PBM reform: New rules, new opportunities for group health plan sponsors

In addition to ongoing efforts at the state level, the Department of Labor (DOL) and Congress have been actively seeking to reform current business practices of pharmacy benefit managers (PBMs) as well. More specifically, the DOL released proposed regulations that would take effect for calendar year plans effective Jan. 1, 2027. The Consolidated Appropriations Act, 2026 (CAA 2026) becomes effective Jan. 1, 2029.  While both sets of guidance will fundamentally impact current PBM business practices and generally aim to increase PBM transparency, they differ in scope, timing and requirements.

Two frameworks, different scopes

Both sets of guidance target PBM transparency, but they differ in meaningful ways:

• Who's covered: CAA 2026 applies to all employer group health plans (self-insured and fully insured). The DOL rule covers only self-insured ERISA plans.
• Rebate pass-through: The Act mandates that PBMs remit 100% of rebates to ERISA plans. The DOL rule requires only disclosure (but no mandated return of rebates).
• Participant access: CAA 2026 gives participants the right to request drug spending information and their own claims data. It also requires annual notice. The DOL rule has no participant-facing requirements.
• Reporting and disclosure requirements: Under CAA 2026, different reporting is required depending on the size of the plan. Plans with at least 100 employees will receive more comprehensive reporting at least every six months to disclose spending, rebates, fees and compensation for every drug. But even smaller plans are required to receive information on rebates, payments and discounts received by their PBM. The DOL regulations require even more detailed information over the same time frames, as well as a requirement that the PBM must explain how manufacturer incentives influence formulary placement and drug-level pricing impact.
• Annual audit rights: Both the CAA and DOL regulations allow employers to have the right to audit their PBM at least once per year, using an auditor of their own choice, with no PBM-imposed restrictions on auditor selection or records access.
• Participants gain new rights: Plan participants can request information about the plan's drug spending and their own prescription claims. Group health plan sponsors will need processes to handle these requests.
• Penalties: CAA 2026 imposes civil penalties of $10,000 per day for disclosure failures and $100,000 for false information. The DOL rule relies on ERISA's prohibited transaction rules; noncompliance could render the PBM contract "unreasonable," exposing both the PBM and plan fiduciary to liability.

Impact on employers

Though there is no immediate action required for compliance with the new federal actions, employers should keep a few things in mind:

• More transparency should help employers negotiate better contracts, which many argue will lead to more cost savings. By receiving 100% of rebates and having better information, employers may be able to reduce overall drug spending.
• With the PBM reforms, employers are intended to have more visibility into how PBMs operate and make money, which creates both opportunities and responsibilities. PBMs will most certainly adapt their business models and seek to renegotiate contracts, and employers will need to develop new capabilities to analyze and act on the information they receive. For example, PBMs will quite likely increase monthly/annual administrative fees and other charges to account for their loss of rebate revenue. They may also try to insert new indemnification terms that shift liability for more compliance penalty costs onto employers. As such, employers will need to review any contract amendments carefully and make sure PBMs provide parallel indemnification provisions.

Looking ahead

Between the states and federal frameworks, PBM practice and pricing models will be changing by 2027, if not sooner. While there is no immediate action required by employers now, you should still be talking with your account team and begin review of current PBM contracts and plan documents to prepare for these upcoming changes.

We'll continue to provide updates as more changes occur. In the meantime, contact your benefits advisor or legal counsel to discuss further.

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Content sponsored by Sandberg Phoenix law firm. This update is not intended to be exhaustive, nor should any discussion or opinions be construed as legal, tax or financial advice. TrueNorth Companies recommends consulting with legal, tax or benefits professionals before making any decisions related to employee benefit plans.