Summary
California’s new SB 41 introduces the state’s most comprehensive PBM reform, mandating licensing, banning spread pricing, enforcing rebate transparency, and adopting an “any willing provider” standard that levels the playing field for independent pharmacies. Together, these measures enhance oversight, increase transparency, and protect patient access to care, representing a major shift in how PBMs operate within the nation’s largest state healthcare market.
On October 11, 2025, Governor Gavin Newsom signed Senate Bill 41 (SB 41) into law, enacting a sweeping package of reforms targeting Pharmacy Benefit Managers (PBMs). After years in which California lagged behind many peer states in adopting comprehensive PBM regulation—and after multiple high‑profile proposals stalled or were vetoed—SB 41 marks a decisive turning point. The law imposes robust pharmacy network access, transparency, and pricing rules. The most notable provision is the “any willing provider” requirement. In essence, PBMs may not refuse network participation to a nonaffiliated pharmacy that agrees to the same terms and conditions offered to affiliated pharmacies.
PBM trade groups have already signaled opposition, arguing SB 41 will miss its mark on patient affordability and instead drive higher premiums and costs; supporters counter that the statute closes longstanding regulatory gaps and squarely aligns incentives toward lower net prices and improved pharmacy access. If fully implemented and sustained, SB 41 is poised to be one of the most aggressive state PBM frameworks to date.
Simply stated, SB 41 establishes licensing, transparency, payment, and contracting rules designed to shed some California sunshine onto the opaque revenue streams through which PBMs extract value that should instead flow to payers, pharmacies, and patients.
I. Critical Provisions in SB 41 PBM Reform
a) Importance of the Any Willing Provider Requirement
• The inclusion of an “any willing provider” (AWP) requirement is the linchpin of SB 41’s access and competition framework. By prohibiting PBMs from refusing network participation to nonaffiliated pharmacies that accept the same terms and conditions offered to affiliated pharmacies, AWP directly addresses the structural leverage that vertically integrated PBM-insurer-pharmacy enterprises have used to channel volume to owned or preferred outlets. This safeguard promotes patient choice, mitigates anti-competitive steering, and stabilizes access to pharmacy services—particularly in underserved and rural communities where the loss of even a single independent pharmacy can materially diminish care continuity and patient outcomes.
b) Licensing and Oversight
• SB 41 requires every PBM operating in California to obtain a state license by January 1, 2027. Licenses are obtainable from the Department of Insurance.
• Licensure will require disclosure of ownership, financial data, lists of client health plans, and sworn certifications of compliance.
• Fees collected fund a PBM regulatory account that supports enforcement. For the first time, California will have a formal gatekeeper and enforcement mechanism over PBMs.
c) Ban on Spread Pricing
• Contracts executed, amended, or renewed on or after January 1, 2026 may not authorize “spread pricing” — the practice in which a PBM charges a plan more for a drug than it pays the dispensing pharmacy, keeping the difference as profit. Eliminating spread pricing strikes at a core PBM revenue model and is expected to narrow margins derived from pharmacy under-reimbursement.
d) Rebate Transparency and Pass-Through
• PBMs must report aggregate manufacturer rebates and cannot retain rebate dollars that belong to the health plan. Plans must disclose total rebates and other payments in their annual prescription-drug reports. The aim is to ensure that negotiated discounts actually reach payers and, indirectly, patients.
e) Limits on Fees and Steering
• SB 41 restricts PBM revenue models that rely on hidden markups and prohibits contractual provisions that steer patients to vertically integrated PBM-owned pharmacies or that disadvantage unaffiliated community pharmacies.
• SB 41 also bars exclusivity deals with manufacturers that hinder competition.
f) Reporting, Enforcement, and Penalties
• PBMs must submit detailed annual reports, subject to audit and public summary publication. Violations can trigger civil penalties, and all fines will feed a dedicated enforcement fund.
Taken together, the provisions seek to greatly increase the state’s oversight authority in an effort to redirect cost savings from the intermediaries to payers, pharmacies, and patients.
II. Why SB 41 Succeeded Where Prior PBM Bills Failed
SB 41 is the product of several failed or partial attempts over recent years to regulate PBMs in California. Over the past few years separate legislation restricted PBM under-reimbursement to 340B safety-net providers, while other efforts in the Assembly (i.e. AB 913 (2023)) tried, but failed to, implement measures requiring PBM registration.
Most notably, SB 41’s sponsor, Senator Scott Wiener, previously introduced a bill in 2024 with nearly identical scope to SB 41, but Governor Newsom vetoed the bill citing potential preemption by federal law and concerns over effectively implementing the act. This veto invigorated the bill’s supporters to refine the legislation and shore up support for a continued push.
Independent pharmacists, consumer advocates, and legislators have long argued that PBM practices — including spread pricing, rebate retention, and network steering — have contributed to rising out-of-pocket costs and the wave of small-pharmacy closures across the state. PBMs’ vertical integration with major insurers and mail-order pharmacies deepened those concerns.
As other states adopted PBM licensing and transparency regimes, California lawmakers faced pressure to follow suit. Governor Newsom and bill author Sen. Scott Wiener framed SB 41 as a corrective to unchecked consolidation and secrecy in the prescription-drug supply chain.
While several pharmacy and patient-advocacy groups applauded the measure as overdue relief for community pharmacies and consumers, the looming question of federal preemption, specifically under the Employee Retirement Income Security Act (ERISA), has yet to be fully decided. The hope is that following Governor Newsom’s veto of SB 41’s predecessor in 2024, the focus of the bill’s provisions onto PBM conduct rather than plan design can withstand legal challenges.
III. What Community Retail Pharmacies Should Know
For independent and community pharmacies, SB 41 promises tangible relief from some of the market practices that have eroded profitability and bargaining power over the past decade. With implementation beginning January 1, 2026, and full PBM licensure required by 2027, pharmacies can begin preparing now to leverage the new framework.
Frier Levitt’s substantial experience navigating PBM regulations nationwide makes our firm uniquely positioned to address a pharmacy’s best practices to prepare for the upcoming effective dates of SB 41.
Fairer Reimbursement and Transparency
- Pharmacies should review their PBM contracts as they approach renewal in 2026 to ensure that pricing models align with the new “pass-through” structure. Any existing spread-based terms will likely need revision or renegotiation.
Protection Against Patient Steering
- Pharmacies should educate patients about their right to patient choice when it comes to pharmacy services and advise patients to note any steering behavior occurring after SB 41’s effective date.
- SB 41 allows for complaints to be filed with the state regulator once enforcement begins – a powerful tool for pharmacies that only works if the PBM’s conduct is documented.
Greater Insight Into Rebate Flows
- Stay informed on the regulator’s annual public reports, which summarize rebate and payment data. These reports are vital instruments for collective bargaining and policy advocacy.
Accountability Through State Licensing
- Establish internal documentation practices to record under-reimbursements, delayed payments, or network terminations that may violate the new statutes. Early, detailed reporting will support enforcement actions.
Opportunity for Collective Advocacy
- Participate in rule-making hearings through associations such as the National Community Pharmacists Association (NCPA). Active engagement ensures that the final regulations are reflective of the specific issues pharmacists face on a daily basis.
IV. Next Steps: Implementing California’s PBM Licensing and Oversight Rules?
The next 18 months — during which the state drafts rules, PBMs apply for licenses, and new contracts are signed — will determine whether the promises of SB 41 will materialize. Pharmacies that engage early, document PBM conduct, and participate in the regulatory process will be best suited to benefit from California’s most ambitious PBM reform yet.
Frier Levitt will be following the developments in California closely as we work toward SB 41’s effective dates. Pharmacies interested in preparing for SB 41’s implementation are welcome to contact us for guidance on how to leverage this legislation to strengthen their business operations and compliance posture.
Frier Levitt provides strategic, industry-focused legal counsel tailored to your needs. Contact our team today to learn how we can help you.
