What DOL’s Final PBM Rule Means for Rebates and Formularies

The U.S. Department of Labor (DOL) has finalized a rule under the Employee Retirement Income Security Act (ERISA) requiring providers of pharmacy benefit management services to disclose their direct and indirect compensation, including manufacturer rebates and spread compensation, along with formulary placement incentives, to fiduciaries of large self-insured employer health plans. The requirements apply to plan years beginning on or after July 1, 2027.¹

The disclosures reach directly into PBMs’ arrangements with drugmakers. Rebates, price protection payments and formulary placement incentives negotiated with manufacturers must be reported to plan fiduciaries, along with net drug prices after rebates and fees. PBM contracts with manufacturers must also be made available in plan audits, subject to reasonable confidentiality agreements.¹

The rule supports Executive Order 14273, signed April 15, 2025, which directed the DOL to improve employer health plan fiduciary transparency into the direct and indirect compensation PBMs receive. According to the department, PBM compensation arrangements can be complex, making them difficult for plan fiduciaries to evaluate. PBMs may receive compensation from the group health plan as well as from drug manufacturers, pharmacies, rebate aggregators and others.¹

The rule also follows amendments to ERISA section 408(b)(2)(B) under the Consolidated Appropriations Act, 2026 (CAA 2026), effective Feb. 3, 2026, which further clarified the disclosure obligations covered service providers to group health plans must meet to rely on ERISA’s prohibited transaction exemption. The final rule provides compliance assistance for service providers that must now report fees and compensation to group health plans under the law.

What Does the Final Rule Require?

The rule applies to covered service providers (CSPs) to large self-insured group health plans, generally those with 100 or more participants or offered by employers with 100 or more employees. CSPs include any entity providing pharmacy benefit management services, regardless of whether it identifies as a PBM, as well as PBM-affiliated brokers and consultants, that expects to receive $1,000 or more in compensation. Key requirements, according to the DOL, include:¹

• Initial disclosures: Written disclosures delivered reasonably ahead of entering, extending or renewing a contract, with at least 90 days in advance considered reasonable for renewals and extensions.
• Ongoing disclosures: Reports of actual compensation no later than 30 calendar days after each semiannual period, or quarterly if the plan requests, plus an explanation whenever a reported amount exceeds the initial disclosure by 5% or more.
• Audit rights: Plans may audit a CSP at least once a year using an auditor of their choosing. CSPs must acknowledge a request within 10 business days and generally provide the information within 60 calendar days.
• Format: Compensation must be expressed as a monetary amount, with good-faith estimates allowed, and provided upon request in a standard machine-readable file using industry-standard drug identifiers.

What Does the Rule Mean for Rebate, Formulary and Pharmacy Arrangements?

Several disclosure categories center on PBMs' financial relationships with drug manufacturers. CSPs must report rebates, fees, discounts and other manufacturer payments tied to drug utilization or spending, specifying what will be passed to the plan and what the CSP will retain. Inflation and price protection agreements with manufacturers must be disclosed on the same pass-through and retention basis.¹

CSPs must also disclose manufacturer incentives or arrangements that affect formulary placement and their impact on the plan and participants. In some cases, they must identify alternatives omitted from the formulary and explain the omission. Disclosures must also state the net price paid for drugs after rebates and fees or, if that amount cannot be determined, the methodology used to calculate it.¹

On the pharmacy side, spread compensation must be broken out by drug and pharmacy channel, and CSPs must describe arrangements, incentives and policies used to direct patients to affiliated pharmacies. Copay clawbacks and other retroactive pharmacy reimbursement adjustments are also covered. During audits, CSPs must make available contracts with drug manufacturers, retail pharmacies and rebate aggregators, subject to reasonable confidentiality agreements.¹

What Do PBMs Say?

The Pharmaceutical Care Management Association (PCMA) argued in an Oct. 29 statement that the rule duplicates PBM transparency requirements already enacted in federal law.²

“Drug-by-drug, claim-by-claim, pharmacy-by-pharmacy transparency is already law,” PCMA President and CEO David Marin said. “All of this has long made the DOL’s desire to create another reporting system unnecessary, redundant, and extraordinarily burdensome, particularly for smaller PBMs.”²

Marin said PCMA is still analyzing the rule's full impact but is “extremely concerned” it will lead to higher patient costs and less competition.²

“The Department has made modest efforts to harmonize the rule with the recently enacted federal law, but we are concerned it may have exceeded Congress’s intent and its own authority,” he said.²

Marin added that the rule “could also lead to greater concentration in our industry as smaller PBMs face excessive reporting demands,” and said PCMA will evaluate available pathways to protect patients, employers and unions from what it called unnecessary and expensive regulatory overreach.²

What Happens Now?

The final rule takes effect 60 days after publication in the Federal Register. The DOL said it set the July 2027 applicability date to give parties time to develop compliance structures without unnecessarily delaying implementation.¹

Until the requirements apply, the department will not treat CSPs as having failed to make required disclosures, or fiduciaries as having engaged in a prohibited transaction, as long as they act on a good-faith interpretation of the amended statute.¹

The final rule gives fiduciaries of large self-insured plans a detailed accounting of how their PBMs are paid, from the share of manufacturer rebates passed through or retained to spread compensation by drug and pharmacy channel, along with the right to audit those disclosures at least once a year.¹ PCMA contends that federal law already requires that transparency and that the added reporting will burden smaller PBMs.² For plan years beginning on or after July 1, 2027, the rebate, price protection and formulary arrangements PBMs negotiate with manufacturers will be disclosed to employer plan fiduciaries and open to audit.

References

1. U.S. Department of Labor. “Pharmacy Benefit Manager Fee Disclosure Final Rule.” Fact sheet. Accessed Oct. 29, 2026. https://beta.dol.gov/research-data/fact-sheets/pharmacy-benefit-manager-fee-disclosure-final-rule

2. Pharmaceutical Care Management Association. “PCMA: DOL Rule Threatens Smaller PBMs, Will Raise Costs for Patients, Employers.” Press release. Oct. 29, 2026. https://www.pcmanet.org/press-releases/pcma-dol-rule-threatens-smaller-pbms-will-raise-costs-for-patients-employers/