Congress Passes Landmark PBM Reform in 2026 Spending Bill

On February 3, 2026, Congress passed – and the President signed – the Consolidated Appropriations Act, 2026 (2026 CAA). The legislation includes a long‑anticipated and far‑reaching package of PBM reforms. These reforms draw from the PBM Reform Act of 2025 and other legislative proposals and will significantly reshape PBM operations across the commercial market and Medicare Part D beginning in 2028–2029.

The reforms center on rebate pass‑through, increased transparency, standardized reporting, and expanded federal oversight. Stakeholders should begin preparing for material operational and contractual changes well ahead of the effective dates. This post summarizes the key changes below.

Commercial Market – Group Health Plans Only

The law requires PBMs that provide services to group health plans (i.e., ERISA-governed fully insured and self-funded plans) to comply with new requirements taking effect in 2028-2029, including:

• 100% Pass-Through of Rebates. The 2026 CAA requires that entities providing pharmacy benefit management services (PBMs) remit to plan clients 100% of rebates, fees, alternative discounts, and other remuneration received from manufacturers, GPOs, and rebate aggregators in connection with the plan’s drug utilization or drug spending (collectively referred to throughout this post as “Rebates”). Congress does not define “pharmacy benefit management services” in the commercial market section of the law. 

1. Remittance of Rebates. The new law requires that PBMs remit Rebates to their plan clients on a quarterly basis, no later than 90 days after the end of each quarter. In addition, the law requires PBMs to structure their rebate aggregator and GPO contracts to require those upstream entities to pass through 100% of Rebates to the PBM within 45 days of each quarter, enabling the PBM to meet its 90-day remittance obligations. 

2. Disclosure of Rebates to Plans. The 2026 CAA requires PBMs to fully disclose all Rebates to their plan clients. 

3. Audits. At least once per plan year, PBMs are required to make Rebate records, including Rebate contracts, available to their plan clients for audit. The Secretary of Labor will establish reasonable confidentiality restrictions for audited Rebate contracts. The plan fiduciary selects the auditor, and the PBM may not pay for the auditor, directly or indirectly. Accordingly, plans may not use PBM credits or allowances to pay for a Rebate audit. 

4. Enforcement. If a PBM violates the law’s Rebate requirements, the PBM’s contract becomes “unreasonable” under ERISA Section 408(b)(2)(B) and constitutes a prohibited transaction.

The new law directs the Secretary of Labor to issue regulations governing the procedures for Rebate remittance, audits, and disclosures. We expect the Secretary to publish additional details as the industry prepares to implement these Rebate pass-through requirements.

• Transparent Compensation. The law expands the definition of “covered service providers” under ERISA, requiring PBMs to make a variety of disclosures, including those required under the Consolidated Appropriations Act of 2021. The law makes clear that PBMs may receive and retain reasonable payments for bona fide services, provided the fees are transparent and quantifiable to the plan. 

The Department of Labor released proposed rules that overlap with and expand on the 2026 CAA transparency and disclosure requirements. We are analyzing the impact of the proposed rule, keep a lookout for our next alert!

Commercial Market – Group Health Plans and Health Insurance Issuers 

In addition to the requirements that apply only to group health plans, PBMs that provide services to group health plans or health insurance issuers (i.e., an insurance company, insurance service, or organization licensed to engage in the business of insurance in a state) face new transparency and reporting requirements beginning in 2028-2029, including: 

• Plan‑Level Reporting. The law requires PBMs to provide plans with detailed reports on a semiannual basis – or quarterly upon plan request – covering the following categories of information: 

  • Gross and net prescription drug spending by the plan

  • Manufacturer rebates, fees, and other remuneration the PBM receives in connection with the plan’s drug utilization

  • Spread pricing arrangements with network pharmacies and pharmacy network reimbursement amounts, including drug-level detail and the type of pharmacy (e.g., retail, mail, specialty) dispensing each drug

  • Formulary structure and prescription drug benefit design

  • Drug dispensing through PBM-affiliated pharmacies, including an explanation of any benefit design parameters that encourage or require members to fill prescriptions at mail order, specialty, or retail pharmacies 

  • Member out‑of‑pocket cost metrics

  • Summary documents, tailored by plan-client type, for plan clients to provide to their members

The Secretaries of Health and Human Services (HHS), Labor, and the Treasury will establish a standard reporting format and issue additional rulemaking as necessary to implement these requirements. 

• Contractual Requirements. PBMs may not enter into contracts that limit the PBM’s ability to provide these required reports, and must include provisions in their upstream contracts requiring each counterparty to furnish all information required by the PBM to prepare and deliver the reports.

• Enforcement. The Secretary of HHS or the Secretary of Labor may impose civil monetary penalties, and the Secretary of the Treasury may enforce parallel excise taxes under the Internal Revenue Code, if a PBM fails to comply with the law’s reporting requirements.

Medicare Part D Market

The 2026 CAA provisions governing PBM services for Medicare Part D plans largely mirror the legislative framework Congress advanced in 2025. CMS will implement the Medicare PBM reforms by updating its standard PDP and MA‑PD contracts and by issuing uniform reporting formats. Beginning with the 2028 plan year, PDP and MA‑PD sponsors (PDP sponsors) are required to comply with and enforce the new PBM standards. 

The new law introduces the following changes:

• Definition of PBM. For purposes of the Medicare Part D provision of the 2026 CAA, the law defines “pharmacy benefit manager” broadly to extend beyond traditional PBMs and include rebate aggregators, group purchasing organizations, and utilization management entities. The definition specifically states, “[s]uch term includes any person or entity that carries out one or more of the activities described in the preceding sentence, irrespective of whether such person or entity calls itself a ‘pharmacy benefit manager.’” 

• Delinked, Transparent Compensation and Pass-Through of Rebates. PBMs that act on behalf of PDP Sponsors may receive compensation related to Part D drug utilization only in the form of a bona fide service fee (BFSF). The law prohibits PBMs from receiving any other income tied to Part D drug utilization.

The statute defines a BFSF as: (1) a flat fee; (2) consistent with fair market value (“FMV”); (3) for a service actually performed by the PBM or its affiliate on behalf of the PDP Sponsor; (iv) that is not passed on to a client or customer; and (v) does not vary based on drug price, Rebates, coverage or formulary decisions, or the volume or value of referrals or business generated between the PBM and the PDP Sponsor. In addition:

• Incentive payments that PDP Sponsors pay to PBMs qualify as BFSFs if the payments meet the BFSF definition requirements. 

• Rebates that Manufacturers pay to PBMs, even when calculated as a percentage of a drug’s price, do not violate the BFSF requirements if the PBM fully passes through the Rebates to the PDP Sponsor and reports the Rebates in accordance with applicable DIR requirements.

• The law requires PBMs to pass through to the PDP Sponsor any PBM remuneration that fails to meet the BFSF definition requirements.

The law’s BFSF definition differs materially from the BFSF definition used under existing Medicare Part D law. In particular, the requirement that a BFSF be both a flat fee and consistent with FMV creates immediate practical tension, as PBMs and PDP Sponsors often cannot predict service volume with certainty at the time they enter PBM agreements. The Secretary of HHS will review certain components of PBM remuneration arrangements to confirm that they are consistent with FMV. 

• Additional PBM Agreement Requirements. To evaluate PBM performance against pricing guarantees and other Rebate-related cost measures, the new law requires PDP Sponsors and PBMs to structure their agreements so that PBMs: (1) define, interpret, and apply key terms in a transparent and consistent manner (e.g., generic drug, brand drug, specialty drug, rebate, and discount); (2) clearly identify any claims or price concessions that the agreements exclude from pricing guarantees or other performance measures; and (3) calculate and provide a WAC-based equivalent when an agreement bases a pricing guarantee or cost-performance measure on a benchmark other than WAC. 

• Standardized Reporting Requirements. Beginning in 2028, and no later than July 1 of each year, PBMs are required to submit detailed standardized annual reports to PDP Sponsors and HHS. These reports include, among other information: 

  • Comprehensive drug‑level and aggregate data, including pricing, reimbursement amounts, enrollee out‑of‑pocket spending, Rebates, and manufacturer‑derived revenue (including BFSFs), attributable to each drug and that the PBM or its affiliates retain 

  • Dispensing activity by PBM‑affiliated pharmacies, including transparency into PBM reimbursement practices and dispensing of 340B drugs

  • Formulary and benefit design information related to generics and biosimilars 

  • Aggregate spending metrics, including total spending by the PDP Sponsor; total amounts the PBM retains in connection with covered Part D drug utilization (including BFSFs); and total spending on covered Part D drugs net of Rebates and DIR

  • Benefit‑design parameters that encourage plan enrollees to fill prescriptions at PBM-affiliated pharmacies

  • Broker or consultant compensation that the PBM or its affiliates pay in connection with PBM services provided to PDP Sponsors

• Audits. PDP Sponsors may audit their PBM’s compliance with applicable legal requirements on an annual basis. The law also requires PBMs to provide all requested audit information within 6 months after the PDP Sponsor initiates the audit. In practice, many PDP Sponsors already maintain audit rights in their agreements that require faster turnaround times. 

• Remedies.  PBMs will be responsible for any civil monetary penalties imposed on a PDP Sponsor due to a PBM’s noncompliance with these new requirements, as well as other punitive remedies for noncompliance. The Secretary of HHS will establish a mechanism for reporting PBM noncompliance, and the law includes anti-retaliation protections related to such reports. In addition, PDP Sponsors are required to submit to HHS an annual certification of compliance with all PBM contractual requirements.

• Any-Willing-Pharmacy Contract Standards. Medicare Part D includes long-standing “any-willing pharmacy” (AWP) requirements that require PDP Sponsors to allow any pharmacy to participate in a plan’s or PBM’s network if the pharmacy agrees to accept the PDP Sponsor’s standard terms and conditions. Those terms must be “reasonable and relevant” to the pharmacy services provided. In practice, PBMs that manage pharmacy networks offer pharmacies requesting to participate in the PBM’s network the PBM’s standard contract and reimbursement terms. Many pharmacies have raised concerns that, although these terms are standard, they do not always align with a pharmacy’s specific business model.

• Essential Retail Pharmacies. Beginning with plan year 2028, CMS will identify, track, and report on non-PBM-affiliated pharmacies that play a critical role in Medicare beneficiary access to pharmacy services (referred to as “essential retail pharmacies”). CMS will publish an annual list of essential retail pharmacies and will issue periodic public reports analyzing reimbursement, network participation, cost‑sharing, and dispensing trends for essential retail pharmacies compared with non-essential retail pharmacies. Industry stakeholders expect this CMS oversight to help preserve beneficiary access by supporting the financial sustainability of these essential retail pharmacies.

In addition, PBMs are required to provide PDP Sponsors with a written explanation of Rebate contracts within 30 days of finalizing each contract.

The new law responds to these concerns and strengthens existing AWP requirements by directing CMS to establish standards defining “reasonable and relevant” pharmacy contract terms and conditions. CMS will issue a request for information (RFI) by April 2027 to solicit stakeholder input and finalize the standards by April 2028, with the standards taking effect for the 2029 plan year.

In addition, CMS will create a process that allows pharmacies to submit allegations of PBM noncompliance with the AWP contract standards. PDP sponsors that fail to offer contracts consistent with the CMS established standards will face civil monetary penalties.

What About Medicaid?

Unlike prior proposals, the 2026 CAA does not make direct changes to PBM services under the Medicaid program. Instead, Congress directs the GAO to study price‑based PBM compensation across both Medicaid and Medicare, laying the groundwork for potential future federal standards or state‑level action.

Key Takeaways for Stakeholders

The 2026 CAA marks the most comprehensive federal effort to regulate the pharmacy benefit management industry to date. Although many of the law’s provisions have delayed effective dates and depend on future regulatory guidance, the legislation clearly advances Congress’s policy priorities—greater transparency, rebate pass‑through, and enhanced disclosure. 

• Start early. Significant new data, reporting, and operational requirements begin in 2028.

• Review PBM contracts. Many agreements will require substantial restructuring, particularly around compensation, definitions, reporting, and audit rights.

• Assess data infrastructure. The new reporting standards demand more granular, drug‑level and pharmacy‑specific data.

• Prepare for increased regulatory oversight. HHS, DOL, and Treasury will play expanded enforcement roles.

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