A Trifecta of PBM Reform

Prescription drugs represent a major and growing share of employer-sponsored healthcare spending. Pharmacy Benefit Managers (PBMs) play a central role in managing pharmacy benefits, from designing formularies to negotiating with drug manufacturers to contracting pharmacy networks to processing claims. However, PBM compensation structures are complex and historically have been highly opaque. Many believe that the lack of transparency has driven up healthcare costs and made it difficult for plan fiduciaries to fulfill their ERISA responsibilities.

In the past month, a trifecta of Pharmacy Benefit Manager (PBM) reform has broken open the landscape of PBM transparency in new ways.

After years of Congressional stalemate in passing meaningful PBM reform and a patchwork of state PBM reform legislation developing, this trifecta stands to create a solid step toward PBM cost transparency.  

Trifecta Part #1 – DOL Proposed Regulations on PBM Disclosures 

The Proposed Regulation. On January 30, 2026, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) published proposed regulations that would significantly increase transparency requirements for pharmacy benefit managers (PBMs). Specifically, it would require PBMs to disclose both direct and indirect compensation to self-funded group health plans. The proposed regulation is intended to enhance group health plan fiduciary oversight of PBM service providers by giving employers clearer insight into PBM compensation flows and stronger tools to oversee these arrangements.

Effective Date. If finalized, the proposed regulation would become effective sixty (60) days after publication and would apply to plan years beginning on or after July 1, 2026. For calendar year self-insured plans, the requirements would generally apply January 1, 2027. Initial disclosures must be made before a plan enters into a new service contract and semi-annually thereafter, no later than 30 days after the end of each 6-month period.

Applies To: Self-insured group health plans.

Does Not Apply To: Fully insured group health plans or small employer HRA plans.

PBM Defined. Covered service providers are defined broadly to include “classic” PBMs as well as other entities tangentially related to PBMs such as affiliates or subcontractors.

Initial Disclosure Requirements. A set of initial disclosures must be provided to plan fiduciaries in advance of entering into, extending, or renewing a PBM contract. These disclosures include:

• Description of Services – A description of all pharmacy benefit management services.

• Fiduciary Status Statement – A statement of the PBM’s acknowledgement of fiduciary status as well as disclosure of any activity or policy that may create a conflict of interest.  

• Expected Compensation – An outline of all expected compensation under the service contract is required.  

  • Direct Compensation – Compensation to be paid, both in aggregate and by service received from the plan or plan sponsored (such as administrative fees paid by the plan sponsor).
  • Manufacturer Payments  –  This includes manufacturer rebates, fees, discounts, price concessions, and incentives.
  • Spread Pricing – This is the difference between what the plan pays the PBM for a drug and the amount paid to the pharmacies dispensing the drug.
  • Copay Clawbacks – The amount recouped from a pharmacy when the amount paid to the pharmacy by a plan participant exceeds the PBM reimbursement to the pharmacy.
  • Other Compensation – A catch-all provision for compensation not captured elsewhere that the PBM reasonably expects to receive in connection with the agreement, including any indirect compensation sources.
  • Termination Fees  – Any compensation that would be received upon termination of the plans service contract as well as how any pre-paid amounts will be calculated and refunded upon termination.
  • Price Protections  – A description of manufacturer price protection arrangements or inflation agreements included in the contract.
  • Formulary Placement Incentives – A description of formulary placement incentives and arrangements, identification of therapeutically equivalent alternatives, the basis for excluding such equivalents from the formulary, and procedures for notifying plans of material changes to the formulary.
  • Drug Pricing Methodology  – The net cost to the plan of each drug on the formulary for each pharmacy channel, expressed as a monetary amount.
    

Semi-Annual Disclosure Requirements. A separate set of semi-annual disclosures must be provided to plan sponsors within 30 days after each six-month period. 

• Actual Compensation - The semi-annual reporting must disclose the actual compensation received by the PBM to the plan sponsor. The required elements include: 

  • Direct Compensation – Actual compensation paid, both in aggregate and by service received from the plan or plan-sponsor (such as administrative fees paid by the plan sponsor).
  • Manufacturer Payments – Actual payments from drug manufacturers, both in aggregate payments and for each drug on the formulary.  This must include how much of any manufacturer payments are passed through to the plan vs. retained by the PBM.
  • Spread Compensation – Payments in aggregate and per drug and drug channel.
  • Copay Clawbacks – Actual amount recouped from a pharmacy when the amount paid to the pharmacy by a plan participant exceeds the PBM reimbursement to the pharmacy.
  • Other Compensation – Any other compensation received in connection with the service contract.
  • Price Protections. The actual amount passed through to the plan vs. retained by the PBM pursuant to price protection agreements.
  • Formulary Placement and Incentives – Updated description of formulary placement incentives, identification of therapeutically equivalent, reasonably available alternatives, the basis for excluding such equivalents from the formulary, and procedures for notifying plans of material changes to the formulary.
  • Net Unit Cost per Drug – Data on actual net cost to the plan for each drug on the formulary, for each pharmacy channel.

Audit Rights. Plans would have the right to audit the PBM disclosures at least annually to verify the accuracy of the disclosures.

Real Numbers. The disclosure must include actual monetary amounts unless the amount is not reasonably ascertainable, in which case the disclosure must provide an estimated amount. This guards against PBMs skirting the rules by using vague numbers or percentages that render the disclosures unusable. The disclosures must also be provided in a machine-readable format upon request.

ERISA Fiduciary Relief. The guidance acknowledges that plan sponsors should not automatically be penalized if a PBM does not accurately or adequately comply with the disclosure requirements. As such, relief is provided for plan fiduciaries who are unaware of the PBMs failure and where the plan fiduciary reasonably believed that the requirements were being met. However, upon becoming aware, the plan fiduciary must notify the PBM of the deficiency, take appropriate steps to address the issue, and alert the DOL if the PBM does not act to remediate the failure within 90 days.

Limitation/Potential Expansion. The current DOL proposal only applies to self-funded group health plans. However, the DOL has requested comments on whether the guidance should be applied more broadly.

Trifecta Part #2 – PBM Provisions in the CAA 2026

The Law. On February 3, 2026, the Consolidated Appropriations Act of 2026 was signed into law. It establishes comprehensive transparency and reporting requirements for entities touching the pharmacy benefit management ecosphere, including certain group health plans, health insurance issues, and entities providing pharmacy benefit management service.

Effective Date: The PBM provisions are effective for plan years beginning on or after the date that is 30 months after enactment. For calendar year self-insured plans, the changes would apply effective January 1, 2029.

Applies To: Group health plans (both fully insured and self-funded), health insurance issues, and entities providing PBM services on behalf of plans or issuers.

Size Distinctions: Large employers and large plans (100+ participants) receive detailed drug-level PBM reports with compensation, rebate, spread, and pricing data. Smaller employers/plans receive more limited summary/aggregate information.

Full Rebate Passthrough. PBMs are required to passthrough 100% of rebates, fees, alternative discounts, and other remuneration received that are related to utilization of drugs or drug spending to group health plans. Such fees must be remitted quarterly within 90 days. PBM contracts must be updated to reflect this rebate pass-through requirement. Records must be available for annual audits, and rebate contracts must be made available for plan audits subject to confidentiality restrictions.

Enhanced Transparency Requirements. The law requires PBMs to submit reports to large group health plans at least every six months (or quarterly upon requirement). The disclosures must be in plain language and machine-readable format. Reports must include detailed drug-specific information for large plans (generally 100+ participants) and summary documents for all plans, regardless of size. The reports must contain the following data:

• Negotiated drug costs and pharmacy reimbursement rates paid

• Drug dosage units and dispensing channels (retail, mail order, specialty pharmacy)

• Brand or generic classifications and associated costs and pricing

• Statistics on the total number of claims and participants by dispensing channel

• Net pricing (after rebates, discounts, etc.) and participant out-of-pocket costs

• Contracted compensation paid by plans and to pharmacies for each covered drug identified by National Drug Code

• Difference between amounts paid under compensation structures

• Total net spending per drug

• Rebates or other compensation received or expected by the plan, issue, or entity providing the PBM services

• Participant discounts and copay assistance from drug manufacturers

• Drug names, codes, and dispensing channel types (retail, mail order, specialty)

• Brand name versus generic classification with wholesale acquisition costs or average wholesale prices

• Net price per treatment course after rebates and remuneration

• Total out-of-pocket spending by participants and beneficiaries

• Total net spending and amounts received in rebates from applicable entities.

Privacy and Enforcement. All PBMs must comply with HIPAA privacy regulations and reports must only contain summary health information. Civil monetary penalties include $10,000 per day for failure to disclose required information and up to $100,000 for knowingly providing false information under the new provisions. Penalties may be waived when good-faith compliance efforts have been demonstrated.

ERISA Fiduciary Relief. There is a provision included in the law that allows an “innocent plan fiduciary” exemption for failures attributable to PBMs. However, this only applies if the fiduciary did not know and reasonably believed compliance occurred.

Trifecta Part #3 – FTC Settlement with Express Scripts

The FTC Settlement. The Federal Trade Commission announced a landmark settlement with Express Scripts, Inc, one of the largest PBMs in the nation. The settlement requires Express Scripts to adopt fundamental changes to its business practices. These changes address essentially every warped incentive that many believe have been the primary driver of undue increases in prescription drug costs. It is expected that this settlement will cascade throughout the industry in a way that will fundamentally reshape how PBMs do business in the future.  

Lawsuit Allegations. The FTC alleged that Express Scripts artificially inflated the list price of insulin drugs by using anticompetitive and unfair rebating practices. They also asserted that Express Scripts impaired patient access to lower list price products and ultimately shifted the cost of high insulin list prices to vulnerable patients.

Settlement Terms. Under the proposed settlement, Express Scripts has agreed to the following changes in their business practices:

• No Preferential Formulary Treatment - Stop preferring on its standard formularies high wholesale acquisition cost versions of a drug over identical low wholesale acquisition cost versions.

• Net Drug Cost Pricing - Provide a standard offering to its plan sponsors that ensures members’ out-of-pocket expenses will be based on the drug’s net cost, rather than an artificially inflated list price.

• TrumpRx Access - Provide covered access to TrumpRx as part of its standard offering upon relevant legal and regulatory changes.

• Insulin Program - Provide full access to its Patient Assurance Program’s insulin benefits to all members when a plan sponsor adopts a formulary that includes an insulin product covered by the Patient Assurance Program.

• Option for No Rebates and No Spread Pricing - Provide a standard offering to all plan sponsors that allows the plan sponsor to transition off rebate guarantees and spread pricing.

• Delink Manufacturer Compensation - Delink drug manufacturers’ compensation to ESI from list prices as part of its standard offering.

• Increase Transparency for Plan Sponsors – This includes mandatory, drug-level reporting, providing data to permit compliance with the Transparency in Coverage regulations, and disclosing payments to brokers representing plan sponsors.

• Transition to Drug Price + Dispensing Fee Model - Transition its standard offering to retail community pharmacies to a more transparent and fairer model based on the actual acquisition cost for a drug product plus a dispensing fee and additional compensation for non-dispensing services.

• Promote Standard Offerings - Promote the standard offerings to plan sponsors and retail community pharmacies.

• Reshore GPO to US - Reshore its group purchasing organization Ascent from Switzerland to the United States, which will bring back to the United States more than $750 billion in purchasing activity over the duration of the order.
  

The Naysayers. While the transparency-related provisions will certainly have a direct impact, many of the business structure elements of the settlement are a mandate-to-offer alternative business models, not an actual mandate. Some pundits are skeptical that a loophole allowing Express Scripts to “meet the competition” may dampen the overall impact. That said, the majority believe that the FTC spotlight on these issues along with the requirement to offer alternative, transparent business models will provide the impetus necessary for fundamental changes in the PBM industry.
 

Looking Ahead

We can expect this trifecta of a law, a regulatory action, and a lawsuit settlement converging within one month to pave the way for significant disruption to the status quo for the PBM industry. While it will take a number of years for the impact to fully unfold, we will likely look back on this as a sea change moment.

Employers can expect the landscape of the future to bring meaningful transparency, new oversight responsibilities under ERISA, and new opportunities to evaluate PBM contracts. These changes will bring both employers and the industry closer to the goal of better managing prescription drug programs and lowering overall healthcare costs.

References:

• DOL Proposed Regulations
• Executive Order
• Consolidated Appropriations Act of 2026
• FTC Lawsuit
• FTC Settlement