What's Happening?
The U.S. Department of Labor has issued a new rule requiring Pharmacy Benefit Managers (PBMs) to disclose rebates and spread pricing to large self-insured ERISA group health plans. This regulation, published in the Federal Register on November 2, 2026,
and effective January 4, 2027, applies to plan years beginning on or after July 1, 2027. The rule, codified at 29 CFR 2550.408b-22, aims to enhance compensation transparency in employee benefits. It mandates that PBMs itemize their compensation with precision, including direct administrative fees, manufacturer rebates passed through and retained, spread compensation for each drug by National Drug Code (NDC), pharmacy claw-backs, price-protection deals, formulary placement incentives, net price per fill, and termination compensation. This disclosure is a precondition for the reasonableness of the arrangement under ERISA Section 408(b)(2), meaning that without it, payments from the plan to the PBM could constitute a prohibited transaction, exposing fiduciaries to liability.
Why It's Important?
This rule represents a significant shift in the opaque pharmacy benefit market, empowering large self-insured ERISA plans with unprecedented transparency into PBM compensation. Historically, the lack of detailed information on rebates and spread pricing has made it difficult for plan fiduciaries to assess the true cost and value of PBM services. By requiring NDC-level spread reporting and separate disclosure of passed-through versus retained rebates, the rule enables fiduciaries to identify products with large undisclosed margins and benchmark offers based on true net cost. This newfound transparency is expected to give employers greater negotiating leverage during PBM contract renewals, potentially leading to more favorable terms and reduced healthcare costs for plan participants. The rule also clarifies fiduciary duties, holding plan fiduciaries accountable for ensuring the reasonableness of PBM arrangements and providing a cure safe-harbor for those who diligently request and report missing disclosures.
What's Next?
Large self-insured ERISA group health plans, covering 100 employees or more, must prepare to implement these new disclosure requirements. Plan fiduciaries should identify all covered service providers expecting $1,000 or more in compensation and calendar key dates for initial disclosure requests, especially 90 days prior to contract renewals. They must request all required disclosure items, including NDC-level spread and rebate details, and exercise their audit rights to reconcile reported figures. If disclosures are missing, fiduciaries must send a written cure request and, if uncorrected within 90 days, notify the Department of Labor to protect their 408(b)(2) exemption. Employers should also renegotiate PBM contracts at renewal to incorporate these new transparency provisions, aiming to cap or eliminate spread and secure repayment mechanisms for undisclosed compensation. Brokers and consultants, if covered service providers, must also disclose their compensation and plans should scrutinize potential conflicts of interest.
Beyond the Headlines
The rule's emphasis on NDC-level spread reporting and the distinction between passed-through and retained rebates addresses a long-standing information asymmetry in the pharmaceutical supply chain. This level of granularity could fundamentally alter how PBMs structure their contracts and pricing models, moving towards more transparent, fee-for-service arrangements rather than relying on hidden margins. The potential for fiduciaries to incur liability for non-compliant PBM arrangements underscores the Department of Labor's commitment to protecting plan assets and ensuring that healthcare costs are managed prudently. This development could also spur broader legislative or regulatory efforts to increase transparency across other segments of the healthcare industry, as the success of this rule in controlling costs and improving accountability becomes evident. The rule sets a precedent for how federal agencies can leverage existing statutory frameworks to address complex market failures.
