On July 1, 2025, Illinois House Bill 1697 (HB 1697), the Prescription Drug Affordability Act (Public Act 104-0027), amended the Illinois Insurance Code’s pharmacy benefit manager (PBM) framework at 215 ILCS 5/513b1 et seq. The new law is effective for health benefit plans amended, delivered, issued, or renewed on or after January 1, 2026. HB 1697 creates powerful tools to hold PBMs accountable, including expanded audit rights, a prohibition on spread pricing, a 100% rebate pass-through mandate, robust 340B anti-discrimination protections, anti-retaliation safeguards, and a private enforcement mechanism. These reforms significantly strengthen oversight of PBMs and create meaningful opportunities for plan sponsors and 340B covered entities to improve transparency, enforce contractual rights, and challenge noncompliant practices.
Expanded Audit Rights (Section 513b1(b)(5))
Perhaps the most significant practical tool HB 1697 provides to plan sponsors is expanded set of audit rights. These provisions transform audit rights from a contractual formality into an effective compliance mechanism for plan sponsors.
Section 513b1(b)(5) mandates that every contract between a health insurer and a PBM must “[a]llow a plan sponsor or insurer whose coverage is administered by the contracting . . . pharmacy benefit manager an annual right to audit compliance with the terms of the contract.” This audit right is broad. It encompasses full disclosure of any and all rebate amounts secured and provided to the PBM. Crucially, the cost of the audit shall be borne exclusively by the PBM. This means there is no financial barrier to exercising this right; the PBM pays, not the plan sponsor or insurer.
Plan sponsors should treat this annual audit right as a routine compliance function rather than a contractual formality. An annual audit is the single most effective mechanism to detect whether a PBM is retaining spread, under-remitting rebates, or otherwise failing to deliver the value it contractually promised. Plan sponsors that fail to exercise this right risk exposure to ERISA lawsuits for breach of fiduciary duty.
Mandating Pass-Through Pricing and Auditing Actual Amounts Paid to Pharmacies (Sections 513b1(b)(6) and (f-5))
Section 513b1(f-5) prohibits PBMs and their affiliates from conducting spread pricing (charging a health benefit plan a contracted price that differs from what the PBM directly or indirectly pays pharmacies for the drugs, pharmacist services, or dispensing fees).
To allow plans to monitor compliance with the new pass-through pricing mandate, section 513b1(b)(6) requires that the PBM contract allow a plan sponsor or insurer to request that the PBM disclose the actual amounts it pays pharmacies, so the plan sponsor can compare those amounts against what the PBM charges the plan and identify undisclosed spread.
Rebate and Fee Remittance Audit (Sections 513b1(f-15) and (f-25))
Section 513b1(f-15) mandates that PBMs and affiliated rebate aggregators must remit no less than 100% of all amounts paid by a manufacturer, wholesaler, or other distributor (including rebates, group purchasing fees, and other fees) to the health benefit plan sponsor, covered individual, or employer, regardless of how the payment is labeled.
In addition, section 513b1(f-25) mandates that PBM contracts must allow at least an annual audit of the rebate and fee records remitted to the health benefit plan, and this audit right extends to contracts with rebate aggregators, pharmacy services administrative organizations, pharmacies, and drug manufacturers, closing the loophole PBMs have used to route rebates through affiliated entities and avoid audit.
Anti-Steering Protections (Section 513b1(f-10))
Section 513b1(f-10) prohibits a PBM or its affiliate from “steering” a covered individual, which includes requiring or incentivizing a covered individual to use a PBM-affiliated pharmacy in a way that increases costs, or reimbursing non-affiliated pharmacies less than the PBM reimburses itself or its affiliates for the same drug or service. This provision functions as a non-discrimination protection for independent and non-affiliated pharmacies, and the patients and plan members who rely on them.
Relatedly, Section 513b1(f-20) prohibits a PBM or its affiliate from limiting a covered individual’s access to drugs from an enrolled pharmacy by mischaracterizing a covered drug as a “specialty drug” contrary to the statutory definition—a tactic that PBMs have used to funnel prescriptions to their own specialty pharmacies.
340B Protections and Anti-Discrimination (Sections 513b1(f), (h), and (h-5))
HB 1697 also includes protections for 340B covered entities and 340B pharmacies, prohibiting the discriminatory PBM practices that have increasingly threatened 340B program integrity and economics. Under Section 513b1(f), unless required by law, a contract between a PBM or third-party payer and a 340B entity or 340B pharmacy may not:
- Distinguish between 340B-purchased drugs and other drugs for reimbursement purposes, or impose less favorable payment terms or reimbursement methodologies on 340B entities/pharmacies than similarly situated non-340B entities (Section 513b1(f)(1));
- Impose a fee, chargeback, or rate adjustment not similarly imposed on, or that exceeds what is imposed on, similarly situated non-340B pharmacies (Sections 513b1(f)(2)–(3));
- Prevent or interfere with an individual’s choice to receive a covered drug from a 340B entity or 340B pharmacy through legally permissible means (Section 513b1(f)(4)); or
- Otherwise discriminate against a 340B entity or 340B pharmacy based on its participation in the 340B program (Sections 513b1(f)(5)-(7)).
A 340B covered entity must audit to ensure that a PBM or third-party payor is not imposing the discriminatory terms that Section 513b1(f) prohibits.
What Plan Sponsors and Covered Entities Should Do Now
HB 1697 provides powerful new compliance tools, but they are only effective if they are used. Covered entities and plan sponsors operating in Illinois (or whose health benefit plans cover Illinois residents) should take the following immediate steps:
1. Exercise your audit rights.
Do not wait for a suspected problem. The annual contract compliance audit under Section 513b1(b)(5), conducted at the PBM’s expense, should be treated as a routine, mandatory compliance function, not an extraordinary measure reserved for disputes.
2. Demand pharmacy payment disclosure.
Under Section 513b1(b)(6), request that the PBM disclose the actual amounts it pays pharmacies to detect any residual spread, which is now illegal under Section 513b1(f-5).
3. Audit rebate remittances against the 100% pass-through standard.
Under Sections 513b1(f-15) and (f-25), verify that the PBM and its rebate aggregator are remitting 100% of all manufacturer-derived payments.
4. Review 340B contracts for discriminatory provisions.
Covered entities should identify and challenge any contract term that imposes less favorable reimbursement, fees, chargebacks, network exclusions, or other discriminatory treatment based on 340B status.
5. Audit Payor Reimbursement for 340B Claims.
Covered entities should audit reimbursement to confirm compliance with Section 513b1(f) and (h).
How Frier Levitt Can Help
Frier Levitt has experience conducting PBM audits, analyzing rebate and pricing data, identifying hidden revenue retention, challenging 340B discrimination, and enforcing contractual and statutory rights through negotiation, administrative proceedings, and litigation. If you are a covered entity or plan sponsor with PBM contracts governed by Illinois law, contact Frier Levitt to discuss your organization’s compliance strategy and evaluate whether your PBM arrangements align with the new law.
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