Sweeping Reform Raises the Stakes for PBMs and ERISA Fiduciaries

Early 2026 marks a coordinated turning point in the federal regulation and oversight of pharmacy benefit managers (PBMs), and these new PBM rules have significant fiduciary implications for ERISA group health plan sponsors. This alert summarizes these changes and how plan sponsors should prepare.

Long insulated from meaningful disclosure obligations, PBMs now face a dramatically different regulatory environment as three major developments converged within days of each other:

• January 30, 2026: The U.S. Department of Labor (DOL) issued Proposed Regulations imposing PBM fee disclosure and audit requirements for ERISA self-funded group health plans.
• February 3, 2026: Congress enacted the Consolidated Appropriations Act of 2026, establishing statutory PBM reforms governing rebate pass-throughs, disclosures, and audits for both self-funded and fully insured plans.
• February 4, 2026: The Federal Trade Commission announced a settlement with Express Scripts Inc. which imposes structural, pricing, and transparency restrictions on one of the nation's largest PBMs.

Together, these actions create a transition toward PBM transparency. They also materially change the practical expectations for plan sponsors to remain compliant with their ERISA fiduciary duties. As PBMs will be required to disclose far more information about their compensation and incentives, plan sponsors can no longer plausibly treat PBM economics as an unknowable black box, or avoid meaningful contractual review due to PBM refusal to negotiate. Fiduciary prudence now demands an understanding of how PBM contracts work and how PBMs are paid. Plan fiduciaries will not just be receiving more disclosures, they will actually need to use them to determine the reasonableness of the PBM contract.

DOL Proposed PBM Fee Disclosure Regulations

On January 30, 2026, the DOL issued Proposed Regulations that would require PBMs and certain related entities to provide extensive advance disclosures when contracting with ERISA self-funded group health plans. If a service agreement between a plan and a PBM fails to meet these requirements, it would not qualify as a "reasonable" under ERISA's Section 408(b)(2) prohibited transaction exemption.

The Proposed Regulations explain that reform is needed because PBM compensation structures are unclear and fragmented, and there are insufficient rules for plan fiduciaries to assess the reasonableness of PBM compensation (e.g., rebates, fees, spread pricing, group purchasing organizations and affiliate compensation, and more) without better data. By tying PBM transparency directly to prohibited transaction compliance, opaque compensation structures will no longer be in self-insured ERISA health plans.

The Proposed Regulations apply to PBMs and to any related entity reasonably expected to receive $1,000 or more in direct or indirect compensation in connection with PBM services, including PBM-affiliated brokers, consultants, rebate aggregators, GPOs, and affiliated pharmacies (collectively, Covered Service Providers). They do not apply to PBM contracts with fully insured arrangements or non-ERISA plans.

Core requirements of the Proposed Regulations include:

• Comprehensive compensation disclosure: Advance disclosure of all expected direct (administrative fees, per-claim fees, per-participant fees) and indirect (manufacturer rebates and fees, spread pricing, pharmacy payments, data, administrative and service fees, and compensation paid to or retained by affiliates), including how it is calculated and whether it varies by utilization, formulary placement, or covered lives.
• Affiliate transparency: Compensation received by PBM-owned or affiliated entities must be disclosed even if the plan does not contract directly. The Proposed Regulations make clear that compensation is not outside the scope of ERISA simply because it flows through an affiliate or is netted out before amounts are passed to the plan.
• Audit and verification rights: At least once per year, plan fiduciaries must be able to audit the accuracy of the disclosed compensation, confirm rebate pass-throughs, and assess whether PBMs are complying with the contractual terms. The fiduciaries have sole discretion on selecting the auditor.

While the Proposed Regulations unfortunately stop short of imposing ERISA fiduciary status on Covered Service Providers directly, they make it clear that the bar for expectations is significantly raised for plan fiduciaries when contracting with Covered Service Providers. The DOL emphasizes that fiduciaries must use the disclosed information to assess the reasonableness of compensation, identify and evaluate conflicts of interest, monitor Covered Service Provider performance and compliance, and understand the drivers of prescription drug costs. Simply receiving disclosures without reviewing or acting on them may expose ERISA fiduciaries to separate claims for failure to prudently select and monitor service providers.

If finalized, the rules are expected to increase PBM and consultant costs, place pressure on rebate-based and spread pricing models, intensify PBM negotiations, and potentially increase ERISA litigation and enforcement activity.

The Proposed Regulations would apply to plan years beginning on or after July 1, 2026 (January 1, 2027, for calendar year plans). Comments on the Proposed Regulations are due March 31, 2026.

Consolidated Appropriations Act of 2026

Enacted on February 3, 2026, as Public Law 119-75, the Consolidated Appropriations Act of 2026 (CAA 2026) complements and expands the DOL's regulatory framework. Its PBM reforms apply to PBMs contracting with ERISA self-funded plans and insurers of fully insured ERISA plans. The requirements generally take effect for plan years beginning on or after August 3, 2028 (January 1, 2029, for calendar-year plans).

Key provisions include:

• Enhanced PBM reporting: At least semiannually (or quarterly upon request), PBMs must provide detailed reports to "specified large employers" (generally employers averaging 100 or more employees in the preceding calendar year/plan year, provided they had at least one employee on the first day of the calendar year or plan year) that sponsor group health plans and insurers. Reports must include drug-level cost and utilization data; plan payments versus pharmacy reimbursements (spread pricing); net costs after all rebates and fees; formulary and benefit design impacts; and pharmacy network information. Smaller plans are not subject to the full standardized reporting package.
• Compensation disclosure: Every six months (or quarterly upon request), PBMs must provide specified large employers and insurers with granular data regarding compensation the PBM received from direct and indirect (rebates, discounts, and fees paid by manufacturers or other third parties tied to utilization or spending) compensation, as well as compensation received by their affiliates or intermediaries.
• Summary documents: PBMs must provide all plan sponsors with a comprehensive, fiduciary-friendly summary explaining PBM performance and compensation, in addition to raw data.
• Participant notices: All ERISA plans must annually notify participants that PBM reports are available and explain how participants can request certain cost and pricing information.
• Mandatory 100% rebate pass-through: PBMs must pass through 100% of rebates and related remuneration they receive in connection with prescription drug utilization to all group health plans (for self-funded plans) and health insurance issuers (for fully insured plans). Payments are due quarterly (and no later than 90 days after a quarter ends). Plans and insurers have the right to audit the rebate pass-through with their choice of auditor. This is a statutory elimination of rebate retention by PBMs. It pushes PBMs toward a fee-for-service economic model, even though it does not mandate a specific pricing structure.

Like the DOL's Proposed Regulations, the CAA 2026 indicates that failure to meet these statutory requirements can make PBM contracts unreasonable or even prohibited transactions under ERISA §408(b)(2). PBMs can also face hefty penalties of up to $10,000 a day for failures. We expect to see some changes to the Proposed Regulations to harmonize with the CAA 2026.

FTC-Express Scripts Settlement

On February 4, 2026, the Federal Trade Commission (FTC) reached a settlement with Express Scripts Inc. (ESI) that represents the most consequential federal intervention into the pharmacy benefit manager business model to date. It goes beyond transparency and directly restructures PBM economics.

As background, in its lawsuit (filed November 2024), the FTC alleged that ESI (among other PBMs) engaged in unfair methods of competition by favoring high-list-price drugs, extracting opaque rebates, inflating patient cost sharing, and using spread pricing and affiliate arrangements.

The settlement imposes binding changes on ESI's standard offerings for the next 10 years, including:

Effective no later than January 1, 2027:

• Nondiscrimination for lower-price drugs: ESI may not structure formularies to favor higher-list-price drugs when lower-price equivalents are available.
• Out-of-pocket costs tied to net cost: Member cost sharing may not exceed the drug's net unit cost.
• Manufacturer compensation restrictions: Manufacturer payments may not be based, directly or indirectly, on list price or related benchmarks.

Effective no later than January 1, 2028:

• Rebate restructuring: Point-of-sale rebates must be made available to members, and rebate guarantees to plan sponsors are prohibited.
• Elimination of spread pricing: ESI may not retain the difference between what it charges plans and pays pharmacies.
• Expanded transparency: Automated reporting with claim-level detail, data sufficient to meet federal transparency laws, and full disclosure of broker and consultant compensation is required.

The FTC's approach removes incentives to profit from higher drug prices and pushes ESI toward a fee-for-service model. While administrative fees may increase, total drug spend for group health plans may decrease due to the settlement's structural protections.

Taken together, these developments fundamentally reshape PBM regulation and the fiduciary landscape. As PBM transparency becomes mandatory rather than optional, ERISA fiduciaries must be prepared to engage meaningfully with PBM data. In 2026 and beyond, opacity is no longer a defensible position when it comes to PBMs.

Top actions plan sponsors can take now:

1. Inventory PBM contract renewal dates;
2. If in the middle of a negotiation, ask PBM how it intends to comply with the new rules and revise the agreement accordingly;
3. If receiving rebates, start modeling what the shift away from rebate economics will look like;
4. Assess internal capacity (or vendor support) to audit and review increased PBM disclosures; and
5. If using ESI, determine whether your plan includes the standard offering formulary impacted by the settlement.

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If you have questions about how these PBM reforms affect your ERISA fiduciary obligations, PBM contracting strategy, or plan administration, please contact one of the Davis Wright Tremaine employee benefits attorneys.