There have been a series of court cases and federal legislation targeting the spread pricing model often used by pharmacy benefit managers (PBM). Spread pricing involves two points of time in prescription drug transactions. First, PBMs negotiate discounts with manufacturers for prescription drugs but do not always pass on those discounts to plan sponsors. In other words, PBMs charge plan sponsors more for prescription drugs than the PBM may pay a manufacturer. Second, the PBM’s negotiated prices for prescription drugs with plan sponsors tend to be higher than what the PBM pays dispensing pharmacies, thereby creating a price spread that the PBM retains.
A series of recent state and federal legislation and enacted regulations are attempting to move the PBM market to the pass-through model, where any discounts, rebates, etc. obtained by the PBM from the manufacturer are passed on to the plan sponsor, eliminating the spread between what the plan sponsor and the dispensing pharmacy pay, and requiring PBMs to only charge administrative fees based on fair market value.
Federal Consolidated Appropriations Act
On February 3, 2026, Congress enacted a new spending bill, the Consolidated Appropriations Act, 2026 (the Act), that contains reforms governing PBM practices for Medicare Part D and commercial plan sponsors as well as other reforms and contains many of the reforms that Congress introduced in July 2025 through the PBM Reform Act of 2025, H.R. 4317.
As part of plan transparency and “delinking” PBM compensation from the price of a drug, PBM payments can no longer be connected to drug list prices as a condition of entering into a contract with Employee Retirement Income Security Act of 1974 (ERISA) plans. Starting in 2028, remuneration is allowed to be only a “bona fide service fee” that is a flat dollar amount, at fair market value, and for services actually performed. The law requires PBMs to pass through to plan sponsors all manufacturer rebates in full. Plan sponsors will also have the right to conduct annual audits and to select the auditor of their PBM for compliance with agreement terms and accuracy of the information submitted.
Additionally, starting in 2028, no later than July 1 of each year, PBMs must annually report to plan sponsors and Department of Health and Human Services (HHS) aggregate and drug-specific data on pricing, reimbursement amounts, rebates, the average pharmacy reimbursement amount paid by the plan, manufacturer revenue, and total gross spending.
Beginning in 2029, the Act mandates Part D sponsors to contract with “any willing pharmacy”— meaning any pharmacy that meets the standard plan terms—to participate in their network. HHS must establish standards for “reasonable and relevant” contract terms by April 2028.
As these PBM reforms begin to take shape, the Department of Labor (DOL) issued a proposed rule under ERISA just a few days before the Act was passed to require PBMs to make detailed disclosures to self-insured group health plans. According to the DOL, this rule also aims to improve transparency in fees and compensation received by PBMs, including:
- Payments from drug manufacturers
- Spread compensation (i.e., when the price that the plan paid for a prescription drug exceeds the amount that is reimbursed to the pharmacy)
- Payments recouped from pharmacies in connection with prescription drugs dispensed to the plan (clawbacks)
- Price protection arrangements
- Others
Plan fiduciaries would also be allowed to audit PBM disclosures.
The proposed rule aligns with the new legislation requiring PBMs that contract with ERISA to provide detailed reports including data mandated in the proposed rule with detailed audit rights of PBM charges and fees. Public comments on the DOL’s proposed rule must be submitted by March 31, 2026. The DOL may adjust certain policies in the final rule to ensure consistency with and proper reference to the new law.
One shortfall, although significant, is that the Act does not appear to directly address price spreading caused by the difference in what the PBM charges the plan sponsor and the amount the PBM pays the dispensing pharmacy, but further rulemaking may address that issue more directly. Until then, recent state legislation has attempted to address similar issues, although not without challenges.
Arkansas Legislation and Case Law
The State of Arkansas passed a bill, H.B. 1150, prohibiting the Arkansas State Board of Pharmacy from issuing licenses to pharmacies owned by PBMs (the Bill). The Bill was to take effect on January 1, 2026. However, the Bill has been challenged, and in late July 2025, the United States District Court for the Eastern District of Arkansas issued a preliminary injunction against the Bill. Thus, the Bill is not yet in effect.
Arkansas also promulgated a rule in December 2024 that allows the insurance commissioner of Arkansas to review the compensation program of PBMs from a health benefit plan to ensure that the reimbursement for pharmacist services paid to a pharmacist or a pharmacy is fair and reasonable (the Rule). In September 2025, the United States District Court for the Northern District of Illinois, in Central States Southeast & Southwest Areas Health & Welfare Fund et al. v. McClain, upheld the Rule after it was challenged by a union plan that claimed the Rule was expressly preempted by ERISA. The district court disagreed and cited to the US Supreme Court 2020 ruling in Rutledge v. Pharmaceutical Care Management Association, which reviewed another Arkansas PBM law, finding that ERISA does not preempt state rate regulations that merely alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.
Tennessee District Court
In a similar case in a federal district court in Tennessee, McKee Foods Corporation v. BFP Inc. d/b/a Thrifty Med Plus Pharmacy, et al., a 2021 statute (Tenn. Code Ann. S 56-7-3120(b)) was challenged due to the limitations it placed on PBMs. The district court ruled that state laws dictating how PBMs can operate are preempted by ERISA, and therefore it held that certain portions of the Tennessee statute could not be enforced. Specifically, the court found that as related to self-funded plans, sections of the statute that prohibited PBMs from identifying or dictating which pharmacy a patient must use or providing incentives to patients to use certain pharmacies, even if owned by a PBM, are preempted by ERISA. The district court also found that sections requiring PBMs to admit any willing pharmacy into their networks without showing preference for one pharmacy over another were preempted by ERISA.