State legislatures have moved aggressively over the past two years to reshape how pharmacies are reimbursed for prescription drug claims. This wave of reform targets pharmacy benefit manager (PBM) practices that critics contend have driven pharmacy closures, created opaque pricing structures, and limited patient access to community pharmacies.
The urgency behind these efforts is unmistakable. Thousands of pharmacies shuttered their doors in 2024 and 2025, prompting state policymakers to accelerate legislation establishing minimum reimbursement standards, mandating pricing transparency, and curbing controversial PBM practices such as spread pricing and patient steering. At the heart of these reforms lies a fundamental concern: community retail pharmacies cannot compete on a level playing field with vertically integrated PBMs that control vast networks of mail-order and specialty pharmacies nationwide.
NADAC-Based Reimbursement
A defining trend in state pharmacy reimbursement reform is the adoption of the National Average Drug Acquisition Cost (NADAC) as the baseline for calculating what pharmacies are paid for dispensed medications. NADAC is a weekly survey of retail pharmacies conducted by the Centers for Medicare & Medicaid Services (CMS) to determine actual acquisition costs and is considered one of the most transparent calculations for both brand-name and generic medications.
Recent disruptions to NADAC have exposed stark disparities in drug acquisition costs between large chains and smaller, independent pharmacies. In 2024, pharmacies experienced severe month-to-month reimbursement shifts when, for the first time, large chain pharmacies participated in the NADAC survey and reported significantly lower invoice prices, which lowered the national average.
These variations in acquisition costs (driven by pharmacy size, supplier contracts, and supply chain relationships) have prompted policymakers to consider reforms including mandating pharmacy participation in NADAC surveys, implementing state-based mandatory acquisition cost surveys, or establishing tiered pricing benchmarks based on pharmacy purchasing power.
Several states have enacted legislation requiring PBMs to reimburse pharmacies at NADAC plus a professional dispensing fee, typically tied to the state’s Medicaid dispensing fee rate. Key examples include Arkansas, Georgia, Kentucky, Tennessee, and West Virginia, among others. Most recently, Iowa passed legislation in 2025 to reimburse retail pharmacies using NADAC with a dispensing fee, effective for contracts beginning July 1, 2025, and applying to prescription drug benefits beginning January 1, 2026. A summary of these recent reimbursement regulations is provided below.
- Kentucky
Kentucky enacted Senate Bill 188 and House Bill 190 in 2024, which require pharmacy reimbursement in the commercial market and most state employee plans at NADAC plus professional dispensing fees. Effective January 1, 2025, these laws also addressed network adequacy, imposed limits on mail-order requirements, prohibited retroactive fees, and prevented lower reimbursement to pharmacies not owned by or affiliated with PBMs. Importantly, on September 25, 2025, the Kentucky Attorney General issued Opinion OAG 25-11 clarifying that the law applies to out-of-state PBMs doing business in Kentucky. This means plans with eligible Kentucky claims, regardless of their state of domicile, must reimburse independent pharmacies in the state at NADAC plus a $10.64 dispensing fee.
- Nebraska
Also in 2024, Nebraska enacted Legislative Bill 204, which establishes that independent pharmacies with six or fewer locations have a managed Medicaid reimbursement floor based on Medicaid fee-for-service NADAC methodology, plus a professional dispensing fee of $10.38. The Department of Insurance is required to complete an initial cost of dispensing survey, which will be conducted every two years.
- Alabama
In 2025, Alabama passed Senate Bill 252, which established minimum reimbursement rates for independent pharmacies and mandated pass-through pricing of rebates. The bill also prevents PBMs from including fees that would reduce reimbursements or increase out-of-pocket costs for health plan beneficiaries.
- Louisiana
Louisiana enacted House Bill 264 in 2025, which regulates PBMs by banning rebate retention and spread pricing, mandating transparent reimbursement and reporting practices, strengthening enforcement, and protecting local pharmacies and consumers from unfair PBM practices. Louisiana previously passed Senate Bill 444 in 2024, which prevents PBMs from reimbursing certain pharmacies (specifically those that do not own more than 5 shares or 5% interest in pharmaceutical wholesale purchasing groups or vendors) for less than the acquisition cost of a drug, device, or service.
- Montana
Montana enacted House Bill 740 in 2025, which sets minimum reimbursement rates for independent pharmacies and aims to increase PBM transparency.
- South Carolina (Pending)
South Carolina has introduced two significant bills addressing pharmacy reimbursement. Senate Bill 342, introduced in February 2025, would require PBMs to reimburse pharmacies at no less than 104% of NADAC plus a professional dispensing fee equal to the current South Carolina Medicaid professional dispensing fee. The bill also provides enhanced dispensing fees for low-volume pharmacies and specialized delivery drugs.
Additionally, House Bill 4791, introduced in January 2026, mandates that PBMs may not reimburse pharmacies in an amount less than NADAC plus the state’s Medicaid professional dispensing fee and requires pharmacies to cooperate with federal and state acquisition cost surveys.
- New York (Pending)
New York’s Pharmacy Transparency Act (S5939) is currently under consideration and would require PBMs to pay in-network pharmacies at minimum at the NADAC rate (or at the pharmacy acquisition cost rate if greater or if there is no NADAC rate) plus a professional dispensing fee at least equal to the Medicaid professional dispensing fee. The bill, which was introduced to the NY Senate with a proposed effective date of January 1, 2026, is expected to take immediate effect if passed and signed into law by the governor.
A related bill, S6323, proposes a tiered system for high-cost drugs, providing that medications with a NADAC exceeding $675 must be reimbursed at the NADAC price plus 2.5%, plus the $10.08 dispensing fee.
- California
California’s Governor Newsom signed Senate Bill 41 into law in October 2025. This legislation bans spread pricing arrangements between PBMs and clients, mandates pharmacy reimbursement at NADAC plus a dispensing fee equal to the Medi-Cal dispensing fee (currently $10.05), requires that non-PBM-affiliated pharmacies be reimbursed no less than PBM-affiliated pharmacies, and mandates that 100% of manufacturer rebates be passed through to clients.
PBM Compensation Delinking Laws
Beyond NADAC-based reimbursement mandates, some states have enacted “delinking” laws that fundamentally alter how PBMs are compensated by prohibiting their remuneration from being tied to the price of drugs.
For example, Colorado enacted House Bill 1094, which transitions PBM compensation to a flat-fee model, aiming to remove incentives for PBMs to favor higher-priced medications. This delinking rule is scheduled to take effect in 2027, allowing time for industry adjustments. California’s Senate Bill 41 also contains “delinking” provisions that prohibit spread pricing and requires 100% of rebates to be passed to payers. Lastly, Illinois enacted House Bill 1697, which imposes a $15 covered-life assessment on PBMs operating in the state. The fees will support a state prescription drug affordability fund.
Spread Pricing Bans
Multiple states have enacted legislation banning spread pricing, the practice in which PBMs retain the difference between what they charge health plans and what they reimburse pharmacies.
For example, Idaho passed House Bill 596 and Vermont enacted Act No. 127, both prohibiting spread pricing. Utah enacted House Bill 257, which forbids spread pricing and mandates rebate pass-through. Oklahoma passed House Bill 3376 to prohibit spread pricing, require PBMs to disclose detailed records of their transactions, and strengthen oversight from the Oklahoma Attorney General.
Many recent state laws combine spread pricing bans with mandatory reimbursement floors. These laws typically mandate higher reimbursements coupled with increased dispensing fees ranging from $10 to $15 for independent pharmacies and prohibit exclusive or narrow pharmacy networks that incentivize participants to use only in-network pharmacies.
Equal Reimbursement and Anti-Steering Provisions
In addition to enacting NADAC reimbursement mechanism, several states have also passed legislation that provides for equal reimbursement for independent pharmacies and PBM-owned pharmacies in addition to anti-steering provisions.
For example, Alaska enacted House Bill 226 in 2024, which establishes several provisions for PBM duty of care to plan sponsors, benefits administrators, and covered individuals. Patients can choose their pharmacy, which limits patient steering, prohibits fees, and requires equal reimbursement between PBM-affiliated and nonaffiliated pharmacies. Furthermore, Iowa passed House File 2099 in 2024, which addresses retaliation by PBMs against pharmacies, updates Maximum Allowable Cost (MAC) list policies, and prohibits various fees, including claim processing, performance-based, network participation, and accreditation fees.
PBM Pharmacy Ownership Restrictions
Interestingly, Arkansas enacted House Bill 1150 in 2025, the first-in-the-nation ban on PBMs owning or operating pharmacies. This legislation is intended to safeguard the interests and viability of independent pharmacies within the state, aiming to prevent potential conflicts of interest and ensure a more competitive market.
The law, effective January 1, 2026, has become the subject of legal challenges, with a preliminary injunction issued on July 28, 2025, temporarily halting its enforcement. Louisiana and Indiana each introduced bills that would also prohibit PBM ownership of pharmacies, but neither bill contained that provision in their final versions.
Critics warn that because of the market share of the largest PBMs, forbidding PBM ownership of pharmacies could result in potential reduction in the number of available pharmacies, potentially contributing to pharmacy deserts. However, whether legislation prohibiting PBM ownership of pharmacies will ultimately survive constitutional challenges remains to be seen.
Looking Ahead in 2026
In 2026, states are expected to continue experimenting with different modes of PBM reform legislation. Increased transparency and licensure requirements are likely to gain bipartisan support, as they are less susceptible to immediate legal challenges. However, some states will persist in pursuing delinking mandates and ownership bans despite the likelihood of immediate legal challenges and strong industry opposition.
Federal efforts to reform PBM actions continue to gain momentum. In April 2025, the Attorney Generals of 39 states signed a letter urging Congress to pass reforms such as prohibiting pharmacy ownership, preventing non-affiliate discrimination, and combating anti-steering practices. Since then, several significant legislative developments have occurred.
In July 2025, a bipartisan coalition introduced the PBM Reform Act (H.R. 4317), which would ban spread pricing in Medicaid, delink PBM compensation from drug costs under Medicare Part D, require semi-annual reporting on drug spending and rebates to employers and patients, and direct CMS to enforce “reasonable and relevant” contract terms in Medicare Part D pharmacy contracts.
On February 3, 2026, Congress passed the Consolidated Appropriations Act, which the President signed into law the same day. The legislation includes a sweeping package of PBM reforms that have been years in the making. Critically for pharmacies, these reforms are intended to increase reimbursement transparency and strengthen reimbursement options through Medicare in 2028-2029.
Nevertheless, state-level regulations will be crucial in shaping operational strategies, contract provisions, and the boundaries tested by litigation. Pharmacists, pharmacy owners, health plans, and their legal counsel must closely monitor developments in each state where they operate to ensure compliance with these evolving reimbursement requirements.
How Frier Levitt Can Help
As experienced counsel in navigating the varying state regulations governing retail pharmacy services and PBMs, Frier Levitt is uniquely positioned to counsel pharmacies nationwide. If you have questions about any recent statutory developments in your state or require assistance with an on-going dispute with a PBM, the attorneys at Frier Levitt would be happy to assist.
