The intricate and often confusing landscape of prescription drug costs is on the verge of a significant transformation, driven by landmark federal initiatives poised to reshape the pharmacy benefit management (PBM) industry. For years, group health plan sponsors have navigated a complex system with limited visibility into how PBMs generate revenue. Now, two major developments are set to bring unprecedented clarity. A new federal law, HR 7148, enacted as part of the Consolidated Appropriations Act, 2026, establishes sweeping statutory requirements for PBM reporting, disclosure, and financial practices for both fully-insured and self-funded group health plans, with an effective date of January 1, 2029, for most calendar plan years. Concurrently, the Department of Labor (DOL) has issued a proposed rule that, if finalized, would compel PBMs and their affiliated consultants to disclose detailed compensation information to the fiduciaries of self-insured group health plans, potentially as early as July 1, 2026. Together, these measures aim to fundamentally alter the PBM business model by arming plan sponsors with the information necessary to fulfill their fiduciary duties under the Employee Retirement Income Security Act (ERISA) when selecting and monitoring these crucial service providers.
1. A New Era of Disclosure and Reporting
Under the DOL’s Proposed Rule, the process of contracting with a PBM will be preceded by a mandatory and comprehensive disclosure phase. Before a contract can be entered into, extended, or renewed, covered service providers must furnish responsible plan fiduciaries with extensive written documentation outlining every service to be provided and the associated compensation structure. This includes a detailed breakdown of all expected direct compensation, both in aggregate and itemized by service on a quarterly basis. Furthermore, PBMs and any affiliated brokers or consultants must reveal the amounts they expect to receive from drug manufacturers for each medication on the formulary, clearly specifying which portion is passed through to the health plan and which is retained. The rule also targets spread compensation—the margin a PBM earns between what it charges the plan and what it pays the pharmacy—requiring disclosure for each drug and pharmacy channel. Other required disclosures will cover copay claw-back amounts, price protection agreements, incentives for formulary placement, and any policies, such as step-therapy protocols, that could create a conflict of interest for the service provider.
Once a contract is in place, both HR 7148 and the Proposed Rule mandate ongoing reporting to ensure continued transparency and accountability. The new law, HR 7148, requires PBMs to submit semiannual reports to group health plans in plain language and a machine-readable format, with quarterly reports available upon request. These reports must contain granular, drug-by-drug data, including the total number of paid claims, payments made by the plan, participant cost-sharing, and both gross and net spending. Crucially, they must also detail all rebates and other forms of remuneration received from pharmaceutical manufacturers and other entities. The DOL’s Proposed Rule complements this with its own semiannual disclosure requirement, focusing on the actual compensation received, which must be reported within 30 days after each six-month period. To enforce the accuracy of initial estimates, this rule includes a critical provision: if any category of compensation ultimately exceeds the corresponding quarterly estimate by 5% or more, the PBM must identify the overage and provide a detailed explanation, creating a powerful mechanism for fiduciary oversight.
2. Fundamental Shifts in PBM Business Practices
Perhaps the most transformative provision is found within HR 7148, which mandates that PBMs must remit 100% of all rebates, fees, alternative discounts, and other remuneration received from drug manufacturers directly to the group health plan or health insurance issuer. Under this law, a PBM arrangement will not be considered “reasonable” under ERISA unless this full pass-through occurs, effectively dismantling a core component of the traditional PBM revenue model where a significant portion of these funds was often retained as compensation. These rebate payments must be made within 90 days after the end of each quarter and be fully enumerated in disclosures. This requirement is designed to eliminate opaque revenue streams and encourage a widespread shift toward transparent, fee-based compensation models, where PBMs are paid for bona fide administrative services through a clear and quantifiable fee structure rather than through hidden margins on drug costs and rebates. This change will give plan sponsors a much clearer picture of their true pharmacy spending.
In line with the theme of enhanced oversight, both initiatives significantly strengthen a plan sponsor’s right to audit their PBM. The DOL’s Proposed Rule establishes a detailed and robust framework for audits, granting group health plans the right to conduct them at least annually. Critically, the auditor will be selected by the plan’s fiduciary, not the PBM, a change that addresses long-standing concerns about PBM-controlled audit processes. The rule prohibits PBMs from restricting the choice of auditor or limiting access to records necessary for verifying compliance, including essential contracts with pharmacies and drug manufacturers. Concurrently, both the Proposed Rule and HR 7148 increase transparency around PBM-affiliated pharmacies. HR 7148, for example, requires PBMs to explain any benefit design parameters that encourage the use of their own pharmacies and to provide detailed pricing comparisons between affiliated and non-affiliated options. This focus on affiliated entities aims to shed light on potential self-dealing and ensure that any steering of participants serves their best interests, not just the PBM’s bottom line.
3. Understanding Fiduciary Duties and Key Distinctions
Both HR 7148 and the Proposed Rule recognize the new pressures on plan fiduciaries and include provisions to protect them when they act in good faith. Under both frameworks, a responsible group health plan fiduciary is shielded from prohibited transaction liability if they did not know about a PBM’s failure to comply with disclosure or remittance requirements and took timely corrective action upon discovering the issue. However, this “safe harbor” does not absolve fiduciaries of their fundamental and ongoing duty to diligently monitor their PBM service providers. The Proposed Rule specifies that if a PBM fails to correct a known deficiency within 90 days of receiving a written request, the fiduciary must notify the DOL. At that point, the fiduciary is obligated to assess whether to terminate the contract, consistent with their overarching duty of prudence under ERISA. These provisions underscore a new standard of care, where increased information flow is directly tied to an expectation of more rigorous oversight and decisive action when necessary.
While the two initiatives share the goal of transparency, they differ in their mechanics and scope, creating a complex compliance landscape for plan sponsors. A primary distinction lies in the treatment of rebates: HR 7148 mandates a 100% pass-through, while the Proposed Rule only requires disclosure of rebate arrangements. Similarly, their approaches to spread pricing diverge; HR 7148 does not permit it, whereas the Proposed Rule requires detailed disclosure by drug and pharmacy affiliate. The timing of disclosures also varies, with the Proposed Rule uniquely requiring comprehensive information before a contract is executed, extended, or renewed, in addition to ongoing semiannual reports. Furthermore, HR 7148 introduces a new requirement for an annual written notice to plan participants regarding PBM reporting, a provision not included in the DOL’s rule. The enforcement mechanisms also differ, with HR 7148 backed by civil monetary penalties and the Proposed Rule leveraging the consequences of prohibited transactions and DOL enforcement actions. These differences mean that plan sponsors must prepare to comply with two distinct but overlapping sets of rules.
4. Preparing for a New Compliance Landscape
Given the significant changes on the horizon, group health plan sponsors were advised to begin their preparations immediately. The convergence of legislative and regulatory action on PBM transparency represented a watershed moment. These developments were poised to provide fiduciaries with unprecedented visibility into PBM compensation structures and business practices, empowering them to better negotiate drug pricing and monitor their vendors. However, this increased flow of information brought with it enhanced obligations for oversight, reporting, and fiduciary care. The new transparency and audit tools made available meant that a failure to rigorously monitor PBMs, avoid conflicts of interest, and determine the reasonableness of compensation would carry a heightened risk of DOL audits and participant class-action lawsuits under ERISA. Proactive plan sponsors understood that early preparation was the key to successfully navigating this new environment and fulfilling their fiduciary duties.
To prepare, sponsors initiated a thorough review of their PBM contracts, working with benefits, legal, and finance teams to identify terms that would require amendment. A critical first step was assessing current rebate retention practices and evaluating the feasibility of transitioning to a fully pass-through or fee-based PBM arrangement to simplify future compliance. Concurrently, audit provisions in existing PBM and consultant agreements were scrutinized to ensure they aligned with the new, more stringent requirements, particularly regarding auditor selection and access to underlying pharmacy and manufacturer contracts. Benefit designs that steered participants toward PBM-affiliated pharmacies were critically evaluated to determine if they truly served the best interests of plan members. Many sponsors also moved to formalize their group health plan governance structures, documenting fiduciary decisions and establishing robust procedures for monitoring vendor compliance and compensation disclosures. Finally, they began developing a participant communication strategy to clearly explain the plan design changes that would result from these new legal mandates.
