The rules of engagement between pharmaceutical manufacturers and PBMs are being rewritten, and the clock is ticking. In Part 1 of this series, we unpacked the foundational transparency provisions of the Consolidated Appropriations Act of 2026 (CAA 2026), from bona fide service fee standards to rebate pass-through safe harbors and enhanced reporting requirements. Now, in Part 2, we turn to what matters most for your organization: the operational realities, enforcement risks, and strategic action steps you should be taking today to stay ahead of the curve.
The 100% Rebate Pass-Through Requirement for ERISA Plans
One of the most transformative provisions of CAA 2026 for pharmaceutical manufacturers is the requirement that PBMs pass through 100% of rebates, fees, alternative discounts, and other remuneration received from manufacturers to group health plans or health insurance issuers. This provision, which applies to ERISA-regulated plans for plan years beginning thirty months after enactment, fundamentally alters the economic calculus underlying manufacturer rebate strategy.
Under CAA 2026, rebate remittances must be made quarterly, not later than ninety days after the end of each quarter, and must be fully disclosed and enumerated to the group health plan. In addition, rebate aggregators and group purchasing organizations must remit such rebates to PBMs not later than forty-five days after the end of each quarter.
By mandating full rebate pass-through, CAA 2026 effectively undermines PBMs’ economic rationale for rebate-driven pricing models. When PBMs can no longer retain a share of manufacturer rebates, their financial incentive to favor high-list-price, high-rebate drugs diminishes significantly. For manufacturers, this raises a strategic question of the first order: whether to continue offering substantial rebates that flow entirely to plan sponsors, or whether to pursue alternative pricing approaches that may be more advantageous in the new regulatory environment.
The pass-through requirement also has significant implications for manufacturers’ copay assistance programs and patient access strategies. With manufacturers’ copay assistance dollars now subject to detailed reporting and disclosure to plan sponsors, manufacturers will need to carefully evaluate how these programs interact with the new transparency framework and whether adjustments are warranted.
Rebate Aggregators and Group Purchasing Organizations
Any assessment of CAA 2026’s impact on manufacturers would be incomplete without addressing the rebate aggregators and group purchasing organizations (GPOs) that the largest PBMs have interposed between themselves and manufacturers. In recent years, each of the three dominant PBMs has established an affiliated rebate-contracting entity (Ascent Health Services, Zinc Health Services, and Emisar Pharma Services) through which manufacturer rebate negotiations are now routed. These aggregators have become a principal mechanism by which PBMs continue to derive price-based revenue from manufacturers, chiefly through the “administrative fees” and “data fees” they assess against manufacturers, which are frequently calculated as a percentage of a drug’s list price. By some estimates, the fees extracted through these entities have grown dramatically, roughly doubling over a recent four-year period. Frier Levitt has closely followed this evolving dynamic, including in connection with the Federal Trade Commission’s expanding investigation into PBM-owned rebate aggregators and their retention of funds derived from drug manufacturers.
CAA 2026 was drafted with this structure squarely in view. The statute’s definition of the entities subject to its requirements (called “applicable entities”) expressly reaches GPOs, rebate aggregators, and other entities designed to aggregate rebates, and, as noted above, the law requires that rebates flowing through aggregators and GPOs be remitted to PBMs within forty-five days of the end of each quarter and be subject to plan audit rights. In other words, the bona fide service fee standard, the transparency obligations, and the audit rights cannot be circumvented simply by relocating price-based compensation from the PBM to an affiliated aggregator. For manufacturers, the practical import is that the percentage-based administrative and data fees charged by these entities are squarely within CAA 2026’s reach, and that fees paid to a PBM’s aggregator will be scrutinized under the same fair market value lens as fees paid to the PBM directly. Manufacturers should map the full chain of entities they compensate in connection with each product and confirm that the fees paid to each link in that chain (whether the PBM, its GPO, or a rebate aggregator) can be independently justified as bona fide service fees.
Medicare Part D Cost-Sharing Modifications
CAA 2026 also modified cost-sharing requirements for Part D beneficiaries beginning in plan year 2028. For generic drugs, cost-sharing shall not exceed $0, effectively eliminating out-of-pocket costs for generic medications for qualifying beneficiaries. For preferred drugs that are multiple source drugs and for other drugs, cost-sharing amounts will be indexed to the prior year amount increased by the annual percentage increase in the Consumer Price Index.
These cost-sharing modifications are likely to influence manufacturer pricing and formulary strategy. The elimination of cost-sharing for generics may accelerate generic substitution rates, putting additional pressure on brand manufacturers to demonstrate differentiated clinical value and to compete more aggressively on formulary placement through mechanisms other than traditional rebate arrangements that are now constrained by the bona fide service fee requirements. Manufacturers of branded products should evaluate how the modified cost-sharing landscape will affect patient access, market share, and the competitive dynamics within their therapeutic categories.
GAO Study on Price-Related Compensation in the Drug Supply Chain
CAA 2026 directs the Comptroller General to conduct a study describing the use of compensation and payment structures related to a prescription drug’s price within the retail prescription drug supply chain. The study will examine compensation structures between intermediaries (including PBMs, wholesalers, pharmacies, and manufacturers) as well as potential conflicts of interest and the effects on federal healthcare programs and beneficiaries.
While the GAO study does not impose immediate compliance obligations for manufacturers, it signals continued congressional interest in understanding and potentially further regulating the full scope of financial relationships within the drug supply chain. Manufacturers should anticipate that the study’s findings could inform future legislative action, particularly if the GAO identifies compensation structures that contribute to higher drug prices or create misaligned incentives within the supply chain.
HHS and OIG Oversight Authority
CAA 2026 grants the Secretary of HHS, in consultation with the OIG, authority to review components of remuneration arrangements between PBMs and other entities involved in the dispensing or utilization of covered Part D drugs, including manufacturers. These reviews are intended to assess whether remuneration is consistent with fair market value.
This authority represents a meaningful expansion of the government’s enforcement toolkit. Historically, the OIG’s oversight of manufacturer-PBM financial arrangements has been somewhat constrained by the complex, contractually negotiated nature of those relationships. CAA 2026 now provides an explicit statutory basis for the government to evaluate whether fees paid by manufacturers to PBMs are commercially reasonable and consistent with the services rendered. Manufacturers should view this authority as a strong signal that documentation of the services underlying PBM fees and their fair market value analyses supporting fee levels will be critical to compliance.
Enforcement Mechanisms and Potential Penalties
CAA 2026 establishes a robust enforcement framework that manufacturers must take seriously even though the penalty provisions apply most directly to PBMs and applicable entities. PBM reporting violations and the submission of false information can result in civil monetary penalties of $10,000 per day for ongoing violations and up to $100,000 per item of false information. In addition, PBMs that receive remuneration in violation of the bona fide service fee requirements are subject to disgorgement of any such remuneration to the prescription drug plan sponsor, and the plan sponsor must in turn disgorge such amounts to the Secretary of HHS.
Although these penalties apply directly to PBMs, manufacturers may face additional obligations and exposure depending on their contractual arrangements with PBMs – for example, through indemnification provisions, representations and warranties regarding compliance, or contractual obligations to provide accurate data that PBMs may rely upon in their reporting. Manufacturers should carefully review their existing PBM agreements to understand the extent to which they may bear financial or legal risk if a PBM’s non-compliance is traced to information or fee structures originating from the manufacturer.
Interaction with the Department of Labor’s Proposed Rule and the FTC Settlement
CAA 2026 does not operate in isolation. It is one of three significant federal developments that, taken together, are fundamentally reshaping the pharmacy benefits landscape. The Department of Labor’s proposed rule governing PBM disclosures complements CAA 2026 by framing PBM transparency within the ERISA fiduciary context, requiring PBMs to disclose all compensation received by the PBM and its affiliates, including manufacturer rebates, reimbursement spread, and copay clawbacks. Meanwhile, the Federal Trade Commission’s landmark settlement with Express Scripts requires its “standard offering” to eliminate spread pricing, avoid list-price-based compensation structures, permit point-of-sale rebates, and provide enhanced reporting to plan sponsors.
For manufacturers, the cumulative effect of these developments is significant. The traditional model in which manufacturers offered high list prices offset by confidential rebates negotiated with PBMs, who in turn retained a portion of those rebates, is being dismantled from multiple directions simultaneously. The FTC settlement has established a market reference point for cost-plus, transparent PBM pricing. The DOL proposed rule elevates PBM oversight to a fiduciary obligation, meaning that PBM pricing and compensation models must be explainable, defensible, and documentable. CAA 2026 provides the statutory backbone for transparency, disclosure, and full rebate pass-through.
Notably, there is an important difference in timing. Whereas most of the CAA 2026 provisions do not go into effect until 2028 or 2029, it is likely that the DOL rule, once finalized, will go into effect as early as 2027. Manufacturers should be aware of this staggered implementation timeline and should prepare for the DOL rule’s requirements on an accelerated basis.
What We Are Seeing: PBM Negotiations for Future Contract Years
The staggered implementation timeline described above has a practical consequence that manufacturers are encountering right now at the negotiating table. With the statute’s core provisions phasing in through 2028 and 2029, and the DOL rule potentially effective as early as 2027, PBMs are not waiting for the compliance deadlines to reposition their manufacturer relationships. In the negotiations we are currently observing, PBMs are using the runway before full implementation both to lock in favorable economics for future contract years and to test the boundaries of the new framework.
Several patterns are emerging. First, as discussed in Part 1 of this series, PBMs are increasingly proposing flat-fee and per-claim service arrangements calibrated to preserve, and often to exceed, the gross revenue they historically derived from a manufacturer’s products; effectively recreating their prior economics under a new label. Second, PBMs are shifting their negotiating emphasis away from headline rebate percentages and toward the array of administrative, data, and service fees, which are frequently assessed through affiliated aggregators and GPOs, that are less visible to plan sponsors and, for the moment, less constrained. Third, PBMs are seeking broader multi-year commitments and cross-product or cross-class concessions that entrench their position before the transparency and pass-through requirements take full effect. Manufacturers are also reporting heightened PBM demands for utilization and economic data as a condition of formulary access.
Manufacturers negotiating agreements today should bear in mind that those agreements will increasingly be governed by CAA 2026, the DOL rule, and the FTC settlement as each set of requirements comes online during the contract term. Fee structures and rebate arrangements that appear acceptable under current practice may not survive that transition. Manufacturers should insist on terms that can be adjusted or unwound as the regulatory framework takes effect, resist multi-year commitments that lock in economics that will not comply, and ensure that every fee they agree to pay, regardless of how it is labeled and whichever entity collects it, can be defended as fair market value for services actually rendered.
Strategic Considerations and Recommended Action Steps for Manufacturers
The scope and complexity of CAA 2026 demand a proactive and coordinated response from pharmaceutical manufacturers. The following action steps can help manufacturers prepare for implementation.
Audit Existing PBM Contracts
Manufacturers should conduct a comprehensive review of all existing agreements with PBMs, wholesalers, distributors, GPOs, and rebate aggregators. The review should identify fee structures that may not comply with the bona fide service fee standards, including any fees calculated as a percentage of drug price, Wholesale Acquisition Cost (WAC)-based fees, or volume-contingent arrangements. Agreements containing such provisions will need to be renegotiated or terminated prior to the applicable effective dates.
Restructure PBM Service Agreements
Following the contract audit, manufacturers should convert percentage-based or volume-contingent fees to flat-dollar, fair market value fees. Critically, manufacturers must document the services being provided by PBMs and the basis for fee calculations, as this documentation will be essential in the event of a government review of remuneration agreements for fair market value consistency.
Reassess Rebate Strategy
With the 100% rebate pass-through requirement for ERISA plans and the enhanced transparency provisions for Part D plans, manufacturers must reassess whether their current rebate strategies remain commercially viable and strategically sound. Manufacturers should evaluate whether alternative approaches (such as lower list prices, value-based contracts, or outcomes-linked arrangements) may be more advantageous in the new regulatory environment.
Prepare for Enhanced Disclosure Requirements
Manufacturers should review their internal systems and reporting capabilities to ensure they can provide timely and accurate information that PBMs will require to meet their new reporting obligations. Given that PBM reports will disclose manufacturer-level data on rebates, WAC, and other remuneration, manufacturers must have confidence in the accuracy of the data they supply and should establish internal controls and verification processes accordingly.
Implement Audit Readiness Protocols
With enhanced plan rights to audit PBMs and the Secretary’s authority to review remuneration arrangements, manufacturers should establish protocols for audit readiness, including robust document retention and retrieval capabilities. Manufacturers should assume that their fee arrangements, rebate agreements, and pricing data will be subject to regulatory and plan sponsor review, and should prepare accordingly.
Monitor the Regulatory Landscape
The implementation of CAA 2026 will be shaped significantly by rulemaking and guidance development, including specifications for fair market value analysis, standard reporting formats, and bona fide service fee standards. Manufacturers should actively monitor these developments and engage in the public comment process to help shape the rules that will govern their business.
Evaluate Broader Pricing and Distribution Strategy
As the traditional rebate-driven pricing model is increasingly constrained by legislative and regulatory action, manufacturers should evaluate whether alternative distribution models (including direct-to-consumer programs, cost-plus arrangements, and other innovative approaches) may better serve their commercial and patient access objectives.
Conclusion
CAA 2026 is a watershed moment for the pharmaceutical industry. The statute’s bona fide service fee standards, 100% rebate pass-through requirements, enhanced disclosure obligations, and expanded government oversight authority collectively represent a fundamental shift in how manufacturers, PBMs, and plan sponsors will interact in both the Medicare Part D and commercial plan contexts. When combined with the DOL’s proposed rule and the FTC’s settlement with Express Scripts, the trajectory is unmistakable: the era of opaque, rebate-driven pricing is giving way to a regulatory environment that demands transparency, accountability, and demonstrable fair market value in every financial relationship within the drug supply chain. Manufacturers that begin preparing now will be best positioned not only to manage compliance risk but also to capitalize on the competitive opportunities that the new landscape presents.
How Frier Levitt Can Help
CAA 2026 will require many pharmaceutical manufacturers to reassess PBM contracts, pricing strategies, rebate structures, and compliance programs well before the law’s key provisions become effective. Frier Levitt advises pharmaceutical manufacturers, specialty pharmacies, and other participants throughout the prescription drug supply chain on regulatory compliance, PBM contracting, pricing strategy, and government enforcement matters. Our attorneys help clients evaluate existing commercial arrangements, assess fair market value considerations, navigate evolving federal requirements, and prepare for increased regulatory scrutiny across the drug supply chain. Contact Frier Levitt today to ensure your organization is prepared for the new regulatory environment.
Frequently Asked Questions About CAA 2026’s Strategic Impact on Pharmaceutical Manufacturers
When do CAA 2026’s key PBM reforms take effect?
Many of CAA 2026’s most significant PBM transparency, reporting, and rebate pass-through requirements become effective in 2028. However, pharmaceutical manufacturers should begin preparing now, as PBMs are already modifying contract terms and negotiating strategies in anticipation of the new requirements.
What is the 100% rebate pass-through requirement?
For ERISA-regulated group health plans, CAA 2026 requires PBMs to pass through 100% of manufacturer rebates, fees, alternative discounts, and other remuneration to the applicable plan or health insurance issuer. This requirement is expected to significantly alter traditional PBM rebate models and may require manufacturers to reevaluate their pricing and contracting strategies.
How could CAA 2026 affect PBM contracts?
Manufacturers should review existing PBM agreements to identify compensation structures that may no longer comply with CAA 2026, including percentage-based administrative fees, volume-contingent arrangements, and other pricing models that may not satisfy the new bona fide service fee requirements.
Will pharmaceutical manufacturers need to rethink their pricing and rebate strategies?
Potentially. As PBM compensation becomes more transparent and rebate pass-through requirements take effect, manufacturers should evaluate whether existing rebate structures remain commercially effective or whether alternative pricing and contracting strategies may better align with the evolving regulatory landscape.
Why are rebate aggregators and group purchasing organizations (GPOs) important under CAA 2026?
CAA 2026 extends many of its transparency and compensation requirements to rebate aggregators, GPOs, and other affiliated entities involved in manufacturer rebate arrangements. Manufacturers should evaluate the entire chain of entities receiving compensation to ensure all fees can be supported as bona fide service fees that reflect fair market value.
What should pharmaceutical manufacturers do now?
Manufacturers should begin reviewing PBM contracts, documenting fair market value analyses, evaluating pricing and rebate strategies, strengthening internal compliance processes, and monitoring forthcoming regulations and guidance implementing CAA 2026.
