Federal efforts to bring greater transparency to pharmacy benefit manager (“PBM”) compensation are advancing. On October 29, 2026, the Department of Labor (“DOL”) released its final PBM compensation disclosure rule for large, self-insured ERISA health plans (“Final Rule”).[1] Together with the CAA’s separate employer plan requirements, these developments should give plan sponsors substantially greater visibility into PBM economics. Sheppard has distilled the essentials of what PBMs[2] and affected health plans need to know.
The PBM Transparency Saga
DOL published its proposed PBM disclosure rule on January 30, 2026, responding to an April 2025 executive order directing greater transparency into PBM compensation.[3] Congress then enacted the CAA on February 3, adding its own PBM reporting and pass-through requirements and expanding ERISA’s statutory compensation disclosure provisions.[4] DOL subsequently extended its comment period to April 15 to give stakeholders an opportunity to address how the proposal should be harmonized with the new statute.
The Final Rule therefore is a culmination of a preexisting PBM-focused initiative that DOL revisited in light of intervening legislation, in an attempt to align essential features with the CAA, but did not combine the regimes into one set of obligations or one implementation schedule.[5]
What DOL Requires PBMs and Other Service Providers to Disclose
The Final Rule uses ERISA’s “prohibited transaction” exemption for reasonable service arrangements to require detailed compensation disclosures to responsible plan fiduciaries, and focuses on pharmacy benefit management services, not service provider compensation generally.[6] The detailed regulation applies to covered large, self-insured ERISA plans, subject to specified exclusions, rather than all employer health plans.[7] Broader statutory compensation disclosure duties remain relevant outside that regulatory scope.[8]
The Final Rule should help fiduciaries understand how PBMs and other pharmacy service providers are paid, evaluate the reasonableness of compensation, and negotiate contractual terms.[9] For PBMs, it creates pressure to explain revenue streams that customers may previously have struggled to identify or quantify.[10] Three features stand out:
- Upfront visibility into the economics. Before entering into, extending, or renewing an arrangement, the PBM must describe its services and expected compensation.[11] Ninety calendar days before an extension or renewal is deemed a reasonable disclosure lead time.[12] Information to be disclosed reaches beyond direct administrative fees to also include manufacturer and aggregator payments, amounts retained or passed through, pharmacy spread, retroactive pharmacy recoupments, price protection payments, and specified formulary incentives.[13] Bundled direct fees require a reasonable, good faith allocation by service.[14]
- Periodic reporting, including compensation forecasting. Compensation reports are due semiannually, or quarterly at the plan’s request, within 30 calendar days after the applicable contractual reporting period.[15] Relevant categories include amounts received or reasonably expected for that period.[16] PBMs must also explain material overages in specified compensation categories relative to their corresponding initial estimates, generally at a threshold of at least 5%, or a lower agreed threshold.[17]
- Audit rights backed by access to underlying information. Plans may request an audit at least annually and select the auditor without provider-imposed selection limits.[18] Providers must acknowledge requests within 10 business days and furnish necessary information within a commercially reasonable period, generally no later than 60 calendar days absent extraordinary circumstances beyond their control.[19] Relevant records held by affiliates, agents, and subcontractors must be available.[20] Compensation disclosures also must be supplied in a standard machine-readable file on request.[21]
The rule is a transparency measure, not a determination that every disclosed payment is permissible.[22] It does not itself impose the CAA’s full pass-through regime, ban every spread arrangement, or resolve which fees qualify as bona fide service fees under the employer plan provisions.[23] Disclosing a retained amount does not authorize retention if another requirement mandates that it be passed through.[24]
DOL’S Final Rule Extends to Providers beyond Traditional PBMs
Beyond just applying to traditional PBMs, an insurer or third party administrator (“TPA”) that contracts to provide pharmacy benefit management services to a covered plan can itself be the covered service provider, and thus must comply with the Final Rule’s disclosure requirements, even if that insurer or TPA subcontracts to a traditional PBM to perform the services.[25] Coverage turns on the undertaking to the plan, not whether the contracting entity calls itself a PBM.[26]
DOL expressly declined to add an exemption for TPAs relying on PBMs to prepare the disclosures.[27] A plan-facing insurer or TPA therefore needs more than an assurance that its PBM will handle reporting.[28] It needs access to the information required to meet its own obligations, including relevant subcontractor-held audit records.[29]
This makes coordination among insurers, TPAs, and PBMs critical, even where their commercial interests are not fully aligned.[30] Contractual reporting deadlines, information sharing rights, audit cooperation, and remedies for missing or inaccurate data may need significant revision.[31] Information that arrives in time for a PBM’s own processes may still arrive too late for the insurer or TPA’s plan-facing obligations.[32]
Final Rule is Complementary to the CAA, but Not Interchangeable
The CAA separately addresses employer plan drug spending reports and pass-through of covered remuneration.[33] DOL’s Final Rule overlaps with those reforms but serves a distinct purpose of giving fiduciaries information to assess the pharmacy service arrangement and its compensation, including before a contract decision.[34]
In comparing with the CAA, the DOL requires explanations when specified compensation materially exceeds the corresponding initial estimate, while the CAA’s separate drug spending reports do not expressly require the same overage explanation. The regimes also cover different populations and impose different information and format requirements.[35] DOL’s machine-readable compensation files, for example, are required on request, while the CAA’s separate reporting framework requires machine-readable reports.
The timing differs as well. DOL’s Final Rule applies to plan years beginning on or after July 1, 2027, generally January 1, 2028 for calendar year plans.[36] The CAA’s separate employer-plan reporting and pass-through provisions generally use a plan year threshold of August 3, 2028, together with applicable contract entry, extension, or renewal conditions. Calendar year plans generally reach that plan year threshold on January 1, 2029.[37] Meanwhile, the CAA’s broader statutory compensation disclosure amendments have applied since February 3, 2026, subject to DOL’s temporary good faith enforcement policy.[38]
Implementation of both the DOL’s and CAA’s requirements will require providers to assess whether they can support these obligations through integrated data and reporting processes or if they will need parallel systems.[39] The goal should be meaningful transparency without unnecessary duplication and resulting costs.[40]
Next Steps
For employers, potential areas of focus include identifying who actually undertakes their pharmacy services and whether their agreements provide usable compensation information and meaningful audit access.[41] For insurers, TPAs, and PBMs, potential areas of focus include whether downstream agreements support plan-facing obligations by providing for timely delivery of sufficiently detailed data and enforceable cooperation rights.[42]
The recent concentration of federal activity signals a sustained push to make PBM economics more visible and accountable[43]. For all participants, the challenge is to turn greater access to information into meaningful oversight while keeping the distinct disclosure, reporting, and payment obligations straight.[44]
FOOTNOTES
[1] Improving Transparency into Pharmacy Benefit Manager Fee Disclosure, RIN 1210-AB37, at 1, 331 (Dep’t of Labor Oct. 29, 2026).
[2] As discussed below, the term PBMs should be construed broadly to include entities that contract with specified self-funded employer health plans to provide pharmacy benefits management services, including health insurance companies and TPAs.
[3] Improving Transparency into Pharmacy Benefit Manager Fee Disclosure, supra note 1, at 2–3, 33.
[4] Id. at 33–37.
[5] Id. at 33, 37, 41–45.
[6] Id. at 330–33.
[7] Id. at 331.
[8] Id. at 45–47.
[9] See id. at 1, 41–44.
[10] See id. at 333–39.
[11] Id. at 333–39.
[12] Id. at 333.
[13] Id. at 334–38.
[14] Id. at 334.
[15] Id. at 339.
[16] Id. at 339–42.
[17] Id. at 342.
[18] Id. at 343.
[19] Id. at 344.
[20] Id. at 344.
[21] Id. at 345.
[22] See id. at 178–79, 330–31.
[23] Id. at 178–79, 242.
[24] See id. at 42–43.
[25] Id. at 187–88, 331–32.
[26] Id. at 331–32.
[27] Id. at 187–88.
[28] See id. at 187–88, 331–32.
[29] See id. at 344.
[30] See id. at 331–32, 344.
[31] See id. at 333, 339, 343–45.
[32] See id. at 333, 339, 344.
[33] Id. at 34–37.
[34] Id. at 41–42.
[35] Id. at 35–37, 41–44, 345.
[36] Id. at 350.
[37] See id. at 34–35.
[38] Id. at 45–47.
[39] See id. at 38–44.
[40] See id. at 43–44.
[41] See id. at 331–33, 343–45.
[42] See id. at 333–45.
[43] See id. at 1–5, 33–44.
[44] See id. at 41–47.