Elliott is a law clerk at the firm and his work is supervised by licensed attorneys. His admission to the New York bar is pending.

During a hearing before the Oversight Committee of the U.S. House of Representatives on April 11, Dr. Robert Califf, the commissioner of the U.S. Food and Drug Administration (FDA), requested congressional action to create a new pathway to regulate hemp-derived Cannabidiol (CBD) products, which the agency does not consider safe enough to be sold lawfully as a dietary supplement.

In a January 2023 statement by the prior Commissioner, Janet Woodcock the FDA declined to develop rules to allow CBD to be sold in dietary supplements or food, citing its belief that CBD does not fall under a particular regulatory scheme currently available to the agency.

Continue Reading The FDA’s Continued Search for a Legal Pathway for CBD Products

In a final rule published on April 26, the U.S. Department of Health and Human Services (“HHS”) amends the HIPAA Privacy Rule to bolster protections for individuals’ reproductive health information. This final rule comes almost exactly a year after HHS published its draft rule on the subject.

The rule is part of the Biden administration’s effort to address the Supreme Court’s 2022 decision in Dobbs v. Jackson Women’s Health Organization. Dobbs’ reversal of Roe v. Wade resulted in a patchwork of state laws governing abortion, some of which require or permit health care providers to release personal information about reproductive health care to state authorities for patients who sought an abortion.

The rule is scheduled to take effect on June 25, 2024 and most provisions will be enforceable as of December 23, 2024. Below, we summarize in more detail some of the notable changes to the HIPAA Privacy Rule. 

Continue Reading HHS Modifies HIPAA Privacy Rule to Shield Reproductive Health Information from Third Party Access

Making good on its promises to enhance oversight of Medicare Advantage (MA) and Medicare Part D plans, the Centers for Medicare and Medicaid Services (CMS) has submitted for public inspection its Contract Year 2025 Final Rule. The final rule, published in the Federal Register on April 23 and taking effect on June 3, 2024, codifies existing MA and Part D sub-regulatory guidance, adds a number of new policies for Contract Year 2025 and implements provisions of the Bipartisan Budget Act of 2018 (BBA) and the Consolidated Appropriations Act, 2023 (CAA 2023).

The rule contains many substantive changes to current MA and Part D requirements. The most impactful sections of the rule include: (1) changes to the Part D formulary, including substitutions of biosimilar biological products; (2) modification of agent and broker compensation requirements for MA plans; (3) codification of consent requirements within the MA regulations for the sharing of personal beneficiary data between third party marketing organizations (TPMOs); (4) standardization of the MA Risk Adjustment Data Validation Appeals Process; (5) changes to the Part D medication therapy management program eligibility criteria; (6) changes to contracting standards and limitations on dual-eligible special needs plans; and (7) changes to the network adequacy standards within MA to add a new facility-specialty type called “Outpatient Behavioral Health”.

Also notable is what CMS does not address in the rule – CMS declined to establish what qualifies as an identification of an overpayment that needs to be returned to avoid False Claims Act violations. That potential standard has been in the works since the Contract Year 2023 rule, but stakeholders have to keep waiting as CMS notes that it may be the subject of a future rulemaking.

Continue Reading Are you listening, Medicare Advantage and Medicare Part D Plans? It’s CMS (Again)

Last week, on April 18, several federal agencies jointly launched a “one-stop shop” to facilitate reporting of allegedly anticompetitive behavior in the health care sector. While there has always been a complaint portal for the antitrust agencies, the Federal Trade Commission (FTC), the U.S. Department of Health and Human Services (HHS), and the Antitrust Division of the U.S. Department of Justice (DOJ) established the site, HealthyCompetition.gov, to allow the public to submit complaints about potentially unfair and anticompetitive health care practices.

There is no timeframe within which reports may be submitted, as the agencies look to solicit assistance from the public in their oversight of potential antitrust violations. There is also no limitation on who can submit such reports—employees, customers, vendors, competitors, etc.

Reports will undergo a preliminary review by staff at the FTC and DOJ. Complaints that raise sufficient concern under the antitrust laws will be selected for further investigation, which may lead to formal investigation or enforcement activity by one or more of the agencies.

The portal is intended to be used only for the submission of complaints about health care competition, and not complaints about other health care issues such as failure to pay claims or cover health care services, increases in individual insurers’ rates, billing disputes, general unhappiness with the health care system, or other non-health care competition issues.

The new portal is the latest salvo in the agencies’ intensifying scrutiny of consolidation in the health care industry as part of the Biden Administration’s focus on lowering health care costs across the board, and comes on the heels of the online workshop hosted by the agencies just last month to discuss the impact of private equity ownership in the health care sector.

We covered the details of that forum, during which the agencies denounced the purported “financialization” of health care markets, in a previous blog post and client alert. In conjunction with the workshop, the agencies also issued a request for information (RFI) seeking public comment on transactions in the health care sector involving private equity firms or similar entities. Responses to the RFI are due by May 6, 2024.

Reed Smith will continue to follow developments in FTC, HHS, and DOJ’s ongoing efforts to regulate competition in the health care sector. If you have any questions about this portal or about competition enforcement in health care or would like to submit a response to the RFI, please reach out to the authors of this post.

On March 9, 2024, in response to the cyberattack on UnitedHealth Group’s subsidiary, Change Healthcare/Optum, in late February 2024, the Centers for Medicare & Medicaid Services (“CMS”) made available Change Healthcare/Optum Payment Disruption (“CHOPD”) accelerated payments to Medicare Part A providers and advance payments to Medicare Part B suppliers experiencing claims disruptions as a result of the cyberattack.

CMS, through the Medicare Administrative Contractors (“MACs”), may grant CHOPD accelerated and advance payments in amounts representative of up to thirty days’ worth of Part A or Part B claims to eligible Medicare providers and suppliers, which is calculated by taking the total claims paid to the provider/supplier between August 1, 2023 through October 31, 2023 and dividing that number by three.

In this post, we will detail eligibility requirements and terms of the payments. We note that these are not loans or grants. They are advanced and accelerated payments and CMS will immediately begin to recoup the payments. For more details, CMS has issued a Fact Sheet and Frequently Asked Questions.

Continue Reading CMS Offers Change Healthcare/Optum Payment Disruption Payments to Medicare Providers and Suppliers

The United States Food and Drug Administration (FDA) has proposed a rule on “Drug Products or Categories of Drug Products that Present Demonstrable Difficulties for Compounding Under sections 503A or 503B of the Federal Food, Drug, and Cosmetic Act”. We have put together this alert to summarize the provisions of the rule and what you need about how, if finalized, the rule could impact the drug industry.

With the rule, the FDA seeks to establish criteria for the list of drug products or categories of drug products that present demonstrable difficulties for compounding under certain sections of the federal Food, Drug, and Cosmetic Act. Additionally, the Agency is proposing to identify the first three categories of drug products on both DDC Lists. Drug products or categories of drug products that appear on the DDC Lists cannot qualify for certain statutory exemptions and therefore may not be compounded under either section 503A or section 503B, respectively.

Reed Smith will continue to follow developments on this and other issues facing compounding pharmacies and FDA regulation. If you have any questions, please reach out to the authors or to the health care lawyers at Reed Smith.

The U.S. Supreme Court heard arguments yesterday in the two consolidated cases challenging the U.S. Food and Drug Administration (FDA) approval of mifepristone. Throughout the questioning, the Justices focused on both the standing of the plaintiffs to bring the cases and on the suitability of the remedy sought.

The Court is expected to rule on the case in late June or early July. Although the Court has a 6-3 majority of justices appointed by Republican presidents, the questioning by the justices and the areas that they focused on seemed to indicate that any judicially-imposed limitations on both the FDA’s approval of the drug and the FDA’s current restrictions on the dispensing of mifepristone may be narrow.

At different times during the argument, both liberal and conservative Justices mixed together in the thrust of their questions in a way that could result in this case being a close decision with many different opinions or even resulting in a majority decision that would allow continued dispensation of the drug due to standing considerations.

Continue Reading SCOTUS Arguments on Mifepristone Cases Focus on Standing and Remedy

In the two years since the Dobbs v. Jackson Women’s Health decision from the Supreme Court, state legislatures and courts have attempted to define the new post-Roe landscape in health care. That effort includes actions by states to enact health data privacy laws or to amend existing privacy laws to protect consumer health data that may not be covered by the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations.

These new and revised laws, with various effective dates, present novel considerations and compliance challenges for businesses that collect, use, and disclose consumer health data. We put together this alert to walk through some of those considerations including what types of information and businesses are covered by the laws. Additionally, Reed Smith’s San Francisco office will be hosting a comprehensive hybrid-CLE event on April 10 on recent legislation from Washington state and California as well as what to expect going forward with regard to health data privacy.

Reed Smith will continue to follow developments in health care privacy laws. If you have any questions, please reach out to the authors or to the health care lawyers at Reed Smith.

Not a question that we thought we would be asking more than a year after the large omnibus package was signed into law by President Biden. But here we are, with a federal judge in Texas ruling on Feb. 27 that the House’s passage of the Consolidated Appropriations Act, 2023 (P.L. 117-328) (CAA, 2023) violated the “quorum clause” of Article I, Section 5 of the U.S. Constitution.

The court’s ruling puts in jeopardy a number of substantive health policy provisions if it is allowed to stand. Many of the provisions of the act that could be overturned were designed to sunset at the end of 2024 and some have since been reauthorized. But some, like the FDA’s new cosmetic regulatory regime that was included in the Modernization of Cosmetics Regulation Act of 2022 (MoCRA) are more permanent and are now under threat.

The court’s decision limited its impact to only one aspect of the law and enjoined that provision only as applied to public employees in Texas, but the court’s analysis of the way that the law was passed calls into question the entire appropriations act. The Department of Justice (DOJ) has 60 days from the court’s decision to appeal to the U.S. Court of Appeals for the Fifth Circuit. The agency has filed a notice of compliance with the court indicating that neither the DOJ or Equal Employment Opportunity Commission will enforce the law against the state or its agencies.

Continue Reading Was the Consolidated Appropriations Act, 2023 Legitimately Passed by the House?

The Federal Trade Commission (FTC), the Department of Justice’s Antitrust Division, and the U.S. Department of Health and Human Services jointly announced a cross-government inquiry into the impact of private equity investment and other forms of “corporate greed” in the health care sector. As part of the announcement of this effort, the agencies produced a public workshop, hosted by the FTC and entitled, “Private Capital, Public Impact: An FTC Workshop on Private Equity in Health Care.” Before the workshop, the agencies issued a request for information (RFI) seeking public comment on transactions in the health care sector involving private equity firms and other private corporate entities. Responses to the RFI are due by May 6, 2024.

Members of our Antitrust & Competition Team and the Life Sciences Health Industry Group have come together to provide an alert that will give you all that you need to know about this new effort by the enforcement agencies. Reed Smith will continue to follow developments on this inquiry. If you have any questions, please do not hesitate to reach out to any of the authors of the alert.

The Department of Justice (DOJ) reported that its False Claims Act (FCA) recoveries for civil cases raked in approximately $2.7 billion for fiscal year 2023, representing a $450 million jump from 2022 recoveries.  Of the $2.7 billion recovered by the DOJ for 2023, approximately $1.8 billion (67%) came from the health care sector.

The real headline, however, may be the record-setting number of new FCA cases initiated in 2023 ­–– 500 initiated by the government and 712 initiated by private relators, for a total 1,212 new cases, over 250 more than the next-highest year (2022). Previous trends aside, this signals busy times ahead for the FCA.

Continue Reading DOJ Announces $2.7 Billion in FCA Recoveries and Enforcement Priorities

The Department of Health and Human Services (HHS), Department of Labor, and Department of the Treasury (collectively, “the departments”) recently confirmed that they will hold firm to the March 14, 2024 extended deadlines for initiating both new and previously initiated batched disputes or single disputes involving air ambulance services in the No Surprises Act Independent Dispute Resolution (IDR) portal.

The extension came about when the departments reopened the portal for all dispute types on December 15, 2023 following four months where the departments suspended new initiations of disputes because of court rulings vacating the departments rules and guidance in part. New single and bundled disputes were reopened on October 6, 2023. However, because the departments had more work to do to conform guidance to the court rulings on both batched and air ambulance claims, they left those suspended until December.

The deadline applies to any party submitting a batched or single air ambulance dispute for whom the IDR initiation deadline fell on any date between August 3, 2023 and December 14, 2023. However, the departments clarified that, as of March 14, 2024, initiating parties who submitted a batched dispute before August 3, 2023, and received notification from a certified IDR entity that the dispute was improperly batched will have the standard 4-business-day period to resubmit, instead of the existing 10 business day time period that was previously mentioned in a guidance document.

IDR Process has seen multiple litigation stops

The No Surprises IDR portal went live in February 28, 2022 only five days after a federal court in Texas invalidated portions of the interim final rule that established the IDR process. That court decision, a subject of an earlier blog post, vacated provisions of the rule that centered around the presumption in favor of IDR using a statutorily defined amount known in the original rule as the qualifying payment amount (“QPA”).

In July 2022 a different court decision vacated a section of the rule governing the use of the QPA that directly applied to air ambulance disputes. The departments responded by instructing certified IDR entities not to apply the vacated standard in any dispute related to air ambulance services.

The departments then issued a new final rule in August 2022 that sought to rectify the problems with the QPA provisions. Six months later, in February 2023, the same federal district court that vacated the rule in the first instance again vacated provisions of the rule. (We blogged about that decision too). The departments halted all IDR efforts for determinations issued on or after Feb. 3, 2023. However, it allowed the IDR entities to process any disputes for items or services furnished before October 25, 2022 since those were not impacted by the new court order.

By March 17, 2023, the departments had completed what they believed to be all of the necessary updates to the IDR portal and process guidance documents to bring them into compliance with the court rules. As a result, they instructed IDR entities to once again begin processing all determinations for disputes on or after October 25, 2022.

But, in August 2023, the same federal district court again vacated provisions of the rule and the guidance documents in two opinions issued three weeks apart. The first, issued on August 3, 2023 vacated the batching provisions of the rule and the $350 per party administrative fee guidance. The second ruling, issued August 25, 2023, vacated provisions relating to how to calculate the QPA.

The departments allowed single and bundled disputes submitted on or before August 3, 2023 to continue to be process, but suspended all batched dispute submissions. By October 2023, the departments had reopened the portal for new single and bundled dispute submissions but kept batched and single air ambulance disputes suspended as they worked to align their guidance to the court’s directives.

By December 2023, the departments finally reopened the portal for batched and air ambulance submissions. However, given the significant backlog of batched and air ambulance disputes that parties were unable to submit during the litigation stops, the departments granted a extension for the submission deadlines to March 14, 2024.

Reed Smith will continue to follow developments on the No Surprises Act and the IDR process. If you have any questions. Don’t hesitate to reach out to the health care lawyers at Reed Smith.

The Substance Abuse and Mental Health Services Administration (SAMHSA) has issued a final rule governing the use of medications for the treatment of opioid use disorder (OUD). In the rule, the first major update in 20 years, the agency made permanent some of the telehealth flexibilities that were put into place to respond to the COVID-19 pandemic and made a number of other changes similarly aimed at improving patient access to and reducing stigma of OUD treatment.

Additionally, with this rule, SAMHSA updated accreditation and certification requirements for opioid treatment programs (OTPs) as required by the Consolidated Appropriations Act, 2023 (CAA). The rule, which was printed in the Federal Register on February 2, 2024, takes effect April 2, 2024, and has a compliance date of October 2, 2024.

Continue Reading SAMHSA Finalizes Major Update to Rules Governing Opioid Treatment Program Requirements

Building on prior requests for information and an increased focus on Medicare Advantage oversight, the Centers for Medicare and Medicaid Services (CMS) has issued another request for information (RFI) seeking input on data needed for Medicare Part C, also known as the Medicare Advantage (MA) program. The goal of this RFI, which was published in the Federal Register on January 30, 2024, is to provide CMS with feedback on both the format and types of data that will allow CMS to have better insight into MA organizations and their operations and to consider future rulemaking. Responses to the RFI are due by May 29, 2024.

This RFI is an extension of CMS’s General MA RFI published in August 2022, which generated over 4,000 responses from various stakeholders. The 2024 RFI broadly seeks input on “all aspects of data related to the MA program—both data not currently collected as well as data currently collected.” The eventual goal is to make MA data commensurate with data available from Medicare Parts A and B to ensure appropriate transparency into MA organizations and to address perceived shortcomings through additional rulemaking.

Continue Reading CMS Issues RFI for Medicare Advantage Data

The Department of Health and Human Services Office of the National Coordinator for Health Information Technology (ONC) has published its first final rule on Health Data, Technology and Interoperability. The rule, known as the HTI-1 rule, takes effect on February 8, and governs updates to the ONC’s Health IT Certification Program, as well as regulations on information blocking.

Among the program criteria that the rule addresses include those related to decision support, electronic case reporting and standards-based application programming interfaces (APIs). To address the question of information blocking, the rule provides refined definitions of statutory terms and identifies practices that cannot constitute information blocking as they are considered by ONC to be “reasonable and necessary.”

Continue Reading ONC Finalizes Information Sharing and Algorithm Transparency Rule

On January 17, 2024, the Supreme Court of the United States heard oral argument in two cases—Relentless v. Dep’t of Commerce, and Loper Bright Enters. v. Raimondo—that could have far-reaching effects on administrative law jurisprudence and the authority of federal agencies in years to come.

At the core of both cases is the Supreme Court’s Chevron doctrine, which refers to how courts are to review an agency’s interpretation of a statute that it administers.  Under the test of Chevron v. Natural Resources Def. Council, if an agency’s construction of an ambiguous statute is deemed to be reasonable, a court defers to the agency’s construction—even if the court believes the agency’s construction was not the best reading of the statute. 

Over the last four decades, Chevron deference has faced criticism from those who argue that it is the role of courts, not federal agencies, to say what the law means.  Arguing on Wednesday in support of overturning Chevron, counsel for Loper Bright argued that the Court should instead simply ask one question: “What is the best reading of the statute?”

Continue Reading Supreme Court Tackles Chevron And Could Change How Agencies Regulate The Health Care Industry

The Department of Health and Human Services Office of Inspector General (OIG) kicked off the new year with four new advisory opinions covering retiring physicians, preferred hospital organization discounts for Medigap patients, and gift cards for the referral of potential physician practice customers of a non-clinical consulting company. While OIG published the favorable opinions last week, it issued them on December 28, 2023 to cap off a busy 2023 season.

Two opinions, Opinion 23-13 and Opinion 23-14, are substantially similar to each other and to two other opinions  issued earlier in the year (Opinion 23-09 and Opinion 23-10). All four opinions approve the use of discounts by a preferred hospital organization (PHO) within a “preferred hospital” network as part of Medicare Supplemental Health Insurance (Medigap) policies.

Specifically, the opinions approved of an insurance company contracting with the PHO to provide discounts on the otherwise-applicable Medicare inpatient deductibles for its policyholders and, in turn, the insurer providing a premium credit of $100 off the next renewal premium to those policyholders who used a network hospital for an inpatient stay. This flurry of PHO Medigap discount opinions likely reflects the fact that an OIG advisory opinion is binding only on its requestor, leading different PHOs to seek approval for the same proposal.

The other two opinions include Opinion 23-12, a favorable review of a one-time, voluntary redemption offer to physician partners reaching age 67 to have their partnership units repurchased by a partnership over a 2-year period, contingent upon the physician partners’ agreement to retire from the practice of medicine,  and Opinion 23-15, a favorable review of a consulting company’s gift card offer to physician practices for the referral of potential new customers.

Continue Reading OIG Publishes First Advisory Opinions of the Year

The Department of Health and Human Services (HHS) released a final rule today governing federal protections for health care workers exercising their right to nondiscrimination on the basis of conscience objections.

The rule, entitled, Safeguarding the Rights of Conscience as Protected by Federal Statutes, is scheduled to be published in the Federal Register on Thursday, January 11 and will take effect on March 11, 2024. The rule effectively repeals the majority of a Trump-era rule that was blocked by federal court orders before it even went into effect.

The new rule reinstates provisions of an Obama-era rule that placed the Office for Civil Rights (OCR), the HHS office that handles nondiscrimination enforcement, in charge of coordinating complaints for violations of the conscience protections of various federal laws. The rule also implements a voluntary notice provision that establishes an industry best practice to alert employees to their rights under the laws.

Continue Reading HHS Repeals Most of 2019 Health Care Conscience Protection Rule

On Nov. 8, 2023, the Senate Finance Committee voted 26-0 to approve the Better Mental Health, Lower Cost Drugs, and Extenders Act. Among its other provisions, the bill, for which final legislative text has not yet been released, would, for the first time, mandate minimum prices that Medicare Part D plans, and the pharmacy benefit managers (PBMs) with which they contract, must pay to certain types of pharmacies as reimbursement for the drugs they dispense to Part D plan enrollees.

This measure, together with new pharmacy contracting requirements and related enforcement provisions also included in the bill, would represent an important—albeit limited—modification to pharmacy network contracting rules under Part D, which have been limited by the statutory “non-interference clause” barring the Centers for Medicare and Medicaid Services (CMS) from interfering in contract negotiations between pharmacies and plans or their PBMs.

Floor on Reimbursement to Certain Pharmacies

Section 201 of the bill, entitled “Assuring Pharmacy Access and Choice for Medicare Beneficiaries,” would require that, beginning in 2028, the “total reimbursement” paid for a Part D covered drug to an “essential retail pharmacy” that is an “independent community pharmacy” may not be less than the “average National Average Drug Acquisition Cost (aNADAC)” for retail community pharmacies for such drug. When an aNADAC for retail community pharmacies is not available for the drug, the drug’s aNADAC for applicable non-retail pharmacies or wholesale acquisition cost (WAC) would be used to set the reimbursement floor.

For these purposes:

  • “Essential community pharmacy” would be defined as a retail pharmacy that (1) is not an affiliate of a PBM or Part D plan sponsor, (2) is located in a medically underserved area, and (3) is designated as an essential retail pharmacy by CMS for a plan year, in a list published prior to the beginning of the plan year, based upon these criteria, subject to removals made by CMS when a pharmacy no longer satisfies these criteria.
  • “Independent community pharmacy” would be defined as a retail pharmacy with fewer than four locations that is not affiliated with any person or entity other than its owners.  Franchisees and pharmacies associated with pharmacy services administrative organizations (PSAOs) that meet the relevant requirements can qualify as independent community pharmacies.
  • “Affiliate” would mean “any entity that is owned by, controlled by, or related under a common ownership structure with a pharmacy benefit manager or [Part D plan] sponsor or that acts as a contractor or agent to such pharmacy benefit manager or [Part D plan] sponsor, if such contractor or agent performs any of the functions described” in the bill’s definition of “pharmacy benefit manager.”
  • While “total reimbursement” is not defined in the description of the provision passed by the Committee, a separate discussion draft of the bill released prior to the markup would define it as the “negotiated price” for the drug (essentially, the reimbursement amount the pharmacy is entitled to receive for the drug, including any dispensing fees) plus any incentive payments the pharmacy is entitled to receive and less any fees, pharmacy price concessions, discounts or other forms of remuneration paid by the pharmacy.

Accordingly, the bill’s reimbursement floor would appear to apply only to pharmacies located in a medically underserved area which are part of a chain that includes no more than three pharmacies.  We expect that “medically underserved areas” will be based upon designations made by the Health Resources and Services Administration (HRSA) under Section 330(b)(e)(A) of the Public Health Service Act, which includes a significant portion of the United States, primarily in rural areas.  Further, since the floor is generally set at the aNADAC for the drug, the guaranteed reimbursement such pharmacies would be entitled to receive would only be an approximation of their drug acquisition cost, and not include any reimbursement for other costs of operating a pharmacy or pharmacy profit.

The bill does not specifically define “average NADAC” or “aNADAC,” but the discussion draft of the bill would implement it as the average NADAC for the most recent plan year, when such NADAC was published for the drug for a full plan year.  That draft bill would also provide that when a NADAC for a drug is available but has not been available for a full plan year, the ”most recent” NADAC would be used instead, and when no NADAC is available, the drug’s WAC (i.e., manufacturer list price) would be used.  However, it is not clear whether those provisions will be part of the final legislative text of the bill. 

CMS currently publishes NADACs for retail community pharmacies for Medicaid reimbursement purposes, based upon survey data collected from such pharmacies. In general, a single NADAC is calculated and published for each strength and dosage form of a brand name drug and separately for all generic drugs as a group (including authorized generics) of a given strength and dosage form, subject to availability of adequate survey data.  Section 202 of the bill would separately require that NADAC data also be collected and published for “applicable non-retail pharmacies,” defined to include mail order and specialty pharmacies but exclude long-term care, hospital and certain other types of pharmacies. Further, NADAC would be based upon pharmacy acquisition costs “net of all discounts and rebates (to the extent discount and rebate information is available)”; since current NADACs are based only upon pharmacy invoice prices, the inclusion of rebate data in the calculation potentially could reduce current NADACs for some drugs. While pharmacy submission of data in response to NADAC surveys is currently voluntary, the bill would require all retail community pharmacies and applicable non-retail pharmacies receiving any Medicaid reimbursement to provide information in response to such surveys.

New Preferred Pharmacy Network Contracting Requirements

Under the Part D statute and implementing regulations, a plan sponsor is subject to an “any willing pharmacy” obligation to contract with any pharmacy willing to agree to the plan’s standard terms and conditions for participation in its pharmacy network. However, CMS has indicated that this pharmacy contracting right does not extend to participating in a plan’s network as a “preferred pharmacy,” where enrollee cost-sharing for some or all drugs is lower than the cost-sharing they must pay at non-preferred pharmacies. Since many Part D enrollees have a strong financial incentive to use preferred pharmacies where they will pay less for their drugs, many pharmacies have complained that their statutory right has been undermined and they are disadvantaged to preferred pharmacies, including those that are affiliated with the plan sponsor or its PBM.

While the bill would not create an any-willing-pharmacy right for any individual pharmacy to participate in a plan’s network as a preferred pharmacy, it would create new aggregate network contracting obligations for Part D plans. Specifically, beginning in 2028, a Part D plan sponsor using a preferred pharmacy network would be required to contract with, as preferred pharmacies:

  • At least 80 percent of the “essential retail pharmacies” in its service area that are also “independent community pharmacies”; and
  • At least 50 percent of the “essential retail pharmacies” in its service area that are not also “independent community pharmacies.”

Consequently, taken together with the reimbursement floor noted above, essential retail pharmacies that are also independent community pharmacies (i.e., in a medically underserved area and part of a chain of three pharmacies or less) would have a good chance of being included in a preferred network as a preferred pharmacy (and thereby less disadvantaged in obtaining Part D enrollees’ business), and the plan must generally pay them reimbursement at or above their pharmacy acquisition cost. While pharmacies in medically underserved areas that are part of larger chains would not have any guaranteed reimbursement terms, the plan (or the PBM contracting on its behalf) would have to offer good enough terms to incentivize enough of such pharmacies to participate to meet the 50 percent threshold.

Clarification of “reasonable and relevant” any willing pharmacy contract terms

CMS has stated in guidance that the pharmacy network “standard terms and conditions” which a Part D plan sponsor must offer to any willing pharmacies must be “reasonable and relevant” to the given type of pharmacy, with additional explanation of what that means, but it has not codified those details in regulation. The bill would require that it undertake a notice-and-comment rulemaking to promulgate standards for such reasonable and relevant terms and conditions, to take effect beginning in plan year 2028, and for such purposes issue a request for information on those contract terms and conditions, as well as contracting practices between pharmacies and Part D plan/PBMs (including with respect to information on reimbursement and dispensing fees), by no later than Jan. 1, 2025.

Enforcement and Reports to Congress

Part D plans that violate these requirements would be subject to civil monetary penalties, in addition to an obligation to make a pharmacy whole for any failure to provide required reimbursement. Further, PBMs would be required to reimburse plan sponsors for any violations related to responsibilities the plan delegated to the PBM. CMS would establish a process by which pharmacies could submit an allegation, via a standardized template, that a plan was in violation of the standards for reasonable and relevant contract terms and conditions or the protections for essential retail pharmacies that are independent community pharmacies. 

These requirements would significantly enhance CMS policing of plans’ and their PBMs’ compliance with their any willing pharmacy contracting obligations, as well as ensure enforcement of these new contracting and reimbursement obligations. Additionally, CMS would be required to brief Congress and publish periodic reports, beginning no later than 90 days after the enactment of the bill, on topics relating to the implementation of the CMS negotiated price regulation that takes effect in 2024 (requiring that negotiated prices used to determine cost sharing reflect the lowest possible reimbursement payable to the pharmacy, taking into account post-adjudication pharmacy price concessions (“DIR fees”)). Topics to be covered include: (1) monitoring of changes to contract terms and conditions offered to pharmacies for preferred network participation; (2) CMS enforcement or oversight activities related to any willing pharmacy provisions; and (3) CMS plans, strategies or initiatives to address or mitigate concerns relative to convenient pharmacy access.

Implications for pharmacies, plan sponsors and PBMs

These provisions of the bill reflect a bipartisan interest to take actions to help “mom and pop” community pharmacies, particularly in rural areas where many pharmacies have closed, citing low levels of reimbursement from PBMs. That said, these measures represent relatively modest steps—e.g., a requirement to pay a portion of pharmacies at least their drug acquisition costs is hardly a bonanza for pharmacies—presumably reflecting the Committee’s interest in keeping the cost of the provision manageable. The Congressional Budget Office has scored this provision as increasing Federal expenditures by slightly more than $1 billion over the ten-year period 2024-2033, with most of its requirements taking effect in 2028.

In addition to the points noted above, these provisions could affect pharmacy network contracting for pharmacies that are not essential retail pharmacies. In particular, the reimbursement rates negotiated by larger pharmacy chains are sometimes based upon the number of competing pharmacies in a given network, with deeper discounts provided in exchange for a narrower network that drives more of the enrollees’ business to that chain. The requirements to contract with 80 percent/50 percent of essential retail pharmacies as preferred pharmacies would limit some plan and PBM flexibility to design such narrow networks.

More generally, many of the details of this provision remain to be finalized, ranging from details which will be fleshed out in the legislative text of this bill to further amendments that may be made, and of course implementation by CMS—assuming the provision is enacted into law in the first place. While the overall Finance Committee bill appears to have strong bipartisan support in the Senate, it is not clear what level of support it would have in the House of Representatives. Among other factors, there are other bills in the House that would impose various requirements on health plans and PBMs with respect to prescription drug pricing, which also have bipartisan support, presumably reflecting the desire of various Representatives to claim credit for taking action in this area.

Reed Smith will continue to track developments with respect to this legislation as well as other developments relating to regulation of drug pricing and coverage. If you have any questions about this bill or any other topic related to prescription drug coverage, please reach out to the authors of this post or to the health care lawyers at Reed Smith.

Recent efforts by the federal government to develop a strategy for guiding (and regulating) the use of artificial intelligence (AI) have targeted multiple industry sectors, with healthcare at the forefront. For example, under the President’s recent executive order, in 2024 the Department of Health and Human Services is required to educate itself, publish guidance, and develop a strategy to potentially regulate the development and use of AI within its areas of oversight. Congress, in comparison, is taking a more measured approach, and its future involvement in AI regulation remains unclear.

We discuss the recent federal executive and legislative efforts in the United States and their potential impact for companies that use AI in the health sector in a Reed Smith in depth perspective article.

Reed Smith will continue to follow developments related to the regulation of AI in the health care sector. If you have any questions, please reach out to the authors or to the health care lawyers at Reed Smith.