PBMs Must Now Show Employer Plans What They Earn. The Labor Department's Rule Reaches Plan Years Starting July 1, 2027.
A rule published Nov. 2 makes PBMs disclose rebates, spread pricing and pharmacy clawbacks to about 131,000 large self-insured plans, and allows audits.
Idea in Brief
The News
The Department of Labor has finalized a rule requiring pharmacy benefit managers and their affiliated brokers and consultants to disclose their compensation to large self-insured employer health plans. It was published in the Federal Register on Nov. 2.
What Changes
PBMs must disclose manufacturer rebates and other payments, spread compensation and pharmacy recoupments before a contract is signed and then every six months, and must explain formulary placement incentives. Plans gain a right to audit at least once a year.
Why It Matters
Physician groups and health systems that self-insure 100 or more employees are the buyers this rule protects. Prescribers gain a new view of why formularies and utilization rules look the way they do.
Pharmacy benefit managers that serve large self-insured employer health plans must disclose what they earn from drugmakers, pharmacies and price spreads under a final rule the Department of Labor published in the Federal Register on Nov. 2. It applies to plan years beginning on or after July 1, 2027.
The Labor Department's Employee Benefits Security Administration announced the rule on Oct. 29. It projects that the rule will lower prescription drug costs for plans and participants by as much as $22 billion, undiscounted, over 10 years, and says the affected plans cover about 90 million Americans. The American Hospital Association summarized the rule the same day.
Who has to disclose, and to whom?
PBMs, and brokers and consultants affiliated with them, must disclose to the fiduciaries of large self-insured group health plans covered by the Employee Retirement Income Security Act (ERISA). The rule text defines large plans as those of employers with at least 100 employees, or plans with at least 100 participants. Fully insured plans are not covered, and plans whose sponsors sit in the drug supply chain are excluded.
The disclosures are a condition of ERISA's exemption for service contracts. A contract that does not meet them risks being a prohibited transaction. Congress wrote the underlying requirement into the Consolidated Appropriations Act, 2026, effective Feb. 3, 2026. The rule, proposed on Jan. 30, now sets the time, manner and content of what PBMs must hand over.
What must PBMs disclose?
Three categories of compensation, according to the department. First, rebates, fees, alternative discounts and other remuneration from drug manufacturers. Second, spread compensation, earned when what the plan pays for a drug exceeds what the pharmacy is reimbursed. Third, payments recouped from pharmacies, including copay clawbacks, which the rule defines as the difference between a patient's copayment or coinsurance paid to the pharmacy and the pharmacy's reimbursement.
Expected amounts come first, reasonably in advance of signing, with 90 days deemed reasonable before an extension or renewal. Actual amounts follow every six months, or quarterly if the plan asks, within 30 days after each period closes. Plans may audit the disclosures at least once a year with an auditor they alone select. The plan pays the auditor and the PBM pays to produce the records.
For the first time, the employer that pays for a formulary can ask in writing what the PBM was paid to build it that way.
Clinical Pearls
- The rule covers self-insured ERISA plans of employers with at least 100 employees and self-insured plans with at least 100 participants. Fully insured plans are not subject to it.
- Initial disclosures are due reasonably in advance of a contract, extension or renewal, and the rule deems 90 calendar days reasonable for extensions and renewals.
- Periodic disclosures are semiannual, or quarterly at the plan's request, and are due within 30 calendar days after each period ends.
- PBMs must describe formulary placement incentives with drug manufacturers, including payments tied to tiering, exclusions or how a drug is treated under utilization management.
- Plans choose the auditor and pay that auditor; the PBM bears the cost of producing the records the audit needs.
- Separate statutory requirements take effect for plan years beginning on or after Aug. 3, 2028: PBMs must pass through 100 percent of manufacturer rebates and fees to the plan and send detailed drug-spending reports.
Where do formularies and prior authorization come in?
The rule reaches the formulary directly. PBMs must describe any formulary placement incentives they hold with drugmakers and explain how those arrangements serve the plan and its members, whether by controlling cost, providing clinically superior drugs or both. The preamble lists the kinds of deals it means: payments for adding a drug, for its tier, for excluding or down-tiering a competitor, and for treating a drug differently from therapeutically equivalent drugs, biosimilars included, under a utilization management protocol. Adding a drug the PBM or an affiliate makes also counts.
That is the part a prescriber will recognize. When a plan steers a patient away from a biosimilar or puts a step edit in front of a cheaper equivalent, the plan's fiduciary will now be entitled to see whether a manufacturer payment sits behind the rule.
What the rule's numbers show
The Script Pad's arithmetic, from the department's regulatory impact analysis: the department counts 131,102 affected plans, 113,226 with 100 to 999 participants and 17,876 with 1,000 or more, served by 73 PBMs. It estimates $818.4 million a year shifting from PBMs to plans and participants through lower drug prices. Spread evenly, that is about $6,200 a year per plan, a figure that will run far higher for large systems and lower for a 120-person group. PBMs face an estimated $80.3 million in first-year systems costs, about $1.1 million per PBM on average. The $22 billion headline is the top of the range: the high estimates of $1.64 billion in yearly transfers and $586 million in yearly benefits, added and multiplied by 10.
The timeline runs in three steps. The statutory disclosure duty took effect Feb. 3, 2026. This rule takes effect 60 days after publication, which by our count is Jan. 1, 2027, and applies to plan years starting July 1, 2027, or later. For plan years starting on or after Aug. 3, 2028, the same 2026 law requires PBMs to pass through 100 percent of manufacturer rebates and fees to the plan and to send semiannual drug-spending reports.
What practices should do now
A physician group or health system that self-insures 100 or more employees is a plan sponsor here, and its benefits committee is the fiduciary that receives these disclosures. Find out when your PBM contract renews. A contract covering a plan year that starts July 1, 2027, or later falls under the rule, and for a renewal the disclosure should arrive 90 days ahead. Ask your broker or consultant whether it is affiliated with the PBM, because affiliated advisers now disclose too.
Clinical leaders have a role. Ask that the formulary-incentive explanations reach your pharmacy and therapeutics committee, not only the finance office. Our earlier coverage of how concentrated the PBM market has become and of electronic prior authorization in self-funded plans describes the same buyers from other angles. This rule gives them a paper trail.
Reported, fact-checked and edited by The Script Pad's editorial staff. See How we use AI.
This article is for professional education and does not replace clinical judgment. Treatment decisions should be based on the individual patient and current guidelines.
