News

As we told you on Friday, the DOL released proposed regulations requiring PBMs to disclose up to 8 “types” of compensation streams to a self-insured group health plan in accordance with ERISA’s section 408(b)(2)(B) Compensation Disclosure requirements (which you can read below, along with a 2-page summary of these proposed regs here).

And today, in a “1-2 punch” for PBM transparency, Congress enacted legislative language that would require a PBM to disclose to a group health plan, among other things, PBM payment practices including the receipt of rebates, price concessions, and “spread pricing,” along with the gross and net costs of prescription drugs in the PBM’s drug formulary, and other information like whether the PBM is dispensing covered drugs through PBM-owned pharmacies, mail-order, or specialty programs.  Below is a bullet-pointed list of information that PBMs must now disclose to the plan.

And to pile on, this legislative language also amended ERISA section 408(b)(2)(B) to delete the references to “Brokerage Services” and “Consulting,” and instead, clarified that any plan service provider that furnishes the “types of services” included in the statute’s enumerated “list of services” are subject to the 408(b)(2)(B) Compensation Disclosure requirements.  This amendment is intended to confirm that (1) PBMs that perform “pharmacy benefit management services” and (2) TPAs that perform “third-party administrative services” (both of which are “types of services” included in the statute’s enumerated “list of services”) are required to disclose “direct” and “indirect” compensation to a plan’s fiduciary in accordance with ERISA section 408(b)(2)(B).

And not to be outdone, this recently enacted legislation also requires a PBM to pass through 100% of the rebates paid to the PBM by a drug manufacturer to the plan itself.

The proposed regulations, and now this legislation, include industry-changing requirements, and only time will tell how transformative they may be.  We will keep you posted…

Bullet-Pointed Summary of Required PBM Transparency Disclosures

• Effective for the first plan year starting 30 months after the date of enactment, an entity providing pharmacy benefit management services (e.g., a PBM) on behalf of a group health plan must furnish to the group health plan every 6 months (or quarterly if requested by the group health plan) a report in a Machine-Readable Format with the following information relating to the prescription drugs covered under the group health plan:
  • A list of covered drugs for which a claim was filed and the proprietary name and National Drug Code for each drug.
  • The amount of compensation paid by the plan to the PBM for each covered drug.
  • The amount of compensation the PBM paid to a pharmacy for each covered drug.
  • The difference between the amount of compensation (1) paid by the plan to the PBM and (2) paid by the PBM to the pharmacy for each covered drug.
  • The type of dispensing channel used to furnish each covered drug (e.g., retail, mail-order, or specialty).
  • With respect to each drug dispensed through any of these channels, disclose (1) the “wholesale acquisition cost” (in the case of a brand-name drug) and (2) the “average wholesale price” (in the case of a generic drug).
  • With respect to the brand-name and generic drugs, disclose (1) the original prescription and refill claims, (2) the participants and beneficiaries for whom a claim was filed through any one of the dispensing channels, (3) the dosage units and dosage units per fill, and (4) days supply of such drug per fill.
  • The net price, after rebates, fees, or discounts received from a drug manufacturer, per course of treatment or single fill.
  • The total amount of participant out-of-pocket spending for each covered drug.
  • The total net spending for each covered drug.
  • The total amount received, or expected to be received, by the plan from a drug manufacturer in rebates, fees, or discounts.
  • The total amount received, or expected to be received, by the PBM from a drug manufacturer in rebates, fees, or discounts (1) for claims incurred and (2) related to utilization of a drug or spending on a drug.
  • If applicable, the total amount of copay assistance, copay cards, or other discounts offered by each drug manufacturer to plan participants.
  • A list of each “therapeutic class” for which a claim was filed and with respect to each such “therapeutic class” (1) the total gross spending on drugs in such class before rebates, price concessions, or discounts, (2) total net spending in such class after rebates, price concessions, or discounts, (3) total amount received, or expected to be received, by the PBM from a drug manufacturer in rebates, price concessions, or discounts for (a) claims incurred and (b) related to utilization of a drug or spending on a drug.
  • The average net spending per 30-day and per 90-day supply by the plan among all drugs within the “therapeutic class” for which a claim was filed.
  • The number of participants and beneficiaries who filled a prescription for a drug in such “therapeutic class,” including the National Drug Code for each drug.
  • If applicable, a description of the formulary tiers and utilization mechanisms (e.g., prior authorization or step therapy) for the drugs in the “therapeutic class.”
  • The total amount of participant out-of-pocket spending for the drugs in the “therapeutic class.”
  • With respect to any drug for which gross spending under the plan exceeded $10,000 during the 6-month reporting period OR in the case that gross spending under the plan exceeded $10,000 during the 6-month reporting period with respect to fewer than 50 drugs:
    • The highest gross spending for the 50 covered drugs under the plan.
    • For the 50 covered drugs with the highest gross spending during the 6-month reporting period, (1) a list of all other drugs in the same “therapeutic class” as these drugs, (2) the rationale for the formulary placement of such drug in that “therapeutic class,” and (3) any change in formulary placement from plan year to plan year
• If the PBM providing services to the plan owns a pharmacy, or owns a mail-order or specialty home delivery program, or owns a retail and mail auto-refill programs, or provides cost-sharing assistance funded by the PBM, this PBM must:
  • Provide an explanation of any benefit design parameters that encourage or require participants and beneficiaries to fill prescriptions at the PBM-owned mail-order, specialty, or retail pharmacies.
  • Provide the percentage of total prescriptions dispensed by such PBM-owned pharmacies to plan participants.
  • Provide a list of all drugs dispensed by such PBM-owned pharmacies to plan participants including (1) the amount charged to the plan per dosage unit or 30-day or 90-day supply, (2) the median amount charged to the plan and the interquartile range of the costs per dosage unit or 30-day or 90-day supply, including amounts paid by plan participants, when the same drug is dispensed by pharmacies NOT owned by the PBM, (3) the lowest cost per dosage unit or 30-day or 90-day supply for each drug, including amounts charged to the plan and participants, that is available from ANY pharmacy in the plan’s network, and (d) the net acquisition cost per dosage unit or 30-day or 90-day supply if such drug is subject to a maximum price discount.

On Thursday, Jan. 29th, the Department of Labor (DOL) finally released long-awaited proposed regulations implementing – and clarifying – important aspects of the 408(b)(2)(B) Compensation Disclosure requirements.  In short, these proposed rules clarify – and confirm – that Pharmacy Benefit Managers (PBMs) and any other service provider that furnishes “pharmacy benefit management services” to a self-insured group health plan are subject to the Compensation Disclosure requirements.  The proposed rules further confirm that PBMs and these service providers would be required to furnish specified disclosures to the self-insured plan’s fiduciary, and also to permit the plan’s fiduciary to conduct an audit for accuracy of the Disclosures.  

What Led to the Development of These Proposed Regulations?

At the end of 2020, the Consolidated Appropriations Act of 2021 (CAA 2021) was enacted into law.  Among other provisions included in the CAA 2021 was a requirement that an entity or individual furnishing specified services to a group health plan must disclose to the plan’s fiduciary the “direct” and “indirect” compensation paid to the entity/individual.  This new requirement – set forth in ERISA section 408(b)(2)(B) (hence the name 408(b)(2)(B) Compensation Disclosure requirements) – used the terms “Brokage Services” and “Consulting,” which led the industry to believe that ERISA’s Compensation Disclosure requirements ONLY applied to “Brokers” and “Consultants.”  

However, on December 14, 2022, Congress sent a letter to the DOL explaining that Congress intended for the Compensation Disclosure requirements to apply to ANY entity/individual furnishing services set forth in an enumerated list of services in the statute, including PBMs and also Third-Party Administrators (TPAs) that, for example, develop a provider network or prescription drug formulary, process claims and maintain records, and negotiate rates for covered medical items and services or prescription drugs.

While the Biden Administration’s DOL did not issue guidance in response to Congress’s letter, on April 15, 2025, the most recent Trump Administration issued an Executive Order directing the Trump DOL to develop regulations confirming that PBMs are subject to the 408(b)(2)(B) Compensation Disclosure requirements.  These proposed regulations are in response to President Trump’s directive.

What Do the Proposed Regulations Say?

The following provides you with a detailed summary of the most important aspects of these proposed regulations.  Note, public comments are due on March 31st.  SIIA will be submitting comments.

Proposed 408(b)(2)(B) Compensation Disclosure Regulations Applicable to PBMs and Other Service Providers

As part of confirming that PBMs and other service providers are subject to ERISA’s Compensation Disclosure requirements, the proposed regulations explain that any person, business, or entity furnishing “pharmacy benefit management services” to a self-insured plan or a providing advice, recommendations, or referrals regarding the provision of “pharmacy benefit management services” must disclose to the plan’s fiduciary (1) the “types” of services provided to the plan and (2) the “types” of compensation received from the plan, from other third parties, and from any other arrangements with any parties in the pharmaceutical supply chain. 

Pharmacy Benefit Management Services - Defined

Importantly, the proposed regulations define “pharmacy benefit management services” as services necessary for the management or administration of the self-insured plan’s prescription drug benefits, including, for example:

• Acting as a negotiator or aggregator of rebates, fees, discounts, and other price concessions for prescription drugs;
• Establishing or maintaining prescription drug formularies;
• Establishing or maintaining pharmacy networks, through contract or otherwise, including a mail-order pharmacy, a specialty pharmacy, a retail pharmacy, a nursing home pharmacy, a long-term care pharmacy, and an infusion or other outpatient pharmacy, to provide prescription drugs;
• Processing and payment of claims for prescription drugs;
• Performing utilization review and management, including the processing of prior authorization requests for drugs, step-therapy protocols, patient compliance analyses, conducting therapeutic intervention, and administering generic substitution programs;
• Adjudicating appeals or grievances related to the self-insured plan’s prescription drug benefits;
• Record keeping related to the self-insured plan’s prescription drug benefits; and
• In conjunction with any of these other services, performing regulatory compliance with respect to the self-insured plan’s prescription drug benefits under the contract or arrangement.

The proposed regulations confirm that it does not matter whether the person, business, or entity performing these services identifies itself as a PBM.  What matters is whether the person, business, or entity is performing any of these services (and if the person, business, or entity is performing any of these services, then they are subject to these Compensation Disclosure requirements).

Disclosure of the “Types” of Services

The proposed regulations would require PBMs and other service providers to include in their Compensation Disclosures a description of each “pharmacy benefit management service” or of the advice, recommendations, or referrals regarding the provision of “pharmacy benefit management services” to be provided to the plan pursuant to the contract with the plan.  

Disclosure of the “Types” of Compensation Received

“Direct Compensation”:  The Compensation Disclosure would be required to include a description of “direct compensation” paid to the PBM or service provider directly (1) from the self-insured plan itself (with plan assets) AND/OR (2) from the plan sponsor on behalf of the plan (for example, from the plan sponsor’s general assets).  This description must include the dollar amount of all “direct compensation” – both in the aggregate and by service – that the PBM or service provider reasonably expects to receive on a quarterly basis from (1) the plan AND/OR (2) the plan sponsor.

Payments from Drug Manufacturers:  The proposed regulations would also require the Compensation Disclosure to include the amount of any payments (including rebates, fees, and other compensation) from drug manufacturers, as well as from rebate aggregators or other entities that negotiate rebates with drug manufacturers.  This disclosure must cover the amount of any payment – both in the aggregate and for each drug on the formulary – and it must be expressed as an amount reasonably expected to be paid on a quarterly basis.  Importantly, this disclosure must specify the amount that will be retained by the PBM or service provider, and also, the amount that will be passed on to (1) the self-insured plan or (2) the plan sponsor (if applicable).

Spread Pricing:  Referred to as “Spread Compensation” in the proposed regulations, the Disclosure would be required to include (1) the amount the PBM or service provider received each quarter from the plan and (2) the amount the PBM or service provider paid each quarter to the pharmacy dispensing drugs – both in the aggregate and for each drug on the formulary – and for each dispensing channel (i.e., retail, mail-order, and specialty pharmacy). 

Drug Pricing Methodology:  The Disclosure would be required to include a description of the net cost to the self-insured plan of each drug on the formulary, for each dispensing channel, expressed as a dollar amount.  If a dollar amount is not ascertainable, the PBM or service provider must disclose the methodology used to determine the cost the plan will pay for each drug on the formulary, for each dispensing channel, along with an objective means to verify the accuracy.

Co-Pay Clawbacks:  The Disclosure would also be required to include a description of the quarterly amount of co-pay clawback compensation (i.e., the dollar amount of the difference between a copayment or coinsurance amount paid to the pharmacy by a plan participant or beneficiary and the reimbursement to the pharmacy) that the PBM or service provider recouped from a pharmacy in connection with prescription drugs dispensed under contract with the plan, also specifying the anticipated total number of transactions resulting in recoupment. 

Price Protection Agreements:  The Disclosure would include a description of any inflation protection or price protection agreements that the PBM or service provider has entered with any drug manufacturer or other party in connection with prescription drugs dispensed under the contract with the plan, specifying the quarterly amount reasonably expected to be retained by the PBM or service provider in connection with each such inflation protection or price protection contract or arrangement and the amount that will be passed on to (1) the plan and/or (2) the plan sponsor (if applicable).

Formulary Placement Incentives:  The Disclosure would be required to include a description of any formulary placement incentives that the PBM or service provider has entered with any drug manufacturer in connection with the contract with the plan, along with an explanation of how the incentives affect services to, and are aligned with, the interests of the plan and/or its participants.  If the PBM or service provider has the authority to modify the formulary during the term of the contract with the plan – such as by adding or deleting drugs or changing their tiering – the Disclosure must include an explanation of the reasons for retaining such authority, the expected frequency of such changes, and that the plan fiduciary will be notified reasonably in advance of any modifications that are expected to have a material impact on the reasonableness of compensation paid to the PBM or service provider, as well as the plan’s right to terminate the PBM’s or service provider’s contract on reasonably short notice under the circumstances.

Termination of Contract:  The PBM or service provider would be required to disclose the amount of compensation (if any) they will receive if the contract with the plan is terminated, and how any pre-paid amounts (if any) will be calculated and refunded upon termination.

Other Important Stuff In These Proposed Regulations

If a TPA (who is not otherwise a PBM) contracts with a self-insured plan to provide “pharmacy benefit management services” to the plan, that TPA would become subject to these Compensation Disclosure requirements, even if the TPA intends to rely on another service provider to perform those “services.”  In this case, the TPA would be responsible for making the required Disclosures discussed above, and therefore, must be able to obtain information necessary for furnishing the proper Disclosure from the other service provider performing the “pharmacy benefit management services.”

Separately, but also related to TPAs, the DOL explicitly requests comments on whether the Department should extend these Compensation Disclosure requirements to apply to TPAs that are performing “third party administrative services,” which is a “service” set forth in the enumerated list of services in the statute.

The DOL also requests comments on whether the proposed required Compensation Disclosure should include other items like claims data, payments to providers, and pricing information.  In other words, should claims data and pricing information be considered “compensation” under ERISA section 408(b)(2)(B), thus requiring the disclosure of claims data and pricing information to a self-insured plan’s fiduciary?