 

24 (2) EFFECTIVE DATE.—The amendments made 

25 by this subsection take effect on the first day of the 


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1 first quarter that begins on or after the date that is 

2 18 months after the date of enactment of this Act. 

Æ 


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