Illinois PBM Law to Limit Steering, Other Plan Design Features in 2026

Quick Hits

• Illinois’s recently enacted Prescription Drug Affordability Act regulates PBMs by imposing strict transparency requirements.
• The law prohibits PBMs from utilizing spread pricing, requires that PBMs pass on rebates to health plan sponsors, and prohibits steering patients toward specific pharmacies that a PBM owns or controls.
• The law also adds a new $15.00-per-member fee for PBMs, which will be used to support independent pharmacies in underserved areas.

Illinois House Bill (HB) 1697 (Public Act 104-0027), which was signed into law by Governor JB Pritzker on July 1, 2025, principally regulates PBMs, which operate under state licenses. The statute also imposes a new $15.00-per-member fee on PBMs to fund grants for independent pharmacies in underserved areas, and it provides important audit rights for plan sponsors. In addition, HB 1697 expressly applies to services provided to both self-insured plans and insured plans, and prohibits PBMs from limiting access to specialty medications by using broad definitions of specialty drugs and imposing restrictions on them.

Audits

Under HB 1697, contracts between PBMs and insurers or health benefit plan sponsors must allow for “an audit at least once per calendar year of the rebate and fee records remitted from a pharmacy benefit manager or its affiliated party to a health benefit plan.” And contracts with rebate aggregators, drug manufacturers and others will be required to be available for audit by employer plan sponsors.

Steering

The Illinois law prohibits PBMs from steering participants toward certain pharmacies. The law specifically defines “steer” to include:

• “requiring a covered individual to only use a pharmacy, including a mail-order or specialty pharmacy, in which the [PBM] or its affiliate maintains an ownership interest or control”;
• “offering or implementing a plan design that encourages a covered individual to only use a pharmacy in which the [PBM] or an affiliate maintains an ownership interest or control, if the plan design increases costs for the covered individual”; and
• “reimbursing a pharmacy or pharmacist for a drug and pharmacist service in an amount less than the amount that the [PBM] reimburses itself or an affiliate, including affiliated manufacturers or joint ventures for providing the same drug or service.”

Some reporting and payment requirements went into effect in 2025, but the anti-steering provisions will not apply until a PBM agreement entered into before January 1, 2026, is terminated. The other parts of the law are effective for PBM agreements that take effect or are amended, delivered, or issued on or after January 1, 2026.

Rebates

Though Illinois will require 100 percent rebate pass-throughs for amounts received by “affiliated” aggregators, meaning those owned or controlled in part by a PBM, the law does not require that treatment when a rebate aggregator is not affiliated.

Under the Illinois law, “rebate” is defined as a “discount or drug pricing concession based on drug utilization or administration that is paid by the manufacturer to a [PBM] or its client.” And “rebate aggregator” is defined in part as an entity “including [a] group purchasing organization[], that negotiate[s] rebates or other fees with drug manufacturers on behalf or for the benefit of a [PBM] or its client.”

Specialty Medications

PBMs and their affiliates will be prohibited from “limiting a covered individual’s access to drugs from a pharmacy or pharmacist enrolled with the health benefit plan under the terms offered to all pharmacies in the plan coverage area by designating the covered drug as a specialty drug, contrary to the definition in [the Illinois statute].”

“Specialty drug[s]” under the Illinois law are defined relatively narrowly as those that:

• are “prescribed for a person with a complex or chronic condition or a rare medical condition”;
• have “limited or exclusive distribution”;
• require “specialized product handling by the dispensing pharmacy or administration by the dispensing pharmacy”; and
• require “specialized clinical care, including frequent dosing adjustments, intensive clinical monitoring, or expanded services for patients, including intensive patient counseling, education, or ongoing clinical support beyond traditional dispensing activities, such as individualized disease and therapy management to support improved health outcomes.”

Reporting Requirements

PBMs will be required to submit written annual reports to the Illinois Department of Insurance, each health benefit plan sponsor, and each insurer by September 1 each year. The reports must include information on drugs and rebates, including lists of drugs, specifics on rebates, fees, or discounts for drugs, and information on reimbursement costs. PBMs that fail to submit the required reports could be subject to fines not exceeding $10,000 per day.

The law states that the Department may share the reports with “an established institution of higher education” in Illinois to create an annual “pharmacist dispensing cost report” with a “survey of the average cost of dispensing a prescription for pharmacists in Illinois.

Member Fees

A key provision of the law requires registered PBMs to pay the Illinois Department of Insurance “an amount equal to $15 or an alternate amount as determined by the Director by rule per covered individual enrolled by the pharmacy benefit manager in [Illinois].” The first payment was due on September 1, 2025, and will be due annually on September 1 each year thereafter.

The collected amounts will be deposited into a new “Prescription Drug Affordability Fund,” and each fiscal year, $25 million will be transferred to a grant program for community pharmacies, especially those in rural counties, low-income communities, and medically underserved areas.

Next Steps

Employers with employees in Illinois may want to evaluate whether their existing PBM agreements meet these and other new standards and what changes in their agreements might be needed or desirable under this Illinois law.

Ogletree Deakins’ Chicago office and Employee Benefits and Executive Compensation Practice Group will continue to monitor developments and will provide updates on the Employee Benefits and Executive Compensation, Healthcare, and Illinois blogs as additional information becomes available.

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