Federal PBM Reform Finally Arrives…in 2029

Executive Summary
The Consolidated Appropriations Act, 2026 (CAA 2026) has finally passed Congress after a long and winding road, often filled with much palace intrigue. The massive new law includes a very significant and long-awaited set of reforms designed primarily to address pharmacy benefit manager (PBM) prescription drug pricing and compensation structures. These new rules that apply in 2029 will require PBM contractual protections for employer data access, extensive PBM reporting standards to employers, new employee notice requirements, disclosure enhancements, and a pass-through compensation mandate.

Background
Congress, employers, and the general public have been demanding a broad set of PBM reforms with increasing intensity in recent years. A similar PBM reform package very nearly passed at the end of 2024, only to be stripped out of the bill at the last minute. After Congress’s failure to act, many states have imposed their own PBM reform mandates, including most recently a sweeping California PBM reform effective this year. With the CAA 2026, Congress has finally successfully filled the vacuum of significant federal PBM reform.

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The New CAA 2026 PBM Reform Requirements: Effective Starting 2029
The new federal PBM reforms are effective for plan years beginning on or after 30 months from the date of the CAA 2026’s enactment. For calendar plan years, the effective date is January 1, 2029.

The reform provisions are extensive and will become better understood as the industry has time to digest this prolific legislative text in the extended transition period to come. In the meantime, the following is a concise summary of the main provisions for employers to begin considering:

Contractual Restrictions on Disclosure Prohibited
All contractual arrangements with PBMs entered into by employer-sponsored group health plans and health insurance carriers are prohibited from limiting or delaying the disclosure of certain types of information to the plan. The contract must also specify that the PBM will have access necessary to the information needed to complete the new reporting requirements addressed below.

PBM Reporting Requirements
Once the new law takes effect, the PBM must provide a detailed report to the group health plan (generally the employer sponsoring the plan) at least every six months (and quarterly in some cases). These reports must be provided in plain language as well as a machine-readable format.

The exact reporting requirements vary based on a number of factors, but they generally focus on prescription drug claims, costs, and PBM compensation. PBMs that serve self-insured plans sponsored by a “specified large employer” or that qualify as a “specified large plan” are subject to the most extensive reporting requirements. Fully insured large employers/plans may choose to annually “opt-in” to this detailed reporting by electing to require the PBM to submit the same detailed report required for self-insured plans.

Under these new PBM reforms, a “specified large employer” is defined as having averaged at least 100 employees on business days during the preceding calendar or plan year. A “specified large plan” is one that averaged at least 100 participants on business days during the preceding calendar or plan year.

Regardless of plan size or funding arrangement, PBMs must provide a summary report that includes some, but not all, of the information applicable for the large, self-insured plans. PBMs must also prepare a separate summary document for employees and their dependents that includes only aggregate information, though individuals have the right to request more specific claims-level information in certain circumstances.

All PBM reporting must comply with the HIPAA restrictions on use and disclosure of protected health information (PHI), including limiting the reported data to summary health information.

Employee Notice Requirements
PBM reform provided Congress the opportunity to iterate on two of its go-to moves in the employee benefits space: new definitions of “large” employers/plans (see above), and (of course) a new employee notice requirement. Each year, group health plans—regardless of size or funding arrangement—must provide employees and dependents with a written notice informing them of the PBM reporting requirements.

The law suggests that this can be handled by “incorporating such notification in plan documents provided to the participant or beneficiary,” presumably including incorporation into the wrap summary plan description (SPD), the underlying carrier and TPA materials (e.g., evidences of coverage (EOCs), policies, certificates of coverage (COCs), benefit summaries), or the other array of annual notices employers provide related to the health plan. Employers should anticipate that there will be a template notice format issued by the agencies.

The notice will inform employees and dependents of their right to request a summary of the PBM report with aggregate information. The summary includes a statement that the employee may request specific claims-level information that addresses the difference between the amount paid by the health plan to the PBM and the amount paid to the pharmacy by the PBM.

Pass-Through Compensation Required
Upon taking effect, PBM contracts will be required to use pass-through pricing and fee transparency, which generally is structured to have the plan pay what the pharmacy is reimbursed (or the PBM’s acquisition/cost basis) plus an explicit administrative/dispensing fee. This provides better visibility to unit costs and fees and better incentive alignment among the parties. The PBM must direct 100% of all prescription drug rebates, fees, alternative discounts, and other similar compensation received to the plan or insurance carrier. PBMs will be required to return such rebates/fees on a quarterly basis within 90 days after each quarter.

These CAA 2026 provisions will effectively eliminate spread pricing structures. Spread pricing allows the PBM to bill the plan a higher amount than it reimburses the dispensing pharmacy and keep the “spread”. This approach has been much-maligned as opaque because the plan sponsor does not have access to the true pharmacy cost or PBM margin, creating the potential for misaligned incentives.

PBM Compensation Disclosures
The CAA 2021 compensation disclosures have for years now explicitly required disclosure of any indirect broker/consultant compensation under §408(b)(2). Those rules are augmented to clearly incorporate many other vendors and services, including PBMs. Additional vendors explicitly required to disclose indirect compensation related to health plans include recordkeepers, medical management providers, benefits administration selection services, stop-loss insurance, wellness design and management services, transparency tools, disease management, compliance services, EAPs, and TPAs.

Enforcement
Civil monetary penalties of $10,000/day will apply for each day a plan, insurance carrier, or other regulated entity fails to satisfy these new PBM reform rules. Health insurance carriers, PBMs, and certain third-party administrators are subject to a civil monetary penalty of up to $100,000 for knowingly providing false information related to these PBM mandates, with the penalty applying to each such item of false information.

Summary
The PBM reforms in CAA 2026 represent a major milestone in group health plan law that has been a long time in the making. We now have clarity as to the future state of permissible PBM compensation structures that properly align incentives, require reporting for employers and vendors to access crucial information needed to contain costs, and enhance transparency in compensation structures to satisfy fiduciary duties.

While 2029 does feel quite a long way away, regulations are expected within 18 months to provide more clarity on the specifics in multiple complex areas of the reforms. In the meantime, it is likely that the PBM industry will start to gradually conform to many of the CAA 2026 requirements as market pressures, state restrictions, and general public sentiment all move in the direction of pushing for these reforms to be put into place ASAP.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).