Licensing/Registration: States may mandate PBMs to register or obtain a license, typically through the state insurance department or pharmacy board. While all states require PBMs to hold some certification, they differ in renewal frequency, application and renewal costs, and disclosure requirements.

Reporting Requirements: States may require PBMs to disclose prescription drug costs and utilization data to health plans that contract with the PBM and/or state regulatory agencies. Reporting requirements vary in terms of the content and frequency of required disclosures, as well as the intended recipient. States may also require PBMs to make their records available for audit by either contracted health plans or a state agency.

PBM Income: When health plans contract with a PBM to provide pharmacy benefit management services, they choose among several pricing models that determine how the PBM is compensated for its services. States have taken several approaches to limit how PBMs receive compensation related to prescription drug utilization and ingredient costs.

• Spread Pricing: In a spread pricing model, the PBM keeps a portion of the amount, or spread, between what the health plan pays the PBM and the amount the PBM reimburses the pharmacy for a patient's prescription. States may restrict the use of spread pricing contracts for public payers (e.g., Medicaid) or private health plans.
• Rebate Passthroughs: PBMs negotiate rebates and other price concessions from drug manufacturers in exchange for coverage and formulary placement. In turn, contracts between health plans and PBMs determine how these proceeds are used to cover plan sponsors' costs, reduce covered individual premiums or cost-sharing obligations, or compensate the PBM. States may require such contracts to ensure that the PBM passes through rebates to plan sponsors or covered individuals at the point of sale.
• Bona Fide Service Fees: States may require contracts between health plans and PBMs to limit PBM income to flat-dollar amounts that reflect the fair market value for services the PBM provides to the health plan. Such requirements are intended to delink PBM compensation from the ingredient cost of covered prescription drugs.

Pharmacy Contracting: PBMs may manage pharmacy networks on behalf of its contracted health plans. States may establish standards for how PBMs reimburse network pharmacies or develop programs for covered individuals to receive pharmacy services from network pharmacy providers.

• Maximum Allowable Cost (MAC) Pricing: PBMs may establish an upper limit or maximum amount they will reimburse a pharmacy for generic and multi-source drugs. PBMs develop MAC lists using a variety of data, resources, and information, and these lists may consist of thousands of products. States may establish standards for pharmacy reimbursement based on MAC lists, including which products may be placed on a MAC list, how frequently a PBM must update its MAC lists, and how contracted pharmacies may appeal MAC pricing decisions.
• Patient Steering: Pharmacy networks may include retail, mail-order, or specialty pharmacies that are affiliated with or owned by a PBM. States may regulate how PBMs treat affiliated and non-affiliated network pharmacies, including practices that prohibit a covered individual from using a certain pharmacy to fill a prescription or incentivize the use of an affiliated pharmacy.
• Minimum Reimbursement: States are increasingly interested in establishing minimum pharmacy reimbursement levels, often tied to the pharmacy's acquisition cost plus a professional dispensing fee. States often reference the minimum pharmacy reimbursement level to the National Average Drug Acquisition Cost (NADAC) survey conducted by the Centers for Medicare and Medicaid Services (CMS) or the wholesale acquisition cost (WAC), the manufacturer's list price for a product to wholesalers or direct purchasers, as reported in wholesale price guides or other publications of drug or biological pricing data.

Patient Cost Sharing: As part of their formulary management services, PBMs may institute patient cost-sharing requirements for covered prescription drugs. States may limit how PBMs can design cost-sharing obligations.

• Maximum Cost-Sharing Levels: PBMs may not require a patient to pay, or a pharmacy to collect, a cost-sharing amount greater than a specified amount. States may reference maximum cost-sharing levels to the pharmacy's usual and customary charge (i.e., cash price) for a drug, the health plan's net cost for a drug, or another metric.
• Copay Cap: Unlike maximum cost-sharing levels, which apply to all or most covered prescription drugs and are tied to specific metrics, states typically design copay caps as a flat-dollar maximum for a small number of drugs. Copay caps are mostly limited to covered insulin drugs, though states also apply caps to drugs or devices that treat other chronic conditions.
• Copay Adjustment Programs: Covered individuals may use patient assistance programs to cover their cost-sharing obligations under their prescription drug benefits. PBMs may adjust an individual's cost-sharing obligations based on such third-party assistance. States can require a PBM to apply any payment made by a covered individual or another person on behalf of the covered individual to the individual's cost-sharing obligations.