On February 3, 2026, Congress passed and the President signed the Consolidated Appropriations Act, 2026 (“CAA 26”), a legislative package that funds several federal agencies, including the Departments of Labor and Health and Human Services, ending a partial government shutdown. This package also contains a number of health policy reforms that have been under legislative consideration in recent years. In particular, CAA 26 includes significant new transparency and other requirements for pharmacy benefit managers (“PBMs”). As noted at the end of this alert, CAA 26 also includes a sweeping provision that goes beyond PBMs and drug pricing by requiring that all service providers to group health plans — including third-party administrators (“TPAs”) — disclose all direct and indirect compensation they receive in connection with the plan.
Under CAA 26, PBMs will be subject to new transparency requirements and new limitations on traditional sources of revenue (e.g., rebates). These provisions will change longstanding industry practices and could significantly alter the economic relationship between PBMs and the sponsors of group health plans. Sponsors and third-party administrators (“TPAs”) should consider reviewing their existing arrangements and engaging with their PBMs to determine if any contractual or other changes are necessary to come into compliance with CAA 26. The PBM provisions become effective 30 months following the date of enactment.
Just as important, the bill would modify the existing but narrower 408(b)(2) broker and consultant disclosure requirements under the Consolidated Appropriations Act, 2021 and extend them to essentially any vendor to a group health plan, including third-party administrators and others. While this new point of sale disclosure provision is tacked on to the PBM provision, it’s just as sweeping from an industry perspective. This generally applicable provision appears to be effective upon enactment, and there is no statutory transition or other grace period.
Notably, President Trump issued Executive Order 14273, Lowering Drug Prices by Once Again Putting Americans First on April 15, 2025, directing DOL to issue it its own 408(b)(2) PBM related regulations under existing law. Those proposed rules were issued on January 29, 2026 and summarized here. Given the overlay of the new statutory requirements with the proposed rules, it is unclear how they will be harmonized with the new legislation. At a minimum, the new PBM rebate and the new TPA disclosure requirements suggest that added regulatory guidance will be required.
PBM Reforms
While many congressional proposals have been introduced in recent years to reform the business practices of PBMs that offer services to both self-insured group health plans and health insurance issuers, over the past year a broader consensus among members of both houses has emerged on enhancing PBM transparency to group health plans and health insurance issuers, as well as requiring that PBMs pass through 100 percent of “rebates, fees, alternative discounts, and other remuneration” to their plan and issuer clients. The PBM provisions of the CAA 26 follow this approach, and are largely in line with provisions that were initially included in, but ultimately stripped out of, the continuing resolution to fund the government for Fiscal Year 2025 (the “2025 CR”).
GROOM INSIGHT: Given the mandatory pass through by the PBM to the plan of all rebates and discounts from drug manufacturers or any affiliate of the PBM, the CAA 26 creates the potential to alter the practices of both plans and PBMs in negotiating for the administration and delivery of pharmacy benefits. The enhanced transparency coupled with limitations on traditional revenue sources for PBMs may not only change typical contracting practices, but could alter the underlying price of drugs as different incentives emerge in the market. Importantly, the new provisions do not limit the use of “spread pricing” or the use of affiliated pharmacy business models.
PBM Transparency Provisions
The PBM transparency provisions amend ERISA (by adding a new section 726), and add parallel provisions to the Public Health Service Act (“PHSA”), and the Internal Revenue Code to establish reporting requirements from PBMs to plans and issuers, as well as reporting requirements from plans to participants and beneficiaries. These include:
- Prohibiting PBMs from entering into contracts with drug manufacturers, wholesalers, or other entities in the prescription drug supply chain that would limit the ability of the PBM to provide required reporting to their group health plan and health insurance issuer clients.
- Requiring at least semi-annual reports from PBMs to certain large employers and “large plans” (for purposes of the PBM reporting, the legislation defines “large employer” and “large plan” with respect to employment or coverage of 100 or more participants) that elect to receive such information (and quarterly upon the request of the group health plan) the following:
- A list of drugs for which a claim was filed, including contracted rates paid by the plan or issuer, rates paid to the pharmacy, the difference between those amounts, details about the participant cost-share, the type of pharmacy providing the drug, and the amount of rebates, discounts, or other remuneration to be received by both the plan or issuer and the PBM;
- A list of each therapeutic class for which a drug was filed including the gross spending on drugs before rebates and other discounts, the net spending after rebates and other discounts; the total amount received by the PBM for claims during the reporting period related to utilization of drugs, the average net spend on 30- and 90-day fills with respect to the coverage, the number of participants who received covered drugs, a description of formulary tiers and utilization controls used in the class, and the total out-of-pocket spend on drugs in the class;
- A list of all drugs for which the plan incurred $10,000 or more in gross spending (or the top fifty drugs in gross spending if fewer than fifty drugs resulted in $10,000 or more in gross spending), including a list of all other drugs in the therapeutic class, the rationale for the formulary placement of the drug, and any change in formulary compared to the prior plan year; and
- If the PBM has affiliated pharmacies, an explanation of any benefit design features that encourage the use of those affiliates, the percentage of total claims dispensed through affiliates, and a detailed list of all drugs (including acquisition costs) dispensed through those affiliates.
- Requiring PBMs to provide all plans with a summary document of the information required to be provided to large employers and large group plans and a detailed summary to be provided to participants and beneficiaries upon request.
- Under the legislation, the reporting obligations must be made consistent with HIPAA privacy rules.
- Group health plans must provide annual notice to plan participants and beneficiaries of the requirement by PBMs to provide this reporting, and must provide participants and beneficiaries with the summary data reported to all plans, as well as the detailed information with respect to a specific claim incurred by the participant or beneficiary.
- A failure to meet these requirements can result in civil monetary penalties of up to $10,000 per day during which the violation continues or the information is not disclosed.
- The PHSA provisions apply only to health insurance issuers offering group health insurance coverage, and so do not appear to apply in the individual market.
- Notably, the statute does not include the broad audit right that plan sponsors have under the DOL’s proposed PBM 408(b)(2) rule.
- These provisions become effective 30 months after the date of enactment.
GROOM INSIGHT: The PBM transparency provisions of the CAA 26 provide plan sponsors and health insurance issuers in the group markets with significant access to data regarding the specific spending of their plans on pharmacy benefits. These data promise to both enhance understanding of individual plans’ utilization trends, but also provide greater clarity into the various incentives that operate throughout the prescription drug supply chain.
Full Rebate Pass Through
With respect to ERISA-covered plans, the bill also amends section 408(b)(2)(B) of ERISA to require that PBMs remit 100 percent of rebates, fees, alternative discounts, and other remuneration to the plan or issuer, and would render any contract or contract renewal unreasonable unless the PBM remits 100 percent of “rebates, fees, alternative discounts, and other remuneration” received under such contract. Payments under this provision must be made on a quarterly basis and not later than 90 days after the quarter. The legislation also requires that PBMs allow plans and issuers to audit rebates remitted including with respect to rebates paid by manufacturers or wholesalers to rebate aggregators or group purchasing organizations. However, PBMs would retain the ability to charge fees for bona fide services using any fee structure not specified in the statute. This amendment to section 408(b)(2) is effective for contracts entered into or renewed 30 months from the date of enactment.
GROOM INSIGHT: The CAA 26 specifies that nothing in the statute should be read as requiring that rebates must be passed through to the point of sale. While plan sponsors and PBMs will face significant changes in contracting practices as a result of this requirement, plan sponsors may continue to utilize the value of PBM rebates to reduce the costs of the plan or enhance plan benefits, rather than reducing individual patient cost shares at the point of sale.
GROOM INSIGHT: The rebate pass through provision does not, on its face, apply to revenue generated through spread-pricing arrangements between pharmacies and PBMs. The CAA 26 does provide broad regulatory authority to the Department of Labor in defining “applicable entity” for purposes of determining whether remuneration is subject to the pass-through requirement, which could broaden its scope pending further rulemaking.
Additional ERISA Amendments
The CAA 26 also amends a provision from the Consolidated Appropriations Act of 2021 regarding disclosure of brokerage and consulting compensation to expand the applicability of the compensation disclosure beyond brokers and consultants to virtually all plan service providers, including TPAs, PBMs, stop-loss carriers, as well as ancillary vendors providing medical management, disease management, and employee assistance program services. This would require virtually all group health plan service providers to disclose compensation of all direct and indirect compensation received under the plan.
GROOM INSIGHT: Unlike the 2025 CR, this legislation does not contain a sense of Congress provision, which had specified that the intent of the provision was to clarify existing statutory language, not to impose additional requirements. The previous inclusion of the sense of Congress provision created the risk that TPAs and service providers could have faced retroactive liability for violations. The CAA 26 does style this provision as a “Clarification” in the heading, and does not include a specific effective date. Absent some form of non-enforcement relief from the Department of Labor, these factors could signal that the broader application of the 408(b)(2)(B) disclosure is effective for contracts entered into or renewed after the date of enactment.
The CAA 26 also amends section 408(b)(2) of ERISA to specify that under a plan’s contract with a service provider, including a health insurance issuer, whereby the insurer (or other service provider contracts with another entity for PBM services) constitutes an indirect furnishing of goods, services, or facilities between the plan and the PBM acting as the party in interest.
