Self-funded employer health plans governed by the Employee Retirement Income Security Act of 1974 (ERISA) are facing one of the most significant changes to pharmacy benefit administration in decades. The Consolidated Appropriations Act of 2026 (CAA 2026) significantly expands the transparency obligations that pharmacy benefit managers (PBMs) and their affiliates owe to plan sponsors, requires 100% pass-through of manufacturer rebates, and reinforces plan sponsors’ rights to audit PBM compensation. Key requirements generally take effect beginning with plan years starting on or after August 3, 2028, making it important for employers to evaluate existing agreements and upcoming renewal dates now. PBM contracts are complex, multi-year instruments, and the terms plan sponsors negotiate will determine whether they capture the benefit of these reforms or simply see PBM revenue shift into new and less visible fees.
What the New Federal Law Requires
CAA 2026 builds upon the compensation disclosure framework established by the Consolidated Appropriations Act of 2021 (CAA 2021). Section 6701 of the new law, titled “Oversight of Pharmacy Benefit Manager Services,” requires any entity providing “pharmacy benefit services” to provide semi-annual reports to plan sponsors detailing the plan’s drug costs and the PBM’s performance, including:
- For each drug, the amount paid by the plan per prescription, the reimbursement paid by the PBM to the network pharmacy, and the difference between the two (the “reimbursement spread”);
- The plan’s total “net spending” on drugs after factoring in rebates, fees, discounts, and other remuneration;
- All rebates, fees, discounts, and remuneration received by the PBM, and how much of that was remitted to the plan; and
- For any drug with plan gross spending above $10,000, a list of other available drugs in the same therapeutic class and, if the drug is on the PBM’s formulary, the rationale for its formulary placement.
In addition, Section 6702 of CAA 2026 requires ERISA group health plans to receive:
- all manufacturer rebates from PBMs and their affiliated rebate aggregators on a 100% pass-through basis;
- disclosures of PBM and affiliate direct and indirect compensation arising from their services to the plan, including manufacturer rebates, administrative fees, and discounts; and
- enhanced audit rights to verify PBM compensation, rebate payments, and compliance with applicable requirements.
Why PBM Contracts Must Be Renegotiated
In practical terms, CAA 2026 strengthens employers’ negotiating leverage and restricts PBMs’ ability to conceal revenue streams. Audit rights, remittance timing requirements, and pass-through rebates are becoming baseline contractual expectations rather than concessions. At the same time, as PBMs lose traditional avenues of revenue, they are likely to recover it elsewhere, through new or increased administrative fees, clinical program charges, narrowed definitions and/or use of affiliates. A contract that appears to comply with the law on its face may still leave substantial value with the PBM.
For plan sponsors, the financial implications can be significant. Even when rebates are passed through as required, additional fees or compensation arrangements may offset anticipated savings. Reviewing the full scope of PBM and affiliate compensation, rather than focusing solely on rebate guarantees, is essential to evaluating the true cost of pharmacy benefits.
What ERISA Plan Sponsors Should Do Now
- Review existing PBM agreements. Identify how rebates are currently defined, calculated, and paid; what portion is retained by the PBM; whether spread pricing is permitted; and what reporting the plan receives today.
- Evaluate upcoming contract renewals. Determine when existing PBM agreements expire or renew and whether amendments will be necessary to address the new requirements. Plan sponsors should also assess whether current contract provisions provide sufficient flexibility to implement the required changes.
- Strengthen transparency and audit protections. Highly consider working with experienced counsel to negotiate new PBM agreement terms. Experienced counsel can tighten key definitions. Ensure “rebates” and related manufacturer compensation are defined broadly enough to capture administrative fees, and other manufacturer revenue. Negotiate robust audit rights, claims-level data access, auditor selection rights, reasonable look-back periods, and remedies for non-compliance that align with the new disclosure requirements.
- Assess the total financial impact. Evaluate whether new or increased administrative fees, clinical program charges, or affiliate arrangements could offset savings anticipated from rebate pass-through requirements. Consider the PBM’s total compensation structure when comparing existing agreements with proposed contract terms.
How Frier Levitt Can Help
Frier Levitt’s attorneys regularly advise plan sponsors on pharmacy benefit arrangements and negotiate PBM contracts on their behalf. We can help ERISA plan sponsors review existing PBM agreements against the new CAA 2026 requirements, identify provisions that may undermine the value of rebate pass-through and disclosure rights, and negotiate new or amended contracts with clear rebate and remuneration definitions, remittance timing requirements, meaningful reporting, and robust audit protections. Contact Frier Levitt to discuss reviewing or renegotiating your PBM agreement in preparation for the new requirements.
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