The DOL’s proposed regulations establish new disclosure and audit requirements for “covered service providers” that enter into contracts or arrangements with self-insured group health plans and reasonably expect to receive $1,000 or more in compensation in connection with providing pharmacy benefit management services or providing advice, recommendations, or referrals regarding the provision of such services.
by The Wagner Law Group | Feb 17, 2026 |
By Stephen Wilkes, Camille Castro and Roberta Casper Watson
On January 30, 2026, the Department of Labor (the “DOL”) issued a proposed rule, “Improving Transparency into Pharmacy Benefit Manager Fee Disclosures,” which if adopted in its present form will require detailed disclosures and reporting of compensation and other financial arrangements related to prescription drug coverage in self-insured group health plans. This proposed regulation, which is more expansive than the comparable rules for pension plan service provider disclosures, is expected to enhance group health plan fiduciary oversight of these service providers.
Background
Pharmacy benefit managers (“PBMs”), the third-party intermediaries or “middlemen” between group health plans, pharmacies, drug manufacturers, and other parties within the pharmaceutical supply chain, have long faced scrutiny and calls for regulation and reform. PBMs and their affiliated brokers and consultants are involved with virtually all parts of the prescription drug marketplace. These entities perform a variety of services for group health plans covered under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including negotiating drug rebates and pharmacy reimbursement amounts, structuring pharmacy networks, establishing the plan’s prescription drug formulary, and pharmacy benefits claims processing. These arrangements often involve complex and opaque compensation and fee structures, which can make it difficult for plan fiduciaries to fulfill their ERISA fiduciary duties to prudently select and monitor the service provider.
There has been great interest in regulating PBMs providing services to group health plans given their central and influential role in the pharmacy benefits process. The Consolidated Appropriations Act, 2021 amended the statutory service provider prohibited transaction exemption to add ERISA section 408(b)(2)(B), which addresses disclosure by brokers and consultants to the responsible fiduciaries of group health plans. Additionally, as part of the current Administration’s push to lower prescription drug pricing and increase transparency into the direct and indirect compensation received by PBMs, Executive Order 14273, “Lowering Drug Prices by Once Again Putting Americans First,” directed the Department of Labor (the “DOL”) to propose PBM fee disclosure regulations under ERISA section 408(b)(2)(B). The DOL issued these proposed regulations on January 30, 2026, which are discussed in greater detail below. However, shortly following the issuance of the DOL’s proposed rule, additional PBM-related legislative reforms were enacted into law in the Consolidated Appropriations Act, 2026 (“CAA 2026”) on February 3, 2026.
Key Provisions of the DOL’s Proposed Rule
The DOL’s proposed regulations establish new disclosure and audit requirements for “covered service providers” that enter into contracts or arrangements with self-insured group health plans and reasonably expect to receive $1,000 or more in compensation in connection with providing pharmacy benefit management services or providing advice, recommendations, or referrals regarding the provision of such services. The proposed rule lists a number of examples of “pharmacy benefit management services,” encompassing a wide range of activities, including but not limited to acting as a drug price negotiator, establishing or maintaining drug formularies and pharmacy networks, processing prescription drug claims, and adjudicating appeals related to the plan’s prescription drug benefits, among other activities. The definition of “covered service provider” is expansive and covers not only PBMs, but also any affiliates, agents, or subcontractors of the PBMs.
The proposed regulations establish new required initial and semiannual detailed written disclosures and reporting about covered service provider compensation and other practices. The proposed regulations require that these written disclosures are clear, concise, accurate, and include sufficient detail and specificity so plan fiduciaries can evaluate the reasonableness of the service contract or agreement.
The initial disclosures must be provided to the plan fiduciary reasonably in advance of entering into, extending, or renewing a contract or arrangement with a covered service provider. These disclosures must provide a description of services as well as information about various types of compensation expected to be received by the covered service provider, including direct compensation, payments from drug manufacturers, spread compensation, copay claw-back compensation, and compensation for termination of the contract or arrangement. The disclosures are also required to describe any price protection agreements and formulary placement incentives, as well as drug pricing methodology. The initial disclosures must include a statement of fiduciary status from the covered service provider that discloses any activity or policy that may create a conflict of interest.
The semiannual disclosures, which must be provided within 30 days after each six-month period, must disclose the actual compensation received by the covered service provider, including direct compensation, manufacturer payments, spread compensation, copay claw-back compensation, and compensation received pursuant to price protection agreements. These semiannual disclosures must also report any category of compensation that “materially” exceeds the estimate provided in the initial disclosure, with the regulation defining “materially” as exceeding 5 percent (or an agreed upon lower amount).
Both the initial and semiannual required disclosures are expansive, as they include an “other compensation” category designed to capture any other compensation not covered under the other specific categories. Both required disclosures must also include a statement regarding the plan fiduciary’s right to audit the disclosures. This right to audit allows plan fiduciaries to request audits of such disclosures at least once per year, and grants the plan fiduciary the right to select the auditor without any limitations from the covered service provider. This will be a significant change, since PBMs typically impose significant restrictions on the audit process and on the plan’s choice of an auditor. Covered service providers are required to comply with these audit requirements, including by providing requested information to complete the audit and splitting the audit’s cost with the plan.
Given these extensive disclosure requirements and the risk of potential non-compliance by covered service providers, the rule also includes a proposed administrative class exemption, which provides relief to plan fiduciaries who report a service provider’s noncompliance with the disclosure or audit requirements to the DOL. This proposed “exemption for responsible plan fiduciary” shields such fiduciary from liability under the prohibited transaction rules when a covered service provider fails to provide the required disclosures provided notice is given to the DOL of such noncompliance.
What to Expect Next
As the DOL has requested comments on various elements of its proposal by March 31, 2026, it is expected there will be changes before a final rule is issued. DOL will also need to harmonize its proposal with the recently passed CAA 2026 legislation, which also institutes transparency and disclosure measures for PBMs. For example, if finalized, the DOL’s proposed rule would apply to plan years beginning on or after July 1, 2026, which is an earlier effective date than what is required under the CAA 2026 legislation.
Key Takeaways and Noteworthy Issues
As we digest the DOL’s expansive proposal, there are a number of items that stand out to watch and monitor.
- The current proposal only applies to self-funded group health plans but the DOL has requested comments on whether this applicability should be expanded. We expect further development in this area and potential applicability expansion to include governmental, church, and other types of plans.
- The definition of covered service providers under the proposed regulation is designed to be expansive and cover many entities. It includes not only PBMs, but other affiliates, agents, and subcontractors, including PBM-affiliated group purchasing organizations, also known as “rebate aggregators,” which have been a common structure in the market.
- The required disclosures will provide plan fiduciaries with new insight into the revenue stream for covered service providers. It may be the first time plan fiduciaries are receiving such detailed information; in other words, plan fiduciaries will have visibility into amounts they may have already been paying over the years but were invisible in the spread pricing arrangement. This insight may change how compensation and arrangements between group health plans and PBMs are negotiated and structured.
- Covered service providers will be required to provide extensive detail in the disclosures, such as information about payments to PBMs from drug manufacturers, incentives received from the underlying formularies, and the net cost of each drug on the formulary. While covered service providers cannot restrict or limit these disclosures, there will be a place for confidentiality agreements with third parties.
- The proposed rule provides plan fiduciaries with new tools, including strong audit rights and the proposed exemption for responsible plan fiduciaries. These tools will be crucial for ensuring that plan fiduciaries meet their own obligations under ERISA.
If you have any questions about how these developments may affect you or your organization, contact us for further assistance. We have extensive experience serving as legal counsel or as ERISA Independent Fiduciary on PBM and health plan related matters.
