February 20, 2026 Client Alert

On February 3, 2026, the President signed legislation setting forth detailed disclosure requirements for contracts between group health plans or insurers and pharmacy benefit managers (PBMs) entered into for plan years beginning on or after August 3, 2028. This law (which closely follows the recent release of DOL proposed regulations on PBM transparency) applies broader, more detailed transparency requirements with specific and standardized disclosures, as well as strong enforcement and data privacy and confidentiality provisions. These provisions are intended to identify, eliminate, and discourage conflicts of interest involving PBMs, brokers, consultants, and other PBM affiliates. Major provisions in the 2026 Consolidated Appropriations Act (CAA) that impact group health plans include the following:

Oversight of PBM Services

The new legislation amends the PHSA (Public Health Services Act), ERISA, and the Tax Code to require all contracts between group health plans—both self-insured and fully insured plans—and applicable entities to include specific disclosure provisions on drug costs and compensation from all sources, including rebates, fees, and other sorts of remuneration. The term “applicable entity” is broadly defined and includes affiliates of group health plans, insurers, and PBMs.

Disclosure Obligations

Applicable entities must disclose all direct and indirect compensation, which includes drug-level disclosures about top-spending drugs, costs, rebates, fees, discounts, pharmacy reimbursements, benefit design, broker and consultant payments, and affiliate relationships. There are two tiers of disclosures depending on employer and plan size or status:

• PBMs and affiliated entities are required to provide summary disclosures to all group health plans, while more detailed information must be provided to large, self-insured plans.
• Plans are also entitled to explanations linking formulary decisions to rebates and discounts.

Language must be clear and also made available in machine-readable format. PBMs must provide these disclosures on a semiannual basis (or quarterly, if requested).

Civil Monetary Penalties

If a PBM fails to satisfy disclosure requirements, the legislation establishes civil monetary penalties for noncompliance and false reporting (with exceptions made for good faith errors corrected within 90 days of notification) of $10,000 per day for each day a PBM or plan does not meet reporting requirements, and, for knowingly providing inaccurate information, up to $100,000 per item of false information.

100% Rebate Pass-Through Mandate

The new legislation amends the existing ERISA prohibited transaction exemption for reasonable plan services to require PBMs that receive any remuneration (including in the form of rebates, fees, and alternative discounts) from drug manufacturers to pass through 100% of that amount to group health plans and insurers. Plans and insurers may pass amounts through to participants. In general, rebates must be remitted to plans or insurers quarterly. Plans may also audit remittances. Bona fide service fees are allowed if transparent and quantifiable. Plans may audit the PBMs and affiliates to verify accuracy of reported information at least annually.

Consistent with other efforts to reduce opaqueness in PBM operations, this legislation formally requires PBMs to disclose the processes used to evaluate, select, and reimburse prescription drug offerings, and provide written explanations of how those decisions align with clinical and cost considerations. By providing plans with more information and explicit enforcement tools for noncompliance and false reporting, the CAA 2026 provisions strengthen the authority of plan fiduciaries in their oversight of PBM activities, while imposing specific measures of accountability on plans and fiduciaries to monitor compliance with the new transparency requirements.