Bills Ban Gag Clauses in Pharmacy Contracts

By and on October 18, 2018

On October 10, 2018 President Trump signed two bills that ban “gag clauses” in pharmacy contracts. Congress passed the two bills—one for Medicare prescription drug plans (“Know the Lowest Price Act”) that will go into effect in January 2020, and another for commercial employer-based and individual policies (“Patient Right to Know Drug Prices Act”) effective immediately—by almost unanimous vote in September 2018.

While many states have already prohibited the use of these clauses, this is the first such action on a federal level.

Gag clauses are sometimes found in contracts between pharmacies and insurance companies, pharmacy benefit managers or group health plans and bar pharmacists from telling customers that they could save money by paying cash for their prescriptions rather than using their health insurance. If pharmacists violate the gag rule, they risk penalties and/or contract termination. Under the new legislation, pharmacists are not required to tell patients about the lower cost option, but they also cannot be contractually prohibited from engaging in the cost conversation.

The legislation is consistent with the position of the Centers for Medicare & Medicaid Services (CMS), which, in May of this year, issued guidance stating that “gag clauses” are unacceptable in the Medicare Part D program.

Originally published in the Health & Life Sciences News blog.

Judith WethallJudith Wethall
Judith Wethall focuses her practice on employee benefits, specifically health and welfare programs. She counsels employers, plan administrators, insurers and consultants on a wide range of ERISA compliance issues. Judith's clients include sole proprietors to Fortune 100 companies and cover a variety of industries including health care, technology, manufacturing, insurance and financial. Read Judith Wethall's full bio.


Karen Owen GibbsKaren Owen Gibbs
Karen Owen Gibbs joined McDermott in 2014 after serving as Vice President and Senior Counsel at CVS Health (formerly CVS Caremark), a Fortune 20 integrated pharmacy company. Karen advises a wide variety of health care companies, investors and lenders on operational, regulatory and enforcement issues related to all aspects of the pharmacy distribution chain. Her practice also covers synergistic areas such as substance abuse/behavioral health, physician and veterinarian office dispensing, evolving requirements related to opioid prescribing and dispensing, and a wide variety of prescription reimbursement issues. Read Karen Owen Gibbs' full profile.

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