Congress Passes Significant Federal Pharmacy Benefit Manager Reform Impacting Pharmaceutical Market Access

On February 3, 2026, President Donald Trump signed the Consolidated Appropriations Act, 2026 (the CAA), which includes significant pharmacy benefit manager (PBM) reforms in the Medicare Part D, Medicare Advantage-Prescription Drug (MA-PD), and commercial markets. The legislation contains new requirements for rebate pass-through, enhanced disclosures, flat-fee service arrangements, and enhanced federal oversight and has broad implications for the prescription drug market.

This Update summarizes key provisions affecting pharmaceutical manufacturers. There are several additional Employee Retirement Income Security Act (ERISA)-related provisions in the legislation that are not addressed here. Manufacturers should begin assessing business implications for their pharmaceutical market access activities, evaluating government price reporting impact, and monitoring for rulemaking and guidance.

Part D and MA-PD Reforms. Unless otherwise specified below, the Part D and MA-PD PBM reforms take effect January 1, 2028.

1. Key Definitions. The reforms apply to both “pharmacy benefit manager[s]” and their “affiliate[s].”

• “Pharmacy benefit manager” is defined in part as “any person or entity that, either directly or through an intermediary, acts as a price negotiator or group purchaser on behalf of a PDP sponsor or prescription drug plan, or manages the prescription drug benefits provided by such sponsor or plan, including the processing and payment of claims for prescription drugs, the performance of drug utilization review, the processing of drug prior authorization requests, the adjudication of appeals or grievances related to the prescription drug benefit, contracting with network pharmacies, controlling the cost of covered part D drugs, or the provision of related services.”
• “Affiliate” is defined in part as any entity that “(i) owns or is owned by, controls or is controlled by, or is otherwise related in any ownership structure to such [PBM] or PDP sponsor; or (ii) acts as a contractor, principal, or agent to such [PBM] or PDP sponsor ....”

2. Limitations on PBM Income to Flat Bona Fide Service Fees (BFSFs). The CAA states that PBMs and PBM affiliates shall not derive remuneration tied to the utilization of covered Part D drugs, other than a BFSF. Historically, BFSF has not been defined by the Part D statute; rather, it has been defined by regulation. The legislation introduces a new definition that requires such fees to be “flat” and not “based on” drug price. This is commonly referred to in the industry as “delinking.” Specifically, BFSF is defined as follows:

a fee that is reflective of the fair market value (as specified by the Secretary, through notice and comment rulemaking) for a bona fide, itemized service actually performed on behalf of an entity, that the entity would otherwise perform (or contract for) in the absence of the service arrangement and that is not passed on in whole or in part to a client or customer, whether or not the entity takes title to the drug. Such fee must be a flat dollar amount and shall not be directly or indirectly based on, or contingent upon—

(i) drug price, such as wholesale acquisition cost or drug benchmark price (such as average wholesale price);

(ii) the amount of discounts, rebates, fees, or other direct or indirect remuneration with respect to covered part D drugs dispensed to enrollees in a prescription drug plan, except as permitted pursuant to paragraph (1)(A)(ii) [requiring pass-through to PDP sponsors];

(iii) coverage or formulary placement decisions or the volume or value of any referrals or business generated between the parties to the arrangement; or

(iv) any other amounts or methodologies prohibited by the Secretary.

42 U.S.C. § 1395w–112(h)(7)(B) (emphasis added).

There are limited exceptions, including for manufacturer “rebates, discounts, and other price concessions” that are fully passed through to PDP sponsors (discussed below).

3. Price Concession Pass-Through Requirements. The CAA requires PBMs to fully pass through manufacturer rebates to PDP sponsors. “Rebates, discounts, and other price concessions received by a [PBM] or an affiliate of a [PBM] from manufacturers, even if such price concessions are calculated as a percentage of a drug’s price,” are permitted if (1) “they are fully passed through to a PDP sponsor” and (2) they comply with direct and indirect remuneration requirements for PDP sponsors.

4. Enhanced Federal Oversight. The CAA grants enhanced oversight to the Secretary of the Department of Health and Human Services, in consultation with the Department of Health and Human Services Office of Inspector General (OIG), with respect to PBM arrangements with manufacturers and PDP sponsors. Specifically, PBM fees paid by all other members of the drug distribution chain will be subject to review by the Secretary and OIG: “Components of subsets of remuneration arrangements (such as fees or other forms of compensation paid to or retained by the pharmacy benefit manager or affiliate of such pharmacy benefit manager)” between PBMs “and other entities involved in the dispensing or utilization of covered part D drugs (including PDP sponsors, manufacturers, pharmacies, and other entities as determined appropriate by the Secretary) .... shall be subject to review ....”

Notably, the legislation states that OIG “shall review whether remuneration under such arrangements is consistent with fair market value (as specified by the Secretary).” No definition of fair market value is provided under the CAA.

5. Enhanced Transparency Obligations to the Secretary. Not later than July 1, 2028, PBMs must report to PDP sponsors and the Secretary detailed information regarding each drug dispensed under the applicable plan, including average wholesale acquisition cost information, average wholesale price information, certain manufacturer rebate information, and “total manufacturer-derived revenue, inclusive of bona fide service fees, attributable to the drug and retained by the [PBM] and any affiliate of such [PBM].” These reports are confidential, and the government is prohibited from publicly disclosing identifying information.

6. Enhanced Transparency Obligations to PDP Sponsors. Within 30 days of a PBM’s finalizing a contract with a manufacturer providing for certain rebates, discounts, or other similar payments, the PBM must “submit to the PDP sponsor a written explanation of such contract or agreement.” The explanation must include “a high-level description of the terms of such contract or agreement and how such terms apply to such drugs” that is certified by the CEO, chief financial officer, or general counsel of the PBM. PDP sponsors will have enhanced audit rights and are permitted to audit PBMs once per year.

Commercial PBM Reforms: Unless otherwise specified below, these provisions become effective 30 months from the date of enactment (effectively January 1, 2029, for calendar year plans).

1. Pass-Through From Applicable Entities Requirements. Section 6702 of the CAA, titled “Full rebate pass through to plan; exception for innocent plan fiduciaries” requires PBMs to remit “100 percent of rebates, fees, alternative discounts, and other remuneration received from any applicable entity that are related to utilization of drugs or drug spending” to plans governed by ERISA. Section 6702 also provides that such language does not “prohibit reasonable payments to entities offering pharmacy benefit management services for bona fide services using a fee structure not described [by the statute] ... provided that such fees are transparent and quantifiable to group plans and health insurance issuers.”

“Applicable entity” is defined, in part, to include an “applicable group purchasing organization, drug manufacturer, distributor, wholesaler, rebate aggregator (or other purchasing entity designed to aggregate rebates).”

2. Enhanced Transparency Obligations to Plan Sponsors. The CAA requires PBMs to provide detailed data reports to certain “larger plans” (generally those covering at least 100 employees) every six months (or quarterly upon request). Among other information, data reports must include the following details regarding each drug for which a claim was filed, such as compensation paid by the plan to the PBM for such drug; compensation paid by the PBM to the pharmacy for such drug; and total amounts received, or expected to be received, by the plan and by the PBM from applicable entities (including drug manufacturers) in rebates, fees, alternative discounts, or other remuneration.

For certain categories of drugs with gross spending in excess of $10,000 during the reporting period, PBMs must provide the rationale for the formulary placement for such drug(s), if applicable.

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The CAA has broad implications for the prescription drug market. Manufacturers should begin assessing business implications for their pharmaceutical market access activities, evaluating government price reporting impact, and monitoring for rulemaking and guidance.