42 USC 1395w-112 - Requirements for and contracts with prescription drug plan (PDP) sponsors

U.S Code last checked for updates: Apr 29, 2026

§ 1395w–112.

Requirements for and contracts with prescription drug plan (PDP) sponsors

(a)

General requirements

Each PDP sponsor of a prescription drug plan shall meet the following requirements:

(1)

Licensure

(2)

Assumption of financial risk for unsubsidized coverage

(A)

In general

(B)

Reinsurance permitted

(3)

Solvency for unlicensed sponsors

(b)

Contract requirements

(1)

In general

(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)

submitted a bid under section 1395w–111(g) of this title for such year (as the first year of a contract period under such section) to offer a fallback prescription drug plan in any PDP region;

(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

(C)

Protections against fraud and beneficiary protections

(D)

Additional contract terms

(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 1

 So in original. Probably should not be capitalized.

support agencies (in accordance with their obligations to support Congress as set out in their authorizing statutes) for the purposes of conducting Congressional 1 oversight, monitoring, making recommendations, and analysis of the program under this subchapter.

(E)

Intermediate sanctions

(F)

Procedures for termination

(4)

Prompt payment of clean claims

(A)

Prompt payment

(i)

In general

(ii)

Clean claim defined

(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

(ii)

Authority not to charge interest

(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

(II)

Determination after submission of additional information

(iii)

Obligation to pay

(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

(F)

Protecting the rights of claimants

(i)

In general

(ii)

Anti-retaliation

(G)

Rule of construction

(5)

Submission of claims by pharmacies located in or contracting with long-term care facilities

(6)

Regular update of prescription drug pricing standard

(7)

Suspension of payments pending investigation of credible allegations of fraud by pharmacies

(A)

In general

(B)

Rule of construction

(8)

Provision of information related to maximum fair prices

(9)

Accountability of pharmacy benefit managers for violations of reasonable and relevant contract terms and conditions

(c)

Waiver of certain requirements to expand choice

(1)

Authorizing waiver

(A)

In general

(B)

Application of regional plan waiver rule

(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

(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

(2)

Compliance with standards

(e)

Licensure does not substitute for or constitute certification

(f)

Periodic review and revision of standards

(1)

In general

(2)

Prohibition of midyear implementation of significant new regulatory requirements

(g)

Prohibition of State imposition of premium taxes; relation to State laws

(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

(ii)

Incentive payments

(iii)

Clarification on rebates and discounts used to lower costs for covered part D drugs

(iv)

Evaluation of remuneration arrangements

(v)

Disgorgement

(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

(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

(D)

Audit rights

(i)

In general

(ii)

Auditor

(iii)

Provision of information

(iv)

Timing

(v)

Information from affiliates

(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

(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

(B)

Implementation

(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

(B)

Implementation

(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

The term “affiliate” means, with respect to any pharmacy benefit manager or PDP sponsor, any entity that, directly or indirectly—

(i)

owns or is owned by, controls or is controlled by, or is otherwise related in any ownership structure to such pharmacy benefit manager or PDP sponsor; or

(ii)

acts as a contractor, principal, or agent to such pharmacy benefit manager or PDP sponsor, insofar as such contractor, principal, or agent performs any of the functions described under subparagraph (C).

(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

(Aug. 14, 1935, ch. 531, title XVIII, § 1860D–12, as added Pub. L. 108–173, title I, § 101(a)(2), Dec. 8, 2003, 117 Stat. 2099; amended Pub. L. 110–275, title I, §§ 171(a), 172(a)(1), 173(a), 181, July 15, 2008, 122 Stat. 2578, 2580–2582; Pub. L. 115–271, title II, § 2008(a), Oct. 24, 2018, 132 Stat. 3931; Pub. L. 117–169, title I, § 11001(b)(1)(F)(i), (H)(i), Aug. 16, 2022, 136 Stat. 1852, 1853; Pub. L. 119–75, div. J, title II, §§ 6223(d)(1), 6224(a)(1), Feb. 3, 2026, 140 Stat. 669, 670.)

cite as: 42 USC 1395w-112