Labor Department finalises PBM fee disclosure rule for large employer health plans

The US Department of Labor finalised a rule on 29 October requiring pharmacy benefit managers to disclose the full range of compensation they receive to fiduciaries of large self-insured employer health plans, including rebates and other payments from drugmakers, spread income and amounts recouped from pharmacies. The rule, issued under the Employee Retirement Income Security Act, applies to plan years beginning on or after 1 July 2027, and regulators expect it to lower drug costs for employers and workers by $22 billion over a decade.

The mechanism is the prohibited transaction exemption that ERISA plans rely on when they pay service providers. To satisfy it, a PBM, and any affiliated broker or consultant expecting at least $1,000 in compensation, must provide written initial disclosures before a contract is signed or no more than 90 days before a renewal, setting out the services provided and the compensation reasonably expected. Ongoing disclosures of compensation actually received are then due within 30 days of each six-month period, or each quarter if the plan asks.

The disclosures distinguish direct compensation paid by the plan from indirect compensation drawn from elsewhere in the supply chain: manufacturer payments, spread compensation, where a plan pays more for a prescription than the PBM reimburses the pharmacy, pharmacy recoupments and price protection arrangements. Plans gain an annual right to audit with an auditor of their choosing, and PBMs may not restrict audit location, the volume of records or access to their contracts with pharmacies and manufacturers. An innocent fiduciary exemption protects plan sponsors whose PBM fails to comply, provided they notify the department, seek correction and decide whether to keep or end the contract.

Scope was narrowed after consultation. The final rule covers self-insured plans with 100 or more participants, or those offered by employers with at least 100 employees. Daniel Aronowitz, the assistant secretary who leads the Employee Benefits Security Administration, said the detailed disclosures would most benefit the fiduciaries of larger plans that have the resources to analyse them. The department also aligned definitions and timelines with the PBM reforms in the Consolidated Appropriations Act, 2026, which already require PBMs to pass through all manufacturer rebates and fees to ERISA plans.

Reaction split along predictable lines. Labor Secretary Keith Sonderling called the rule a win for every worker who has paid too much at the pharmacy counter, and James Gelfand of the ERISA Industry Committee said employers would be able to check the numbers and hold vendors to their contracts. The Pharmaceutical Care Management Association, the main PBM lobby, argued that the appropriations act already mandates transparency, and its chief executive, David Marin, described the rule as a solution in search of a problem. The department acknowledges areas of overlap but argues that the law requires retrospective reporting while the rule requires disclosure before contracts are signed, so that plans can compare offers.

The commercial stakes are concentrated. Express Scripts, owned by Cigna (NYSE: CI), CVS Health's (NYSE: CVS) Caremark and UnitedHealth Group's (NYSE: UNH) Optum Rx together handle about 80% of US prescriptions, and pressure on their opaque margins coincides with rising costs for employers, with WTW projecting an 11.5% increase in drug costs in 2026. Combined with the Medicare PBM compensation reforms due in 2028, the direction of policy is clearly towards fee-based models and away from income tied to list prices and rebates.

Caveats are warranted. Transparency is not the same as competition, and with three companies controlling most of the market, larger employers may gain bargaining power while smaller plans outside the rule gain little. The $22 billion estimate is the department's own, and savings depend on fiduciaries using the data. Legal challenge is also possible, since PBM groups have questioned the department's authority to impose the disclosures. For drugmakers the effect is indirect but real: once rebate flows are visible to plan sponsors, the argument that high list prices are driven by intermediaries will be easier to test, in both directions.

The policy question is whether disclosure alone changes behaviour. If employers use the new data to switch PBMs, demand pass-through pricing or renegotiate spread arrangements, the rule could reshape a market that legislation has struggled to discipline. If the reports are filed and largely unread, the burden will have shifted to plan sponsors without a meaningful fall in costs, and pressure for structural remedies, including the separation of PBMs from insurers and pharmacies, is likely to grow.