In the past two weeks alone, PBMs have seen three major, industry-changing developments come down from the federal government, each of which is likely to have wide-ranging impacts across the pharmacy benefits landscape. Three separate federal actions – the passage of the Consolidated Appropriations Act of 2026 (CAA 2026), the Department of Labor’s proposed rule governing pharmacy benefit manager (PBM) disclosures, and the Federal Trade Commission’s settlement with Express Scripts – have sent a remarkably consistent message to the market. Taken together, they reflect a clear shift in how policymakers expect PBMs to interact with commercial plan sponsors, particularly large self-funded employers: more transparency, greater auditability, and increased scrutiny of PBM compensation and incentive structures for PBMs and their affiliated entities.
Although each development arises from a different statutory or enforcement authority, their collective impact is likely to materially change PBM contracting norms and rebalance the relationship between PBMs and commercial plan sponsors.
The Consolidated Appropriations Act of 2026: Codifying Transparency and Audit Rights
CAA 2026 builds on prior employer-focused reforms by significantly expanding the transparency obligations PBMs and their affiliates owe to plan sponsors. Most notably, the statute reinforces plan sponsors’ rights to obtain detailed disclosures regarding rebates, fees, and other forms of remuneration received in connection with prescription drug benefits, and to audit those amounts through the PBM or a designated third party.
For commercial plan sponsors, the significance of CAA 2026 is less about any single disclosure requirement and more about the framework it establishes: PBM compensation is no longer treated as proprietary or immune from verification simply because it flows through complex affiliate or rebate-aggregator structures. Instead, the statute anticipates routine disclosure, documentation, and reconciliation, backed by legally mandated audit rights and repayment obligations where over-retention is identified.
CAA 2026 expands and builds upon the existing compensation disclosure framework established by the Consolidated Appropriations Act of 2021 (CAA 2021). Specifically, 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 containing detailed information regarding the plan’s drug costs and the PBM’s performance, including:
• For each drug (organized by NDC), (i) the amount paid by the plan per prescription, (ii) the reimbursement paid by the PBM to the network pharmacy, and (iii) the difference between these two amounts (also known as “reimbursement spread”)
• The total “net spending” by the plan on drugs after factoring in rebates, fees, discounts, and other remuneration received in connection with the drug
• Any rebates, fees, discounts, and remuneration received by the entity providing PBM services, and how much of that was remitted to the plan
• For any drug for which gross spending by the plan exceeded $10,000, 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
In addition to these enhanced disclosure requirements, Section 6702 of CAA 2026 further requires any employee group health plan subject to the Employee Retirement Income Security Act of 1974 (ERISA) receive all manufacturer rebates from PBMs and their affiliated rebate aggregators on a 100% pass-through basis.
CAA 2026 also clarifies that the definition of “covered service provider” under ERISA Section 408(b)(2)(ii) is not limited to just “brokers” and “consultants,” but includes PBMs and other service providers. This is significant because that ERISA provision mandates that applicable “covered service providers” or their affiliates disclose all direct and indirect compensation that arise from their services to the plan, including manufacturer rebates, administrative fees, and discounts.
Finally, CAA 2026 combines enhanced disclosure and rebate transparency provisions with robust audit rights.
In practical terms, CAA 2026 strengthens employers’ negotiating leverage and restricts PBMs’ ability to conceal revenue streams including spread pricing and rebate retention. Audit rights, remittance timing requirements, and clearer definitions of “rebates” and “remuneration” are rapidly becoming baseline contractual expectations rather than optional concessions.
The Department of Labor’s Proposed Rule: Elevating PBM Oversight to a Fiduciary Function
The DOL’s proposed rule complements CAA 2026 by framing PBM transparency squarely within the ERISA fiduciary context. The proposal is designed to ensure that plan fiduciaries receive sufficient information to assess the reasonableness of PBM compensation and to fulfill their duty of prudence in selecting and monitoring service providers.
The additional reporting obligation is placed on the PBM that holds the primary contract with the plan sponsor, and takes the form of an “initial disclosure” and subsequent periodic reports disclosing, among other things: all services the PBM and its affiliates are expected to provide to the plan; and all compensation received by the PBM and its affiliates, including manufacturer rebates/revenues, reimbursement spread, and copay clawbacks (which occur when a patient’s copay exceeds the cost of the drug, in which case the PBM retains a portion or all of the copay rather than remitting it to the plan). Any arrangements that the PBM or its affiliates have entered into with manufacturers regarding formulary placement, along with the rationale for such decisions.
While the rule remains proposed, its impact is already being felt. Sophisticated employers are increasingly incorporating concepts from the proposal into RFPs and PBM agreements, including standardized compensation disclosures, affirmative representations regarding completeness and accuracy, and contractual remedies for misleading or incomplete disclosures.
The DOL-proposed rule is promulgated under ERISA Section 408, which was substantially amended by CAA 2026 shortly after publication of the proposed rule. Among other things, Section 408 of ERISA expands the direct-and-indirect compensation disclosure requirements to PBMs, not just brokers and consultants. However, CAA 2026 is unlikely to materially impact the final version of the DOL rule. The DOL appears to have anticipated the new law and explicitly states that the additional disclosure requirements apply to PBMs and other types of entities, even if they are not strictly considered “brokers” and “consultants.” And, to the extent there is some overlap between the DOL-proposed rule and the transparency and disclosure requirements of CAA 2026, there is a material difference in timing. Whereas most of the CAA 2026 provisions do not go into effect until 2029 or later, it is likely that the DOL rule (once it is finalized) will go into effect as early as 2027.
While the rule does not explicitly make PBMs into fiduciaries, the practical effect is to reposition PBM oversight as an ongoing fiduciary obligation of plan fiduciaries rather than a one-time contracting exercise. For employers, this raises the bar on governance; for PBMs, it increases the expectation that their pricing and compensation models must be explainable, defensible, and documentable.
The FTC-Express Scripts Settlement: A Market Signal Beyond Enforcement
The FTC’s settlement with Express Scripts may be the most disruptive of the three developments not because it applies universally, but because of what it signals to the market. The settlement requires Express Scripts’ “standard offering” to eliminate spread pricing, avoid list-price-based compensation structures, permit point-of-sale rebates, and provide enhanced reporting to plan sponsors.
Although formally binding only on Express Scripts, the settlement has immediate competitive implications. Large employers will soon ask why similar transparency and pricing models cannot be offered by other PBMs. In effect, the FTC has supplied plan sponsors with a concrete reference point for what a less conflicted PBM model can look like in practice.
Perhaps most importantly, the settlement directly challenges benefit designs and incentive structures that rely on inflated list prices and back-end rebates – an issue that has long frustrated employers but has been difficult to unwind contractually.
That said, it remains to be seen whether the “standard offering” contemplated by the FTC settlement will become the de facto model for Express Scripts and other major PBMs. It is possible that the major PBMs will find ways to persuade large employers to not adopt the standard offering (nothing in the FTC settlement requires existing PBM clients to revise their contracts to align with the “standard offering”). And, while more PBMs may adopt transparent or cost-based pricing models (including CVS Caremark’s new “TrueCost” program), alternative revenue mechanisms may continue to evolve.
The Collective Impact: A Rebalancing of the PBM-Employer Relationship
Viewed together, these three developments point toward a single trajectory: PBM relationships with commercial plan sponsors are moving toward greater transparency, greater accountability, lower upfront pricing, and reduced tolerance for list-price-driven economics.
For employers, this means stronger tools to evaluate PBM performance, more leverage to demand pass-through or fee-based models, and a clearer path to fulfilling ERISA fiduciary obligations. With greater capacity to oversee PBMs and the efficacy of the plan’s benefit design, however, comes greater responsibility to actually assess the newly-available information and make decisive changes based on that information. While the above three developments significantly shift the PBMs’ obligations to plans, the new provisions do not impact or change the ERISA fiduciary duty standard that plan sponsors owe to plan members.
In other words, the duty of plan sponsors to meaningfully and prudently oversee the PBMs remains unchanged. While the plan sponsor’s job will be made easier by the newly mandated semi-annual reports on the plan’s drug costs and PBM compensation, the only way to ensure the accuracy of those reports is to conduct an audit. Moreover, because the new law arms plan sponsors with more enhanced auditing provisions (including the ability to select their own auditor), a plan sponsor’s failure to execute those audit rights may be used against the plan as showing that the plan failed to properly and reasonably oversee its PBMs.
How Frier Levitt Can Help
Frier Levitt has been warning employers and plan sponsors for decades of the need to audit PBMs and the risks of not doing so. In today’s litigation landscape, plan sponsors are being regularly sued for unreasonably managing their pharmacy benefit design and relying on PBMs with little oversight. In short, it remains imperative for plan sponsors to conduct meaningful audits of PBMs and their affiliates. Failure to do so opens up the plans to exposure to fiduciary breach lawsuits like the wave of broker-fee-related ERISA class action lawsuits filed in December 2025.
Frier Levitt helps employers understand pharmacy benefit design in relation to their ERISA fiduciary duties; negotiate PBM contracts; and, critically, audit the PBM’s performance to identify and recoup plan losses. Frier Levitt has decades of experience auditing and litigating against the major PBMs on behalf of plan sponsors and other clients. We assess contract compliance, financial accuracy, and performance metrics to ensure your contracts align with fiduciary standards and your company’s financial interests. Proactive review can help identify potential issues before they result in litigation. Contact Frier Levitt today.
Senior Associate
