Kansas Takes On the Middlemen in Prescription Drug Pricing

Sep 13

Key Takeaways

Kansas Senate Bill 20 regulates pharmacy benefit managers—the middlemen that administer prescription-drug benefits for insurers and employers.
The law prohibits spread pricing, requires transparent reimbursement, passes most manufacturer rebates through to health plans, and strengthens state oversight.
Kansas can regulate PBMs doing business within the state, although federal law limits its authority over self-funded employer plans.
The effect on independent and 340B pharmacies may be mixed: reimbursement should become more predictable, but some previously profitable claims may pay less.
The law’s most important achievement may be allowing Kansas to see where prescription-drug money is going.

Why It Matters

The price of a prescription is rarely determined by a simple transaction between the drug manufacturer, pharmacy, and patient. Between them sits a pharmacy benefit manager, or PBM, which negotiates prices, manages formularies, processes claims, and determines how pharmacies are reimbursed.

Three PBMs—CVS Caremark, Express Scripts, and Optum Rx—process roughly 80% of prescriptions nationally. Each belongs to a larger healthcare corporation with interests in insurance, pharmacy services, or both.

The problem is not merely that PBMs make money. It is that an intermediary can influence what the health plan pays, what the pharmacy receives, and how much of the difference it retains—without the other parties necessarily seeing the complete transaction.

Kansas has now attempted to bring that system into the open.

What Senate Bill 20 Does

Governor Laura Kelly signed Senate Bill 20, the Kansas Consumer Prescription Protection and Accountability Act, in April 2026. It took effect July 1.

The law prohibits spread pricing. Under that practice, a PBM might reimburse a pharmacy $10 for dispensing a medication while charging the health plan $50 or $100 and retaining the difference.

SB 20 generally requires a PBM to charge a health plan the same amount it pays the pharmacy. Pharmacy reimbursement must be based on the National Average Drug Acquisition Cost, or NADAC, plus a professional dispensing fee of at least $10.50.

The law also prohibits PBMs from paying their own affiliated pharmacies more than independent competitors for the same medication or service. Manufacturer rebates not applied directly to a patient’s cost-sharing must generally be passed through to the health plan.

The Kansas insurance commissioner receives greater authority to license PBMs, inspect their records, examine their reimbursement methods, investigate complaints, impose fines, and order repayment when violations cause financial losses.

How Can Kansas Regulate a National Industry?

PBMs operate nationally, but they still conduct business through insurance plans and pharmacies regulated at the state level.

Kansas can require a PBM to obtain a license as a condition of operating in the state. It can regulate fully insured health plans issued in Kansas and establish rules governing contracts, reimbursements, audits, and transactions involving Kansas pharmacies.

The U.S. Supreme Court affirmed much of this state authority in its 2020 decision in Rutledge v. Pharmaceutical Care Management Association. The Court upheld an Arkansas law requiring PBMs to reimburse pharmacies at or above their acquisition costs.

Kansas’s authority is not unlimited. Many large employers operate self-funded health plans governed by the federal Employee Retirement Income Security Act, commonly called ERISA. Those plans are largely insulated from direct state insurance regulation.

Consequently, SB 20 exempts self-funded ERISA plans from its principal reimbursement and rebate requirements. Medicare prescription coverage also remains primarily a federal responsibility.

The result is not complete national reform. Kansas is regulating the portion of the prescription market within its jurisdiction while leaving the remaining gaps to Congress and federal regulators.

An Early and Unexpected Result

Will Anderson, owner of Orchards Pharmacy in Lawrence and an advocate for the legislation, reports that revenue from affected plans initially declined by approximately 11%.

That does not necessarily mean the law is failing.

Before SB 20, some prescriptions were profitable while others forced his pharmacy to absorb losses of $100 to $400. The new formula appears to be flattening both extremes. Payments may be lower on average, but they are more predictable, and pharmacies are less likely to suffer enormous losses merely for filling a prescription.

The law was designed to eliminate hidden pricing and discriminatory reimbursement—not to guarantee that every pharmacy receives more money on every claim.

What About 340B Pharmacies?

The federal 340B program allows eligible safety-net organizations—including federally qualified health centers—to purchase outpatient medications at substantial discounts. The organization may dispense those medications through its own pharmacy or an outside contract pharmacy.

Ordinarily, the PBM reimburses the prescription according to the patient’s insurance coverage. After paying the discounted acquisition cost and applicable pharmacy and administrative fees, the covered organization retains the remaining margin to support its safety-net mission.

SB 20 does not eliminate or directly alter the federal 340B discount. It affects the amount the PBM reimburses for the prescription.

Because the law generally establishes NADAC plus a dispensing fee as the reimbursement floor, it should reduce severely underpaid claims and make 340B revenue more predictable. Since NADAC reflects ordinary acquisition costs rather than the lower 340B price, covered entities may continue to retain a margin.

The result will not necessarily be increased 340B revenue, however. If a PBM previously reimbursed substantially more than NADAC, the standardized formula could reduce the margin on that claim. Contract-pharmacy and third-party-administrator fees will continue to affect how much of the reimbursement the covered entity actually retains.

The ERISA limitation also matters. Prescriptions covered by self-funded employer plans may not receive SB 20’s principal reimbursement protections.

Finally, SB 20 does not appear to contain an explicit prohibition against reimbursement discrimination based specifically on 340B status. A separate Kansas proposal, Senate Bill 284, has addressed manufacturer restrictions on delivering discounted drugs to 340B contract pharmacies. That is related to the same program but is legally distinct from SB 20’s regulation of PBMs.

For a 340B organization, the practical effect should therefore be measured rather than assumed. It should compare reimbursement, acquisition cost, contract-pharmacy fees, administrative expenses, and net revenue per prescription before and after the law took effect.

The $10.50 Question

Opponents have characterized the dispensing fee as an additional $10.50 charge on every prescription.

That description is misleading. Pharmacies already incur costs to acquire, store, prepare, verify, document, and dispense medications. The fee establishes a minimum reimbursement for those professional services; it is not automatically added to the patient’s copayment.

Whether the system ultimately lowers total costs will depend on whether eliminating spread pricing, passing through rebates, and limiting self-dealing saves more than the standardized dispensing payment costs.

Kansas will need at least a full year of claims data before drawing a reliable conclusion.

My Perspective

This legislation addresses a problem I had independently identified: no market can function properly when a powerful intermediary controls a transaction while concealing how it is paid.

PBMs provide legitimate administrative and negotiating services. They should be allowed to earn a reasonable return for those services. But employers, patients, pharmacies, and regulators should be able to determine what PBMs are being paid and whether they are actually reducing costs.

SB 20 does not impose a state-determined price on every medication. It establishes understandable rules, prevents several obvious conflicts of interest, and gives regulators and purchasers information they previously lacked.

It also demonstrates both the usefulness and the limits of state action. Kansas can regulate PBMs, insurers, and pharmacy transactions within its jurisdiction. It cannot single-handedly reform Medicare, ERISA plans, or the nationwide prescription-drug market.

That broader work will require federal action. Kansas, however, does not need to remain passive while waiting for Congress.

Before the state can decide whether PBMs are lowering prescription costs or merely moving money through an opaque system, it must be able to follow the money.

For the first time, it may now be able to do so.

Further Reading: Kansas Legislature summary of SB 20 | Enacted text of SB 20 | Kansas Legislature summary of SB 284

Paul Wilson