On September 9, 2025, the Oklahoma Attorney General (“AG”) Gentler Drummond announced a $32 million settlement with CVS Caremark for drug manufacturer rebates that were not passed on to the Oklahoma state employee health plan. The settlement agreement itself and precise details of the terms are not yet publicly available, but the Oklahoma AG’s press release makes clear that the settlement relates to rebates improperly retained by Caremark and/or its subsidiaries over five years, between January 2020 and December 2024. The press release further states that the AG’s office expects to win additional proceeds from Caremark in a separate action for under-water reimbursement to independent pharmacies, which is currently pending.
This latest settlement is consistent with numerous reports, audits, enforcement actions, and other settlements in the public sphere that lead to the inevitable conclusion that the major PBMs like Caremark do not pass through 100% of rebates to self-funded plans. For example, this settlement is similar to a $45 million settlement announced by the Illinois State AG last year, which also relates to the retention of rebates by Caremark and its rebate aggregator, Zinc Health Services. Although the Oklahoma settlement is smaller in terms of gross financial value, it is actually on par with the Illinois settlement on a per-capita basis, since the number of Oklahoma state employees is nearly half that of Illinois (approx. 33,000 vs. 55,000). Rebate retention is endemic to the PBM industry and not limited to just Caremark. In March 2024, the federal Office of Personnel Management (“OPM”) released an audit report concluding that $21.1 million in drug manufacturer rebates were improperly retained by Express Scripts and its rebate aggregator Ascent Health Services.
It should also be noted that, if the major PBMs like Caremark are skimming rebates from state and federal employee health plans, which are subject to more stringent transparency, reporting, and enforcement provisions (including penalties and damage multipliers), it is all the more likely that the PBMs are doing the same to private employer plans.
Growing Evidence of PBM Rebate Retention Emphasizes Need for Plan Sponsors to Audit Their PBMs
Plan sponsors have an ongoing fiduciary duty under ERISA to monitor all service providers to the plan and ensure that the fees paid by the plan are reasonable. This duty to monitor is evaluated under an objective reasonableness/prudence standard. See, e.g., Falberg v. Goldman Sachs Grp., Inc., No. 22-2689-cv, 2024 U.S. App. LEXIS 3418, at *3 (2d Cir. Feb. 14, 2024). As more information comes out about the PBM industry’s practice of retaining rebates through vertically integrated rebate aggregators, it will become harder for plan sponsors to raise the defense that they were simply unaware of what was going on. In other words, it is not objectively reasonable for a fiduciary to ignore repeated warning signs that the PBMs may be skimming rebates owed to the plan.
Plan sponsors should conduct thorough audits of their PBMs and pursue legal remedies when necessary. Importantly, these audits should be performed independently, without relying on brokers or consultants who may have financial ties to the PBMs. As fiduciaries under ERISA, self-funded plan sponsors are legally obligated to manage their benefit plans with diligence, prudence, and in the best interests of the plan and its participants. This includes a critical duty to monitor PBM activities effectively. Failure to audit PBMs may expose sponsors to allegations of fiduciary breach from employees.
How Frier Levitt Can Help
Frier Levitt’s Plan Sponsor Group assists self-funded plans and employers satisfy their fiduciary obligations to the Plan with respect to PBM spread practices. We audit PBMs to assess contract compliance, financial accuracy, and performance metrics, and have obtained confidential results for our clients. Don’t wait for an employee lawsuit to uncover deficiencies in your PBM management.
Frier Levitt provides strategic, industry-focused legal counsel tailored to your needs. Contact our team today to learn how we can help you.
Co-Managing Partner
Senior Associate
