New PBM Disclosure Rules: What Health Plan Fiduciaries Need to Know

Final regulations issued by the Department of Labor on November 2, 2026, will require certain health plan service providers who perform functions associated with pharmacy benefit managers (PBMs) to make detailed disclosures regarding the compensation received in connection with the provision of pharmacy management services. This article discusses the key aspects of the rule that health plan fiduciaries should know.

What Is the Purpose of the Rule?

Under the Employee Retirement Income Security Act (ERISA), plan fiduciaries are required to enter into “reasonable” arrangements with plan service providers that provide for no more than “reasonable” compensation. Financial arrangements with ERISA plan service providers for more than reasonable compensation may result in a prohibited transaction that can give rise to significant liability for plan fiduciaries. The final regulations strengthen financial disclosures by PBMs in part so that plan fiduciaries have adequate information to determine whether arrangements entered into with and compensation received by PBMs in the course of providing plan services are “reasonable” per the applicable ERISA requirements (including the prohibited transaction exemption applicable to the retention of plan service providers).

Which Plans and Providers Are Covered?

The new disclosure requirement applies to service providers that provide pharmacy benefit management services (or related brokerage or consulting services) to large, self-insured group health plans and expect to receive $1,000 or more in compensation, whether the services are performed directly or through affiliates, agents or subcontractors. (For this purpose, covered plans generally include self-insured plans offered by employers averaging at least 100 employees and self-insured multiemployer or other multiple employer plans averaging at least 100 participants, under the applicable lookback and counting rules.) Importantly, the final disclosure rule applies to a “covered service provider” (CSP) that provides these services, regardless of whether it holds itself out as a PBM.

When Must Disclosures Be Provided?

The regulations provide for initial and ongoing disclosures by CSPs to client health plans. Initial disclosures must be made reasonably in advance of entering into, extending or renewing an arrangement; for extensions and renewals, 90 calendar days in advance is deemed reasonable. Ongoing disclosures are required semi-annually (or quarterly, if requested by the plan), no later than 30 calendar days after each six-month period (or quarter) measured from the start of the arrangement.

What Must PBMs Disclose?

Both kinds of disclosure generally address the services performed and different kinds of compensation, including direct and indirect compensation. Initial disclosures describe expected compensation; ongoing disclosures report compensation received or reasonably expected to be received where permitted by the rule. Disclosures must be reasonably easy to understand and expressed in dollar amounts, with good-faith estimates permitted when actual amounts are not reasonably ascertainable. In addition to direct administrative fees, the disclosures must also include the following:

• Rebates and other payments - Rebates, fees, alternative discounts and other remuneration from manufacturers, distributors, wholesalers and rebate aggregators, in total and by formulary drug. Disclosures identify amounts passed through to the plan or sponsor and amounts retained.

• Spread compensation - The difference between contracted plan payments and pharmacy payments, identified by National Drug Code. Disclosures show expected spread in total and by drug and pharmacy channel; ongoing reports include per-claim differences.

• Recoupments and price protection - Copay clawbacks, other retroactive pharmacy adjustments and transaction counts, plus inflation or price protection payments retained or passed through.

• Formularies, pharmacy incentives and net prices - Manufacturer formulary incentives, relevant omitted therapeutic alternatives, retained authority to change formularies and associated notice obligations, and arrangements steering patients to affiliated pharmacies. Net drug prices must be provided by drug and channel, or the pricing methodology and an objective verification method if amounts cannot be determined.

• Other information - Termination compensation, prepaid-fee refunds, other compensation and payment arrangements, applicable fiduciary status and audit rights.

What Audit Rights Will Plans Have?

CSPs must permit plan fiduciaries to audit their disclosure records at least annually to verify the accuracy of the disclosures. The plan fiduciary selects the auditor, who must have access to reasonably necessary records, including claims and transaction-level data and relevant pharmacy and manufacturer contracts, subject to reasonable confidentiality protections.

What If a Provider Does Not Comply?

The regulations also include relief for plan fiduciaries when service providers fail to provide the required disclosures. To take advantage of this relief, plan fiduciaries must, among other things, notify the Department of Labor of a CSP’s failure to comply.

When Does the Rule Apply?

The final rule applies to plan years beginning on or after July 1, 2027, and is set to take effect 60 days after Federal Register publication. The final rule will almost certainly be challenged by the PBM industry, however, which has already raised objections to the rule and to other previous attempts to regulate its practices. Pending the outcome of such litigation or other associated decisions by the courts, it remains to be seen whether (or when) the final regulation may actually be put into effect.

What Should Employers Do Now?

Employers should monitor further developments while preparing to receive and evaluate the required disclosures. Specifically, employers should begin with upcoming renewals and establish who will review the initial and ongoing disclosures. Practical preparation should include:

• Reviewing total compensation - Evaluate administrative fees, rebates, other retained payments and spread together, rather than treating a rebate guarantee as the sole measure of value.

• Revisiting contracts and proposals - Address disclosure timing, compensation definitions, affiliates, underlying data access, audit rights and remedies for inaccurate or incomplete information.

• Documenting the review - Assign responsibility for analyzing reports, investigating discrepancies and conflicts, and recording how fiduciaries evaluated the arrangement and compensation.

• Considering independent assistance - Evaluate whether a consultant or auditor can help interpret the information, while considering that adviser's compensation and potential conflicts.

The objective is more than collecting another vendor report. A useful review process should connect the disclosures to decisions about provider selection, contract terms and ongoing monitoring.

If you have questions about employer-sponsored prescription drug programs and the effect of the new PBM regulations on the administration of such programs, please contact a member of our Employee Benefits & Executive Compensation team.