The Consolidated Appropriations Act of 2026 (CAA 2026), signed into law in early 2026, fundamentally restructures the financial and operational relationship between pharmaceutical manufacturers, pharmacy benefit managers (PBMs), and plan sponsors across Medicare Part D and commercial group health plans. While public commentary has focused on PBM reform and plan sponsor empowerment, CAA 2026’s implications for pharmaceutical manufacturers are equally profound and, in many respects, more immediately consequential. Manufacturers that fail to appreciate the breadth of CAA 2026’s requirements risk not only regulatory exposure but also significant disruption to existing pricing strategies, rebate arrangements, and distribution economics.
This two-part article series provides an overview of the key provisions of CAA 2026 that pharmaceutical manufacturers should understand, the compliance challenges those provisions create, and the strategic steps manufacturers should take to prepare for the new regulatory landscape.
In Part 1, we examine the foundational transparency framework: the bona fide service fee standards, the safe harbor for rebate pass-through, and the enhanced data and reporting requirements that will reshape manufacturer-PBM relationships in both the Medicare Part D and commercial plan contexts.
Bona Fide Service Fee Standards: A New Framework for Manufacturer-PBM Compensation
Perhaps the most consequential provision of CAA 2026 for manufacturers is the codification of bona fide service fee standards governing the types of compensation PBMs and their affiliates may receive from manufacturers. Under the new law, PBMs and their affiliates are prohibited from deriving any remuneration in connection with the utilization of covered Part D drugs other than bona fide service fees. The statute defines “bona fide service fees” narrowly: it must be consistent with fair market value, must be a flat dollar amount, and cannot be based on or contingent upon drug price (including Wholesale Acquisition Cost (WAC) or other benchmark prices), the amount of discounts or rebates, coverage or formulary placement decisions, or the volume or value of any referrals or business generated between the parties.
The practical impact of this definition cannot be overstated. Many of the fee structures that currently govern manufacturer-PBM relationships (such as percentage-of-WAC administrative fees, volume-contingent rebate tiers, and fees tied to formulary placement) will need to be terminated or substantially modified to comply with the new standard. Manufacturers that currently pay PBMs fees calculated as a percentage of a drug price, or that structure rebate arrangements around volume thresholds or formulary tier placement, will need to convert those arrangements to flat-dollar, fair market value fees supported by documented service deliverables.
The law does provide an important safe harbor. Rebates, discounts, and other price concessions received by PBMs will not be considered a violation of the bona fide service fee requirements if they are fully passed through to the prescription drug plan sponsor and comply with all regulatory requirements related to direct and indirect remuneration under Part D. This safe harbor underscores CAA 2026’s focus not on eliminating rebates, but on ensuring that any value flowing from manufacturers to PBMs either qualifies as a service fee or is fully and transparently passed through to plan sponsors.
Enhanced Data and Reporting Requirements
CAA 2026 mandates extensive annual reporting by PBMs to prescription drug plan sponsors and the Secretary of Health and Human Services (HHS), beginning July 1, 2028. While these reporting obligations fall directly on PBMs, they have significant implications for manufacturers because the reports will include detailed drug-level information that directly affects manufacturer pricing and rebate data.
Specifically, the required reports must include, for each drug covered by the plan that was dispensed: the brand name, generic or non-proprietary name, and National Drug Code (NDC); the average WAC, listed cost per day’s supply, per dosage unit, and per typical course of treatment; total rebates paid by the manufacturer as reported under the Detailed Direct and Indirect Remuneration Report; all other direct or indirect remuneration on the drug; and total manufacturer-derived revenue (inclusive of bona fide service fees) attributable to the drug and retained by the PBM and any affiliate.
In addition, PBMs must submit written explanations to prescription drug plan sponsors within thirty days of finalizing any contract or agreement with a manufacturer that makes rebates, discounts, payments, or other financial incentives contingent upon coverage, formulary placement, or utilization management conditions on any other covered Part D drug. These written explanations must be certified by a PBM’s Chief Executive Officer, Chief Financial Officer, or General Counsel.
For manufacturers, this means that the terms of their rebate and pricing arrangements with PBMs will no longer remain confidential between the contracting parties. Plan sponsors, regulators, and potentially competitors will have access to drug-level rebate data and revenue information that was historically treated as proprietary. Manufacturers should anticipate increased government scrutiny of pricing and rebate practices as a result of these disclosures, particularly given the Secretary’s authority to review remuneration arrangements for fair market value consistency in consultation with the Office of the Inspector General (OIG).
Oversight of PBM Services for Commercial Plans and Group Health Plans
CAA 2026 extends its PBM transparency and accountability requirements beyond Medicare Part D to group health plans regulated under ERISA. For plan years beginning thirty months after enactment, entities providing PBM services must submit semi-annual reports to group health plans containing information similar to that required for Part D plans, including total rebates, fees, alternative discounts, or other remuneration received from manufacturers, as well as copayment assistance dollars paid, copay cards applied, or other discounts provided by each manufacturer to plan participants and beneficiaries.
The semi-annual reporting to commercial plan sponsors will include, for each drug organized by NDC, the amount paid by the plan per prescription, the reimbursement paid by the PBM to the network pharmacy, and the difference between those amounts (commonly referred to as “reimbursement spread”). In addition, reports must disclose any rebates, fees, discounts, and remuneration received by the entity providing PBM services, along with how much that was remitted to the plan. For any drug for which gross spending by the plan exceeded $10,000, the PBM must provide a list of other available drugs in the same therapeutic class and, if the drug is included on the PBM’s formulary, the rationale for formulary placement.
What We Are Already Seeing in the Marketplace
Although CAA 2026’s central operative provisions do not take effect until 2028, the statute is already reshaping how PBMs approach manufacturers at the negotiating table. In the marketplace today, PBMs are not abandoning the compensation they have historically extracted from manufacturers so much as repackaging it. Rather than presenting genuinely new service offerings, many PBMs are approaching manufacturers with proposals that convert their existing rebate and price-based economics into ostensibly compliant flat-fee arrangements calibrated to preserve (and in some instances expand) their prior revenue. In practice, the pitch often amounts to a reverse-engineered fee: a PBM that derived, for example, $40 million from a manufacturer’s products in the prior year returns to propose performing substantially the same services on a “flat rate” of $41 million. The label has changed, but the dollars have not.
For manufacturers, this dynamic is the central practical risk of the new framework. A flat dollar amount is not, by itself, a bona fide service fee. To satisfy CAA 2026, the fee must reflect the fair market value of itemized services actually performed, and it cannot simply be a reconstituted version of the manufacturer’s former rebate and administrative spend dressed up in flat-fee clothing. Manufacturers should therefore scrutinize these proposals with the same rigor they would apply to any other material pricing term, insisting that the PBM identify the specific services being purchased and demonstrate that the proposed fee is commensurate with the value of those services. Manufacturers that accept “delinked” fees at or above their historical spend without that analysis may find themselves paying as much as before, or more, while bearing heightened exposure if the arrangement is later reviewed for fair market value consistency.
What This Means for Manufacturers and Looking Ahead to Part 2
The transparency provisions of CAA 2026 represent a paradigm shift for pharmaceutical manufacturers. The era of confidential, bilateral pricing negotiations with PBMs is ending. Manufacturers must now operate under the assumption that their pricing data, rebate arrangements, and fee structures will be visible to plan sponsors, regulators, and enforcement authorities.
This level of transparency creates both challenges and opportunities. Manufacturers with competitive pricing and demonstrable clinical value may find that transparency works in their favor, as plan sponsors gain the information necessary to make formulary decisions based on true net cost rather than opaque rebate negotiations. Conversely, manufacturers whose market position depends on high list prices offset by confidential rebates may face significant competitive pressure as that model becomes untenable.
Part 2 of this series will examine the operational and strategic implications of CAA 2026’s remaining provisions, including the 100% rebate pass-through requirement for ERISA plans, Medicare Part D cost-sharing modifications, HHS and OIG oversight authority, and the statute’s enforcement mechanisms. Additionally, Part 2 will address the interaction between CAA 2026, the Department of Labor’s proposed rule, and the Federal Trade Commission’s landmark settlement with Express Scripts, and will provide a comprehensive compliance roadmap with specific action steps manufacturers should prioritize.
How Frier Levitt Can Help
CAA 2026 will require many pharmaceutical manufacturers to reevaluate 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 assess the impact of new federal requirements, restructure commercial arrangements, evaluate fair market value considerations, and prepare for increased regulatory scrutiny. Contact Frier Levitt today to ensure your organization is prepared for the new regulatory environment.
Frequently Asked Questions About the CAA 2026 PBM Transparency Provisions
What is the CAA 2026 PBM transparency framework?
The Consolidated Appropriations Act of 2026 establishes new transparency, reporting, and compensation requirements governing the financial relationships between pharmaceutical manufacturers, pharmacy benefit managers (PBMs), and health plans. The law is intended to increase transparency into PBM compensation and rebate arrangements while providing greater visibility to plan sponsors and regulators.
What is a bona fide service fee under CAA 2026?
Under CAA 2026, PBMs and their affiliates generally may receive compensation from pharmaceutical manufacturers only in the form of bona fide service fees. These fees must reflect fair market value, be paid as a flat dollar amount, and cannot be tied to a drug’s price, rebates, formulary placement, or the volume or value of business generated.
When do the new PBM transparency requirements take effect?
Many of CAA 2026’s key PBM transparency and reporting requirements become effective in 2028. However, pharmaceutical manufacturers should begin reviewing their existing PBM agreements well before then, as contract negotiations and business models are already evolving in anticipation of the new requirements.
Will pharmaceutical manufacturers need to revise their PBM contracts?
Potentially. Manufacturers should evaluate existing PBM agreements to determine whether compensation structures, rebate arrangements, administrative fees, and other financial terms align with CAA 2026’s new bona fide service fee requirements and transparency obligations.
How will CAA 2026 affect manufacturer pricing and rebate strategies?
CAA 2026 is expected to increase transparency into manufacturer pricing, rebates, and other financial arrangements with PBMs. Manufacturers may need to reassess pricing strategies, fee structures, and contracting approaches as plan sponsors and regulators gain greater visibility into these arrangements.
What should pharmaceutical manufacturers do now?
Manufacturers should begin assessing their PBM contracts, evaluating existing compensation models, identifying potential compliance risks, and developing a strategy for adapting to the new transparency framework before the law’s key provisions become effective.
