Consolidated Appropriations Act Introduces Sweeping Reforms for Pharmacy Benefit Managers

On February 3, 2026, President Trump signed a $1.2 trillion spending deal that, among other points, introduced significant regulatory changes for Medicare Part D plans and PBMs providing services to PDP sponsors in the Medicare Advantage and Medicare Part D programs, and imposed significant new restrictions and transparency requirements on PBMs contracting with private group health plans.

The 2026 Consolidated Appropriations Act (H.R. 7148) earmarked more than $321 million in federal funding for measures intended to lower prescription drug costs and increase price transparency for consumers.

These changes impact PBM compensation models by prohibiting PBMs working with Medicare Part D PDP sponsors and group health plans from retaining revenue derived from drug rebates, spread pricing, and volume-based incentives starting January 1, 2028. The Act mandates that PBMs under contract with Medicare Part D sponsors receive only flat-fee compensation for itemized services at fair market value while imposing extensive transparency and reporting requirements, including detailed annual reports on rebates, pharmacy reimbursement rates, and affiliated pharmacy arrangements. It further grants CMS enhanced enforcement authority to impose substantial fines for noncompliance.

Implications for Pharmacy Benefit Managers and Prescription Drug Plans

Pivoting From Variable to Flat Administrative Fee Models

PBMs have traditionally generated revenue via flexible payment structures based on several factors, including drug prices, rebates, formulary decisions, and business volume. As of January 1, 2028, however, Part D sponsors will be strictly prohibited from entering into contracts with PBMs whereby the PBMs derive any remuneration related to covered Part D drug utilization except in the case of bona fide service fees, which the statute defines as:

[A] fee that is reflective of the fair market value (as specified by the [HHS] 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.

Further, this flat fee may not be directly or indirectly contingent on drug price, direct or indirect remuneration, coverage or formulary placement decisions, or the volume or value of any referrals or business. Under this new requirement, PBMs would be limited to charging flat administrative fees for itemized and appropriate services (e.g., claims processing, formulary development, and utilization review) billed at fair market value.

The Act also includes pass-through requirements in a further effort to prevent PBMs from receiving impermissible administrative revenue. With similar provisions for PDPs and commercial plans, the spending bill requires the disclosure and remission of all rebates, fees, alternative discounts, and other remuneration related to drug utilization or spending to group health plans or issuers, as well as any contracts maintained with manufacturers with financial incentives.

Enhanced Transparency and Reporting Requirements for PBMs

In addition to restricting PBMs to payment models based exclusively on flat administrative fees, the Act introduces new reporting requirements intended to improve transparency into PBM pricing. The Act requires PBMs to submit detailed annual reports to Part D sponsors and HHS, which must include drug-level information pertaining to rebates, pharmacy reimbursement rates, wholesale acquisition costs, out-of-pocket spending, affiliated pharmacy arrangements, and compensation paid to brokers and consultants starting on July 1, 2028. This information must include data on all drugs that were dispensed and covered.

PDP sponsors will also be permitted to request audits of their PBMs “at least” annually and may choose their auditor; PBMs will be required to provide all necessary records, data, and contracts within six months of audit initiation and respond to additional information requests within 30 days.

There are also additional transparency requirements relating to commercial plans, specifically for PBMs contracted with group health plans and health insurance issuers offering group health insurance. For plan years beginning in 2029, PBMs serving private group health plans must submit reports at least every six months (or quarterly upon request) containing drug-level information on rebates, remuneration, pharmacy reimbursement, and affiliated pharmacy arrangements. The specific scope of information required depends on the type of plan, with the law also including an opportunity for certain specified large employers and specified large plans to “opt in” to require PBMs to comply with additional reporting obligations. Further, group health plans must provide participants and beneficiaries with annual notice of the requirement for PBMs to submit these reports, and group health plans must provide, upon request of a participant or beneficiary, certain summary information, as well as pricing information relating to a claim made by the participant or beneficiary.

CMS to Set Forth “Reasonable and Relevant” Contract Terms Applicable to Network Pharmacies

Beginning January 1, 2029, the Act codifies the requirement that PDP sponsors must accept all willing pharmacies into their networks, provided those pharmacies agree to accept the “reasonable and relevant contract terms and conditions” of the sponsor. Notably, the Act directs the HHS secretary to provide a definition for “reasonable and relevant” contract terms and conditions by April 2028. It also creates a special category for independent retail pharmacies unaffiliated with PBMs in underserved areas (not within ten miles of another pharmacy in rural areas, two miles in suburban areas, or one mile in urban areas) and mandates biennial reporting on independent pharmacy reimbursement rates and network participation trends. The Act authorizes the imposition of civil monetary penalties on PDP sponsors, beginning in 2029, for violations of the standards for reasonable and relevant contract terms. While the penalties are levied against the PDP sponsor, another provision in the Act requires contracts with PBMs to include an accountability provision making the PBM responsible for any civil monetary penalties paid by a sponsor as a result of a PBM’s compliance failures.

Next Steps for Health Plans and PBMs

Crowell & Moring is prepared to assist impacted organizations that may have questions or concerns about the immediate and long-term implications of this spending bill. Our team of experienced healthcare lawyers can provide proactive compliance counseling, assistance with potential enforcement responses, and insight into strategic actions organizations may take in response to emerging legislation.