On May 17, 2018, CMS issued a strongly-worded letter to Part D plan sponsors stating that pharmacy “gag clauses” are unacceptable. “Gag clauses” typically prohibit pharmacies from informing customers that they could pay less money out of pocket by paying cash instead of billing their insurance and incurring the required copay or deductible. “Gag clauses” are often included in pharmacy benefit managers (PBMs) and health plans’ contracts with pharmacies.

The letter, though sub-regulatory guidance without the actual effect or force of law, clarified that CMS considers any form of pharmacy “gag clauses” unacceptable and contrary to its efforts to promote drug price transparency and lower drug prices. In addition, CMS reminded Part D plan sponsors that they must require their network pharmacies to disclose any difference in costs between a brand name Part D drug and the lowest cost therapeutically-equivalent generic of that drug.

The letter comes less than a week after the White House and Department of Health and Human Services released their “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs” (the Blueprint). The Blueprint stated that HHS would "[p]rohibit Part D plan contracts from preventing pharmacists from telling patients when they could pay less out-of-pocket by not using their insurance (i.e., prohibit ‘gag clauses’).” CMS’s letter to Part D plan sponsors is one of the Trump Administration’s first initiatives directed to Part D plans under the Blueprint. The Arent Fox team previously analyzed the Blueprint in a May 17, 2018 Alert.

“Gag clauses” have also been targeted by a group of bipartisan senators. In March 2018, two bills were introduced: the Patient Right to Know Drug Prices Act (S. 2554, introduced by Senator Susan Collins (R-ME)) and the Know the Lowest Price Act (S. 2553, introduced by Senator Debbie Stabenow (D-MI)). Both bills would bar insurers and PBMs from including “gag clauses” in their pharmacy contracts. The Patient Right to Know Drug Prices Act would apply to commercial plans, and the Know the Lowest Price Act would apply to Medicare Advantage and Medicare Part D. In addition, a growing number of state legislatures are introducing bills banning pharmacy “gag clauses.” Between 2016 and May 2018, at least 20 states have passed such laws, and at least fourteen more state legislatures have introduced similar bills in 2018.