DOL Proposes Sweeping New Disclosure Rules for Pharmacy Benefit Managers
Background
On January 30, 2026, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) published proposed regulations (408(b) rules) that would significantly increase transparency requirements for pharmacy benefit managers (PBMs) and related service providers serving self-funded ERISA group health plans. The proposed regulations would only apply to ERISA plans, not governmental or church plans, and for now are limited in scope to self-funded plans, though the DOL has left space in the proposed regulations to expand to fully insured plans in the future. If finalized, these rules would represent a new expanded federal regulatory framework governing PBM disclosures.
The 408(b) rules respond to the directive in President Trump’s Executive Order 14273 to improve transparency regarding PBM compensation. The rules build upon the statutory framework established by ERISA Section 408(b)(2)(B), which requires group health plan sponsors to request and review fee information from “covered service providers” to demonstrate the reasonableness of the arrangement under ERISA’s prohibited transactions requirements. See Foley’s prior articles on this requirement and related guidance here, here, and here. Specifically, the 408(b) rules provide that a contract with a covered service provider is not “reasonable” unless the disclosure obligations of the rules have been satisfied.
If finalized, the regulations would become effective 60 days after publication of the final rule, with an applicability date for plan years beginning on or after July 1, 2026.
Who Must Disclose
The 408(b) rules expressly pull into the definition of covered service providers any entity that provides pharmacy benefit management services or provides advice, recommendations, or referrals regarding pharmacy benefit management services under an agreement with a group health plan, regardless of whether they call themselves a PBM.
The definition of pharmacy benefit management services is expansive and includes, but is not limited to:
- Acting as a negotiator or aggregator of rebates, discounts, and other price concessions
- Establishing or maintaining prescription drug formularies
- Establishing or maintaining pharmacy networks
- Processing and paying prescription drug claims
- Performing utilization review
- Adjudicating appeals and grievances
- Recordkeeping
- Regulatory compliance activities
What Must be Disclosed
There are three types of disclosures required under the 408(b) rules: (1) a comprehensive initial disclosure requirement, (2) updated financial disclosures of the information in the initial disclosure to be made twice a year, and (3) upon request by the plan sponsor to meet reporting obligations of the plan sponsor. All disclosures must be clearly worded and reference compensation in monetary amounts (e.g. $1,000) rather than as formulas or percentages (except where expressly noted otherwise in the 408(b) rules). Notably, PBMs may not restrict the plan’s use of disclosure information, although it may require the plan to obtain reasonable confidentiality agreements from third parties to whom information is redisclosed. There is a safe harbor provision for good faith disclosure errors, provided they are timely corrected.
The initial disclosure must be provided to the plan in writing, reasonably in advance of entering, extending, or renewing a service contract or arrangement. For extensions and renewals, 30 calendar days’ advance notice is deemed reasonable unless the parties agree to a longer timeframe.
The initial notice must include the following information:
| Information | Description |
| Description of Services | Describe each pharmacy benefit management service, or each instance of advice, recommendations, or referrals regarding PBM services, to be provided under the contract. |
| Direct Compensation | List all direct compensation, both in the aggregate and by service, that the PBM, its affiliates, agents, or subcontractors reasonably expect to receive on a quarterly basis. |
| Compensation from Drug Manufacturers | Describe all payments (rebates, fees, discounts, price concessions, etc.) reasonably expected to be received from drug manufacturers or rebate aggregators on a quarterly basis, both in the aggregate and per formulary drug. |
| Spread Compensation | For each drug on the formulary and for each pharmacy channel (retail, mail-order, and specialty), covered service disclose the dollar amount of expected spread compensation to be received per quarter. |
| Copay Clawback Compensation | List amounts (both the expected dollar amount and total number of transactions) reasonably expected to be recouped from pharmacies through copay clawbacks per quarter. |
| Termination Fees | Disclose any compensation the PBM, affiliate, agent, or subcontractor reasonably expects to receive upon termination of the arrangement, along with information regarding how prepaid amounts will be calculated and refunded. |
| Other Compensation | A catch-all provision for any compensation not disclosed under the preceding sections that the PBM, affiliates, agents, or subcontractors reasonably expect to receive on a quarterly basis in connection with the agreement. |
| Formulary Placement Incentives | Disclose formulary placement incentives and arrangements with drug manufacturers, including an explanation of how these incentives affect services to and align with the interests of the plan and its participants. If the PBM receives payments from a manufacturer or rebate aggregator for any drug on the formulary (that are not passed through to the plan), it must identify reasonably available therapeutically equivalent alternatives and explain why those alternatives were omitted. |
| Drug Pricing Methodology | Disclose the net cost to the plan of each drug on the formulary, for each pharmacy channel, expressed as a monetary amount (or methodology and means to verify accuracy if no amount can be ascertained). |
| Statement of Fiduciary Status | If applicable, include a statement that the PBM, affiliate, agent, or subcontractor will provide services as an ERISA fiduciary, along with any activities or policies that may create conflicts of interest. |
| Statement of Audit Rights | Include a statement regarding the plan’s audit rights and procedures for requesting an audit. |
Audit Rights
A significant provision of the 408(b) rules adds express audit rights for self-insured group health plans. The rules allow annual audits to assess the completeness and accuracy of required disclosures and prohibit the PBM from placing limitations on the plan’s choice of auditor. Additionally, the PBM may not impose restrictions such as limiting the period of audit, limiting the number of records to be provided, or similar limits on the audit’s scope.
Within ten business days of receiving an audit request, the covered service provider must confirm receipt and begin providing necessary information within a commercially reasonable period. Notably, the cost of the audit must be split between the plan and the covered service provider, with each party bearing 50% of the expense.
Penalties
DOL recognizes that plan fiduciaries may enter into arrangements that initially appear to satisfy the regulatory requirements but later discover that the covered service provider has failed to comply. In such circumstances, the fiduciary itself would ordinarily face potential liability for engaging in a prohibited transaction.
To address this concern, the proposal includes an administrative class exemption for responsible plan fiduciaries. Relief is available if the fiduciary did not know of the covered service provider’s failure and reasonably believed the requirements had been satisfied. Upon discovering non-compliance, the fiduciary must request, in writing, that the covered service provider correct the failure. If the covered service provider fails to comply within 90 calendar days, the fiduciary must notify the DOL and determine whether to terminate or continue the contract consistent with its duty of prudence under ERISA Section 404.
This structure, requiring the plan sponsor to take corrective action and, if necessary, notify the DOL, creates an enforcement mechanism through which the DOL can identify non-compliant PBMs. In effect, the rule regulates PBMs indirectly by placing obligations on plan sponsors, similar to the existing ERISA Section 408(b)(2)(B) framework. A plan sponsor that fails to obtain the required disclosures or to take appropriate action upon discovering non-compliance may itself be in technical violation.
Takeaways
If finalized, the 408(b) rules would require new disclosures from PBMs and related service providers in order for plan sponsors to meet their ERISA fiduciary obligations. Detailed financial and other information would be required to be shared with plan sponsors, and plan sponsors would have express audit rights to verify the accuracy of the information that is disclosed.
Plan sponsors should be prepared to raise the requirements contained in the 408(b) rules in contract and renewal negotiations with their PBMs, if the rules are finalized.
PBMs and their affiliates should carefully evaluate the 408(b) rules and their potential impact on business operations, contract structures, and revenue models. If finalized, the rules could require changes to data systems in order to meet disclosure requirements, to contracts with drug manufacturers and other third parties, and to internal policies and procedures regarding audits. Agreements with plan sponsors would likely also require revision to meet the rule’s requirements, if finalized.
