The Department of Labor (DOL) Employee Benefits Security Administration (EBSA) has issued a final rule entitled "Improving Transparency into Pharmacy Benefit Manager Fee Disclosure." For plan years starting on or after July 1, 2027, the rule requires pharmacy benefit managers (PBMs) to disclose their direct and indirect compensation to the fiduciaries of large self-funded ERISA group health plans so those fiduciaries can judge whether PBM arrangements and fees are reasonable. A service contract is not "reasonable" under ERISA § 408(b)(2) unless these disclosures are provided and evaluated for reasonableness.
ERISA §408(b)(2) compensation disclosures are already required of PBMs and other service providers as of February 3, 2026, pursuant to the Consolidated Appropriations Act, 2026 (CAA-26). The goal of this final rule is to provide more details on what the PBM compensation disclosure is required to include for large self-funded ERISA group health plans, and to provide enforcement relief when PBMs (and TPAs) have acted in good faith to comply with providing compensation disclosures now while waiting for more details to come.
Applies to:
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Self-funded ERISA group health plans of a "specified large employer" (average of at least 100 employees on business days in the preceding calendar year, counted under IRC § 4980H rules) or that are a "specified large plan" (average of at least 100 participants, excluding beneficiaries, in the preceding plan year).
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Covered service providers: PBMs (however they describe themselves) and PBM affiliates that give advice, recommendations, or referrals on PBM services, expecting $1,000 or more in annual compensation. Compensation received by affiliates, agents, and subcontractors, including group purchasing organizations (GPOs) and rebate aggregators, must be disclosed. Unaffiliated brokers and consultants stay under the general ERISA § 408(b)(2)(B) disclosures.
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Exempt: fully insured plans and plans sponsored by (or affiliated with) drug manufacturers, distributors, wholesalers, PBMs, or rebate aggregators.
What the Rule Requires:
- Up-front PBM compensation disclosures before each plan year.
- The PBM must give the plan's responsible fiduciary a written disclosure reasonably in advance of entering, extending, or renewing the contract (90 days in advance is deemed reasonable for renewals).
- It must state services to be provided and expected compensation as monetary amounts, estimated in good faith where necessary, by category:
- direct compensation,
- manufacturer rebates and fees (by drug),
- spread pricing (by drug and pharmacy channel),
- pharmacy claw-backs,
- price protection arrangements,
- termination fees, and
- any other compensation.
- It must also state:
- formulary placement incentives,
- net drug pricing,
- fiduciary status, and
- audit rights.
- Plan sponsors should request and review it before signing.
- The DOL believes a standardized template to accommodate the final rule’s PBM disclosure requirements would be most beneficial and will consider developing one.
- Six-month true-up.
- Within 30 days after each six-month period (or quarter, if the plan asks), the PBM must report actual compensation in the same categories.
- If any category exceeds its estimate by 5% or more (or a lower agreed threshold), the PBM must state the amount of the overage and the reason.
- Audit rights.
- At least once a year, at the plan's written request, the PBM must allow an audit of the accuracy of its disclosures.
- If the plan requests an audit, the plan then selects the auditor and pays the auditor's expenses; the PBM bears the cost of providing the information and may not limit the auditor selection or the audit period, location, or number of records.
- The PBM must confirm the request within 10 business days and provide records, claims and transaction-level data, and pharmacy, manufacturer, and rebate aggregator contracts within 60 days, subject to reasonable confidentiality agreements.
Practical Consideration for Employers
Employers with large self-funded ERISA group health plans should request and review the required PBM compensation disclosures when working on the renewal and marketing for plan years starting on or after July 1, 2027. The PBM services agreement and the compensation estimates for those services must be reviewed for reasonableness before contracts or renewals are signed; generally, disclosures should be provided to the employer at least 90 days before the plan year begins.
Failing to secure the compensation disclosure and review it for reasonableness causes the employer to enter into an ERISA prohibited transaction.
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