Insurers say the Centers for Medicare and Medicaid Services’ proposal to stop pharmacy benefit managers from clawing back fees from pharmacies goes against Medicare law, setting the stage for potential legal action if CMS finalizes the policy.

But litigation might also go forward if CMS doesn’t finalize the policy, given that pharmacy trade groups sued the Health and Human Services Department in 2021 over the definition of negotiated prices for Part D drugs, which currently excludes price concessions that can’t reasonably be determined at the point of sale.

The case was stayed after CMS proposed changing the definition in January but it could be resumed if CMS decides not to go through with the policy change.

Part D plans can make performance-based adjustments to negotiated prices after the sale of a drug—sometimes weeks or months afterwards. CMS’ proposal, announced in Januarywould require sponsors to apply all price concessions from network pharmacies to the point of sale so beneficiaries can share in the plans’ savings. Comments on the proposal were due Monday.

CMS suggested changing the negotiated prices definition to minimize clawbacks in an earlier proposed rule but didn’t finalize the policy after pushback from Part D sponsors and pharmacy benefit managers.

However, in the 2023 proposed rule, CMS cites data that shows pharmacy price concessions grew more than 107,400% between 2010 and 2020. Much of this growth occurred once performance-based arrangements became more popular, CMS said. Price concessions are now the second-largest category of post-sale compensation received by plans and benefit managers—after manufacturer rebates.

Less than 2% of plans have passed price concessions through to beneficiaries in recent years, according to the proposed rule. CMS acknowledged that plans may have a competitive advantage if they don’t pass these savings through so they can charge lower premiums.

The National Community Pharmacists Association and the American Pharmacists Association—plaintiffs in the ongoing case against the current negotiated price definition—both support the policy idea in the 2023 proposal but think CMS needs to take it further.

CMS must close loopholes that allow benefit managers to claw back funds for drugs purchased after a beneficiary has hit their cost limit, require standardized pharmacy performance measures for incentive payments and more, NCPA said in its comment letter.

“Pharmacy price concessions are being used by pharmacy benefit managers to subsidize premiums in the Medicare Part D program, hide the true costs of prescription drugs, inflate costs for seniors and put crushing financial pressure on small business community pharmacies and patients. To preserve the integrity of these programs, these practices must be stopped,” NCPA’s comment letter reads.

Many independent pharmacists also asked CMS to finalize the proposal in their own letters. One commenter wrote that their four-pharmacy organization in Kentucky paid $700,000 in DIR fees last year, a 75% increase from the year before. Another independent pharmacy chain owner in Nebraska wrote that he’s not sure how long the company will stay open due to PBM clawbacks and lower prescription margins. Other provider and patient advocacy groups, as well as the Medicare Payment Advisory Commission, joined in supporting the proposal.

But insurers and benefit managers question CMS’ legal authority to go through with its plan as written. The Pharmaceutical Care Management Association, a trade group for pharmacy benefit managers, argued in a comment letter that the Part D statute suggests Congress didn’t intend for Part D insurers to pass through all possible pharmacy price concessions at the point of sale.

PCMA and insurance lobbying group AHIP also claim the proposal goes against a statutory clause that says regulators can’t interfere with negotiations between drug manufacturers and pharmacies and prescription drug plan sponsors.

CMS clarifies in the proposed rule that the regulatory change doesn’t affect what insurers can arrange in their contracts with network pharmacies for pay adjustments after the point-of-sale. The new policy would only impact the price that’s used to determine beneficiary cost- sharing—and reported on the prescription drug event record, but doesn’t control what’s ultimately paid to the pharmacy or the timing of adjustments, CMS said.

AHIP still has qualms, though, saying the proposal would change negotiation dynamics between plans and pharmacies and impact competition between pharmacies and negotiations throughout the drug supply chain.

AHIP, PCMA and other Part D players raised many other concerns with the proposal as well, including over implementation timelines—they say they’d need until at least 2024—and whether the plan would chill value-based contracting with pharmacies.

Additionally, the organizations point out that the policy won’t reduce drug costs for all beneficiaries. Although cost-sharing will decrease, premiums will increase. A PCMA-commissioned study found that 38% of enrollees may see premium increases that outweigh cost-sharing savings.

Pharmacy price concessions have been contentious since 2005, and feelings on both sides of the pharmacy-insurer divide are strong, said Margaux Hall, a Ropes & Gray partner who follows drug pricing.

“I would not be surprised if there were further potential litigation because these are really high stakes and the manner in which this is ultimately reported and taken into account for purposes of Part D pricing will have a significant impact for insurers within the competitive market for Medicare Part D,” Hall said.

While it’s difficult to predict whether CMS will finalize the policy, Hall points out that it would significantly lower beneficiaries’ drug costs at the point of sale. With the Biden administration’s push to lower prescription drug pricing stagnant in Congress, this administrative policy change could look particularly attractive.

The Biden-appointed Federal Trade Commission chair also pushed for a study on how pharmacy benefit managers impact independent pharmacies and their potentially anti-competitive conduct, which could indicate the administration’s skepticism of benefit manager practices. The FTC ultimately voted against conducting the study.