PBM Reforms May Open a New Era for Group Health Plan Sponsors

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Quick Hits

• The Consolidated Appropriations Act of 2026 (CAA 2026) represents the most sweeping federal effort to date to regulate pharmacy benefit managers (PBMs).
• Most of the changes will not take effect until 2029 (for calendar year plans).
• At the center of the CAA 2026: full pass-through of rebates and required compensation disclosure by PBMs.

The CAA 2026 represents the most sweeping federal legislative effort to regulate the pharmacy benefit management industry to date. Signed into law on February 3, 2026, the CAA 2026 broadly applies to all employer-sponsored group health plans, including both self-funded and fully-insured plans, and creates new mandatory reporting, disclosure, and audit requirements applicable to PBMs. The law also requires PBMs to pass through 100 percent of all rebates to group health plans and, importantly, requires other entities that initially receive a portion of such payments, such as rebate aggregators and group purchasing organizations, to remit the proceeds to the PBMs. These developments are described below.

The CAA 2026 makes a “clarification” to Section 408(b) of the Employee Retirement Income Security Act (ERISA) to expressly provide that PBMs are “covered service providers,” which requires them to disclose to plan sponsors their direct and indirect compensation. Section 408(b)(2) provides an exemption to ERISA’s prohibited transaction rules, which permits the payment of service provider fees from plan assets if the services are necessary for plan operation and the fees are considered “reasonable.” Accordingly, PBMs must now adhere to the same compensation disclosure rules applicable to other ERISA plan service providers and advisors, such as investment advisors, recordkeepers or brokers, and other entities receiving “indirect compensation” (e.g., accounting, auditing, actuarial, banking, and consulting service providers), which, in turn, will enable employers sponsoring group health plans to better evaluate and negotiate PBM compensation under their contracts.

Effective Dates

While regulatory guidance is undoubtedly forthcoming, the inclusion of PBMs as covered service providers appears to be effective immediately, which means that the compensation disclosures applicable to service providers under ERISA Section 408(b) are effective immediately.

However, other requirements, including the standardized reporting rules, rebate pass-through requirements, and audit rights, take effect with the first plan year beginning thirty months after the date of enactment. For calendar-year plans, this means January 1, 2029.

100 Percent Rebate Pass-Through Requirements for PBMs

Among the most significant CAA 2026 reforms is the requirement that PBMs pass through 100 percent of all rebates and related payments to ERISA-covered group health plans. The law specifically requires that rebates include any and all manufacturer rebates, alternative discounts, price concessions, and fees and other payments tied to drug utilization by plan participants. PBMs must remit these amounts on a quarterly basis and provide plans with accurate accounting records to verify their compliance.

Notably, the statute contains an exception for “innocent” fiduciaries. This exception provides protection for a responsible plan fiduciary from fiduciary breach if the fiduciary did not know the PBM failed to remit rebates or reasonably believed the PBM remitted the required amounts. In order to take advantage of this protection, the fiduciary must request in writing that the PBM remit the rebates. The fiduciary must also notify the U.S. Department of Labor (DOL) if the PBM fails to comply with the written request within ninety days.

Reporting, Disclosure, and Notice Requirements

The CAA 2026 introduces a new mandatory semiannual reporting framework for PBMs. For so-called “large plans,” meaning those with at least one hundred participants, PBMs are required to disclose:

• Drug-by-drug pricing information, including net prices after rebates
• Total spending by the plan and participants
• Spread pricing information
• Formulary information, including which drugs are included and the rationale for inclusion
• Affiliated pharmacy disclosures, including whether the plan steers patients toward these pharmacies
• Compensation information, including amounts paid to pharmacies or other third parties

PBMs will also need to provide the following information to a plan sponsor regardless of the number of participants in the plan:

• Summary reports showing overall prescription drug costs and utilization rates
• Information on rebates, fees, and discounts received

In addition to the PBM disclosure rules described above, the CAA 2026 also creates new notice obligations that apply to group health plans. Specifically, group health plans must provide participants with a written notice that explains the plan’s PBM’s obligation to submit detailed reports regarding prescription drug costs, rebates, and related compensation. Plans may combine this notice with other notices and plan documents provided to participants or provide it as a stand-alone notice. The DOL will prepare a model for plan sponsors to use.

Employer Audit Rights

CAA 2026 creates new affirmative audit rights for ERISA plan sponsors, including a right to conduct an annual audit of their PBMs—using an auditor of their choice—to verify that PBM disclosure and rebate payments are accurate. The PBM cannot impose any limitations on the selection of the auditor (many PBM contracts currently are drafted to give the PBM veto power over the plan sponsor’s choice of auditor and require that the auditor adhere to strict audit guidelines prepared by the PBM).

Proposed PBM Transparency and Disclosure Regulations

Several days before the CAA 2026 was enacted, the DOL’s Employee Benefits Security Administration (EBSA) proposed regulations that similarly seek to enhance transparency and disclosure requirements applicable to PBMs.

Like the CAA 2026, the proposed regulations would require PBMs to disclose information to plan sponsors and provide for certain rights, including:

• disclosing payments from drug manufacturers received by the PBM, including rebates, administrative fees, and price protection fees;
• identifying other compensation, including spread amounts with respect to pharmacies; and
• permitting annual audits using an auditor of the employer’s choice.

There are some notable differences, however. The proposed rules, for example, would not require full pass-through of rebates. In addition, while EBSA’s proposed regulations create disclosure requirements for PBMs only, the CAA 2026 requires plans to provide notice to participants as described above. The CAA 2026 also provides for civil monetary penalties for enforcement under the law’s requirements.

EBSA’s proposed regulations will likely be updated to reflect the enactment of the CAA 2026. The comment period on the proposed rules ends on March 31, 2026.

Next Steps for Group Health Plan Sponsors

Considering the breadth of the new requirements under the CAA (and potentially the EBSA regulations), employers may want to prepare for additional regulatory guidance as the deadline for compliance approaches. Employers that are currently negotiating PBM contracts or will be negotiating a renewal of their PBM contract prior to the effective date under the CAA should be mindful of the new requirements, including rebate pass-through, audit, and disclosure.

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

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