PBM Reform: What ERISA Plan Sponsors Need to Know

The price of prescription drugs remains a major concern for employers and employees, and the Trump Administration has made reducing costs and increasing transparency related to pharmacy benefits and prescription drugs a priority.  A central focus of that effort has been the regulation of pharmacy benefit managers (PBMs).  PBMs are third-party administrators that manage pharmacy benefits for employer-sponsored and other health plans.  Most PBMs negotiate drug prices with manufacturers, establish pharmacy networks, process and administer prescription drug claims, and create lists of covered medications.

Recently, state policymakers, the Trump Administration, and Congress have increased scrutiny of PBM business practices.

State Laws Restricting PBMs

In 2025, numerous states enacted laws aimed at regulating PBMs, including laws that increase pricing transparency, prohibit certain pricing practices (including spread pricing), and require PBM registration or licensure. 

For example, Iowa recently passed legislation restricting PBMs that would, in effect, prohibit an employer group health plan from implementing a specialty drug network.  While litigation challenging this legislation is ongoing, appellate courts have consistently struck down similar laws as being preempted by ERISA and therefore unenforceable against self-funded ERISA health plans. 

Trump Administration & DOL Regulations Require Transparency

Separately, the Trump Administration issued a proposed rule requiring greater transparency from PBMs regarding their compensation.  The proposed rule follows an April 2025 executive order promoting a “more competitive, efficient, transparent, and resilient pharmaceutical value chain.”  The April executive order also directed the Department of Labor (“DOL”) to issue regulations under ERISA to increase transparency in PBM and broker/consultant contracts and compensation arrangements, enabling plan fiduciaries to better assess whether the arrangements are reasonable.

In January 2026, the DOL responded by issuing proposed regulations requiring PBMs, brokers, and consultants to disclose information about their compensation to fiduciaries of self-insured group health plans.  Comments are accepted through March 31, 2026 and the regulation – if finalized – would become effective on or after July 1, 2026.  The proposed regulation would significantly shift the way PBMs and brokers/consultants disclose their compensation for self-insured group health plans.

Beyond the new proposed regulations, enforcement against PBMs is on the rise. In February 2026, the Federal Trade Commission reached a landmark settlement with Express Scripts, Inc. requiring one of the nation’s largest PBMs to overhaul key business practices and increase pricing transparency.

Federal Legislation

On February 3, 2026, the President signed the Consolidated Appropriations Act of 2026 (the “Act”), which imposes disclosure requirements for contracts between group health plans or insurers and PBMs.  While the Act closely follows the DOL’s proposed regulations, it adopts broader and more detailed transparency requirements.  Specifically, the Act includes the following changes:

1. Remuneration Disclosure Requirements. The Act amends ERISA and the Internal Revenue Code to require all contracts between group health plans (both self-insured and fully insured) to include specific disclosure provisions on drug costs and compensation from all sources, including rebates, fees, and other indirect compensation.  PBMs must provide these disclosures on at least a semiannual basis.  Failure to satisfy the disclosure requirements could result in significant civil penalties of $10,000 per day of noncompliance and, for knowingly providing inaccurate information, up to $100,000 per false statement.
2. Rebates. The Act amends the prohibited transaction exemption under ERISA for “reasonable plan services” to require PBMs that receive any remuneration (including rebates, fees, and alternative discounts) from drug manufacturers to pass 100% of those amounts through to group health plans and insurers.  Plans and insurers may then pass those discounts through to participants.  Currently, it’s common for PBMs to retain upwards of 80% of the rebates, passing on only 20% to the plan.  This change could materially reduce net drug costs for plans and participants.
3. Audit Rights. The Act also requires PBMs to make rebate and contract records available for audit by an auditor selected by the plan fiduciary at least annually, enhancing fiduciary oversight and validating the completeness and accuracy of the required disclosures and pass-throughs.

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While the Act is not effective until plan years beginning on or after August 3, 2028 (i.e., for calendar-year plans, January 1, 2029), employers should carefully review their PBM contracts given the uptick in state legislation and litigation.  Pharmacy benefits are considered group health plan benefits, meaning employers are subject to ERISA’s strict fiduciary duties in connection with those benefits – including the duty of loyalty, requiring sponsoring employers to act with the exclusive purpose of providing benefits to participants and defraying reasonable expenses, and the duty of prudence, requiring plan sponsors to carry out their duties with the care, skill, and diligence of a prudent person familiar with the subject.

Finally, despite the overwhelming bipartisan support for the Act, Congress continues to scrutinize PBMs, including one proposed bill that would designate PBMs as ERISA fiduciaries.  We expect continued focus on PBMs, so employers should keep a watchful eye on this area as it’s continuing to change but is decidedly in favor of restricting PBMs.