Major Medicare Part D Pharmacy Benefit Manager Reforms Proposed by CMS for Comment

On October 20, 2026, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule (the Proposed Rule) implementing, among other provisions, the Medicare Part D pharmacy benefit manager (PBM) modernization provisions established under section 6224 of the Consolidated Appropriations Act, 2026 (CAA). The Proposed Rule implements new requirements under section 6224 for flat bona fide service fee (“BFSF”) arrangements, full pass-through of manufacturer rebates to Part D plan sponsors, and enhanced federal oversight for PBMs operating in Medicare Part D beginning in 2028. Importantly, the Proposed Rule would establish a cost-plus, fair market value (FMV) standard for BFSFs received by PBMs and their affiliates.

If finalized, the PBM requirements would apply to plan years beginning on or after January 1, 2028. The proposed requirements would reach PBMs acting on behalf of sponsors of both standalone prescription drug plans and Medicare Advantage prescription drug (MA-PD) plans. The Proposed Rule does not address the CAA’s PBM reforms affecting the commercial market, which go into effect no earlier than August 2028. Comments are due December 15, 2026. This Update summarizes key provisions of the Proposed Rule affecting pharmaceutical manufacturers. For a summary of the CAA’s PBM reforms, see the prior Sidley Update published on February 18, 2026, available here.

Part D PBM Proposals

1. Definitions of PBM and Affiliate. CMS proposes standards identifying PBMs and affiliates based on their relationships and functions, rather than their labels.

• PBM: CMS proposes that an entity qualifies as a PBM, regardless of how it describes itself, if it satisfies both of the following conditions: (1) has a written contract with a Part D plan sponsor, directly or through the sponsor’s parent organization, and (2) performs at least one PBM function on behalf of that sponsor or prescription drug plan, directly or through an intermediary.
• PBM function: CMS proposes to define “PBM function” as “acting as a price negotiator or group purchaser or managing the prescription drug benefits provided by a Part D plan sponsor or plan, when performed by any person or entity, directly or through an intermediary, on behalf of a Part D plan sponsor or prescription drug plan,” including: (1) processing and payment of claims for prescription drugs, (2) drug utilization review, (3) processing of drug prior authorization requests, (4) adjudication of appeals or grievances related to the prescription drug benefit, (5) contracting with network pharmacies, (6) controlling the cost of Part D drugs, and (7) providing related services. CMS does not define the term “processing.”
• Related services: CMS proposes to define “related services” as services performed on behalf of a Part D plan sponsor or prescription drug plan with a “direct nexus” to enumerated PBM functions, meaning they are integral to, necessary for, or performed in support of those functions. CMS states that general professional services and standardized commercial data products would not become related services simply because they are provided to a PBM, Part D plan sponsor, or prescription drug plan.
• Affiliate: The CAA extends certain PBM requirements to affiliates, which it defines based on two types of relationships with PBMs or Part D plan sponsors: (1) ownership or control, or (2) contractor, principal, or agent relationships involving the performance of PBM functions. CMS proposes standards for applying these definitions, including a requirement under the second prong that PBM functions constitute a material part of the entity’s contractual services, rather than merely incidental activities.

2. Limitations on PBM and Affiliate Compensation to Flat, Bona Fide Service Fees (BFSFs). Under the CAA, PBMs and their affiliates may not derive remuneration in connection with the utilization of covered Part D drugs, other than BFSFs. CMS proposes detailed standards governing BFSFs, including eligible services and what would be CMS’ first codified definition of “fair market value,” if finalized.

• Scope: CMS proposes to broadly define remuneration as “anything of value, whether provided directly or indirectly, overtly or covertly, in cash or in kind,” consistent with the meaning of the term in the Anti-Kickback Statute context. CMS also proposes to define “in connection with the utilization of” Part D drugs to cover remuneration that relates to the prescribing, dispensing, furnishing, coverage, reimbursement, or management of Part D drugs, including activities that directly or indirectly influence that utilization. For services that support multiple lines of business, only the portion allocable to Part D would be subject to the restriction.
• BFSF elements: CMS proposes to define a BFSF as a flat dollar amount reflecting FMV for a bona fide, itemized service actually performed on behalf of an entity that would otherwise perform or contract for the service. The fee must not be passed on to a client or customer or depend on, among other things, drug price, rebates, formulary placement, or the volume or value of referrals or business.
• Prohibited fee practices: Under the CAA’s authority to prohibit additional fee methodologies, CMS proposes to bar a PBM or affiliate from (1) requiring the party paying a BFSF to pay an additional fee, even one that would otherwise qualify as a BFSF, to access the primary benefit of the service or to obtain sufficient information to oversee it; and (2) conditioning a service on the other party’s agreement to pay for a separate service that the PBM or affiliate is not required to perform to provide the contracted service.
• Eligible services: To satisfy the requirement that a service is one that an entity “would otherwise perform or contract for,” CMS proposes that the service must be a “necessary or useful service” and provide “operational, administrative, clinical, financial, compliance, or programmatic value to the entity on whose behalf it is performed.” CMS cites a data portal fee as an example of a fee that has no meaningful connection to the purchaser’s actual operational needs.
• FMV (Cost Plus): CMS proposes to define FMV for BFSFs as the cost incurred by the PBM or affiliate to provide the itemized service plus a reasonable markup. CMS states that this largely aligns with an approach proposed, but not finalized, in the calendar year 2026 Physician Fee Schedule rulemaking for average sales price (ASP) reporting. CMS proposes several factors for assessing whether costs and markups are reasonable, including sound business practices, arm’s-length bargaining, applicable laws, comparable market transactions, deviations from established written policies and procedures, potential bias from overlap between the individuals who negotiate the BFSF and those who negotiate other remuneration, and comparability to the general, non-healthcare market. For costs, CMS would also consider whether the cost is ordinary and necessary. CMS seeks comment on whether to permit alternative approaches, such as comparable market transactions.
• Pharmacy and wholesaler payments: CMS proposes to codify the CAA’s protection for flat dispensing fees and ingredient-cost payments, including customary acquisition-related discounts retained by pharmacies or wholesalers. CMS states that this rule is not a blanket exemption for other payments to PBM-affiliated pharmacies or wholesalers.

3. Rebate Pass-Through. Under the CAA, PBMs and affiliates must fully pass through manufacturer rebates and other price concessions (which may include percentage-based discounts) to Part D plan sponsors and comply with applicable direct and indirect remuneration (DIR) requirements. CMS proposes that “fully passed through” means that the Part D plan sponsor receives “100 percent of the gross economic value” of each concession attributable to Part D utilization, without reductions through administrative, data, or aggregation fees or other deductions.

4. Enhanced Federal Oversight. Section 6224 subjects PBM and affiliate remuneration arrangements, including manufacturer agreements, to review by CMS in consultation with the HHS Office of Inspector General for compliance with the applicable remuneration requirements. The Proposed Rule states that CMS may select PBMs for review based on annual reports, other data, and random sampling, and then sample associated Part D plan sponsors and affiliates to assess compliance with the CAA. If selected, PBMs would submit summaries of relevant remuneration arrangements identifying, among other things, the following for each arrangement or payment stream, including arrangements with manufacturers (which CMS expressly includes among the entities whose arrangements are subject to review): the payer; the total remuneration paid, received, and retained; the amount attributable to Part D utilization; fee methodology; whether the arrangement involves bundled services or multiple lines of business; and whether the payment is classified as a BFSF, an incentive payment, a fully passed-through price concession, an amount protected by the rule of construction under 42 C.F.R. § 423.2810(i) (e.g., a flat dispensing fee), or another type of remuneration. Although the Proposed Rule does not expressly require submission of the agreements themselves, CMS could request additional substantiation, including cost, FMV, and allocation support.

5. Disgorgement and Compliance. CMS proposes to implement the CAA’s compliance requirements, which apply to all PBMs, regardless of whether CMS selects them for review. PBMs must disgorge noncompliant remuneration to Part D plan sponsors, which must in turn disgorge the amounts to CMS. CMS interprets this requirement to cover the entire noncompliant payment, not merely the excess over a compliant amount. For example, if a manufacturer rebate is not fully passed through, the entire rebate would be subject to disgorgement. CMS proposes that the PBM disgorge that amount no later than the earlier of 30 days after a sponsor audit concludes or 30 days after the end of the month in which the PBM or its affiliate identifies the violation.

6. Reporting of Alleged Violations: CMS proposes to establish a confidential mechanism for manufacturers, Part D plan sponsors, pharmacies, and other entities with contractual relationships with PBMs or affiliates to report alleged violations of the remuneration and annual reporting requirements. The Proposed Rule’s anti-retaliation and anti-coercion provision expressly applies to Part D plan sponsors, not PBMs.

7. Enhanced Transparency Obligations to CMS and Plans. Beginning July 1, 2028, CMS proposes to require PBMs to submit annual reports to Part D plan sponsors and CMS for the prior plan year, as required by the CAA. The reports would include total manufacturer-derived revenue, including BFSFs, retained by the PBM and its affiliates. CMS proposes to require PBMs to provide Part D plan sponsors with a written explanation within 30 days after the PBM or an affiliate finalizes an agreement with a manufacturer (or its subsidiary, agent, or affiliate) under which rebates or other incentives are contingent on the coverage, formulary placement, or utilization management of other drugs. The explanation would, among other things, identify the manufacturer and affected drugs and provide a high-level description of the agreement’s terms.

8. Confidentiality. CMS proposes to implement the CAA’s confidentiality protections by prohibiting CMS and certain other federal entities from publicly disclosing reported information that identifies, among others, a specific manufacturer, PBM, pharmacy, or wholesaler, or reveals drug-specific contract prices or rebates in a manner that could identify the contracting parties or drugs. CMS also proposes that a Part D plan sponsor that receives nonpublic information a PBM discloses under the CAA, such as the annual report, may not disclose such information.

9. Commercial Market. CMS states that the remuneration restrictions apply to Part D drug utilization and not to drugs dispensed under Medicaid or commercial insurance. In its impact analysis, CMS notes that “[a]lternatively, PBMs could balance lower fees under Medicare with higher fees on other lines of business.” Commercial PBM reforms go into effect no earlier than August 2028.

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If finalized, the Proposed Rule would have broad implications for the prescription drug market. Manufacturers should assess the potential implications for their pharmaceutical market access contracts and evaluate the potential impact on government price reporting, including FMV determinations. Manufacturers also should consider submitting comments by December 15, 2026, and should monitor for the final rule and any related CMS guidance.