On January 30, 2026, the U.S. Department of Labor (“DOL”) proposed a regulation under the Employee Retirement Income Security Act (“ERISA”) that would require pharmacy benefit managers (“PBMs”) to make detailed disclosures to fiduciaries of employer-sponsored self-insured group health plans. The proposed regulation implements President Trump’s Executive Order 14273, Lowering Drug Prices by Once Again Putting Americans First, which directs the DOL to improve employer health plan transparency into the direct and indirect compensation received by PBMs. Specifically, the proposed regulation would require PBMs and PBM-affiliated entities serving ERISA self-insured group health plans to comply with certain disclosure, reporting and audit obligations, with the goal of increasing overall PBM transparency. Importantly, the proposed reporting obligations are distinct from those federal PBM reporting requirements recently implemented by the Consolidated Appropriations Act, 2026.
Covered Plans and Service Providers
The proposed regulation applies to entities, or their affiliates or subcontractors, which provide, arrange for or recommend PBM services to ERISA self-insured group health plans (referred to as “covered service providers”).
The DOL defines PBM services broadly to include activities necessary to manage or administer prescription drug benefits, including:
- Developing or maintaining a formulary;
- Negotiating or aggregating rebates;
- Establishing or administering pharmacy networks;
- Processing or paying prescription drug claims;
- Performing utilization management activities;
- Adjudicating appeals or grievances related to prescription drug benefits;
- Maintaining records related to prescription drug benefits; and
- Performing regulatory compliance functions related to prescription drug benefits.
Therefore, if PBM services are part of the arrangement, the entity that contracts with the ERISA-covered self-insured plan to provide or arrange for those services is the covered service provider and must satisfy the regulation’s reporting, disclosure and audit requirements.
Disclosure Requirements
Under the proposed regulation, before entering into, extending or renewing a PBM contract, PBMs would be required to provide an initial disclosure to each plan fiduciary, which includes the following estimated information for the plan year:
- Direct compensation paid by the plan or plan sponsor;
- Payments from drug manufacturers or rebate aggregators;
- Spread compensation;
- Copay claw-back amounts;
- Inflation or price protection payments;
- Termination-related compensation; and
- Any other compensation received in connection with the PBM arrangement.
In addition to the initial disclosure, PBMs would also be required to provide semiannual reports to each plan fiduciary of compensation actually received by the PBM, tracking the same information within the initial disclosure.
If the actual compensation materially exceeds initial estimates, the PBM must provide an explanation for the overage. This creates an ongoing reconciliation obligation and heightens fiduciary oversight throughout the contract term.
Formulary Transparency and Incentive Disclosures
The proposed regulation places heightened emphasis on formulary decision-making and the financial incentives that may influence drug selection and tiering. PBMs would be required to disclose the existence of formulary placement incentives to each plan fiduciary and explain how those incentives are designed to align with the interests of the plan and its participants, rather than the PBM’s own financial interests.
Where a PBM expects to retain manufacturer payments in connection with a formulary drug, the PBM would also be required to identify reasonably available therapeutically equivalent alternatives that do not generate retained payments and explain the basis for excluding those alternatives from the formulary. This requirement is intended to provide plan fiduciaries with greater visibility into whether formulary decisions are driven by clinical considerations, cost effectiveness or compensation arrangements.
In addition, if a PBM retains discretion to modify the formulary during the contract term, the proposed regulation would require the PBM to disclose the scope of that authority, the circumstances under which formulary changes may occur and the process for providing advance notice of material modifications that are reasonably expected to affect compensation. Taken together, these requirements would increase fiduciary oversight of formulary governance and may require PBMs to revisit existing contractual provisions and internal decision-making processes related to formulary management.
Mandatory Audit Rights
The proposed regulation would establish a non-waivable audit right for self-insured group health plans. Under the proposed rule:
- Plans may audit PBM disclosures at least once per year;
- Plans may conduct an audit through an auditor or other authorized representative;
- PBMs must provide access to all information necessary to verify disclosures, including contracts with pharmacies and drug manufacturers; and
- Contractual limits on audit scope, location or record volume are generally prohibited.
Consequences of Non-Compliance
Failure to comply with the disclosure or audit requirements could cause a PBM arrangement to lose prohibited transaction protection under ERISA section 408(b)(2), exposing both the PBM and the responsible plan fiduciary to potential enforcement. However, the proposal includes a class exemption that would provide relief to responsible plan fiduciaries who reasonably relied on PBM disclosures and take specified corrective actions upon discovering noncompliance. This relief does not extend to the PBM. The proposed exemption allows plan fiduciaries flexibility to determine whether termination of the PBM arrangement is prudent under the circumstances.
Practical Considerations and Timing
Although the regulation is currently only proposed, it provides a clear preview of the DOL’s regulatory priorities for PBM arrangements with self-insured group health plans. PBMs and PBM-affiliated entities should consider whether existing contracts, compensation structures, affiliate relationships and data systems would support the level of disclosure and audit access contemplated by the proposed regulation, particularly where services or compensation are shared across multiple entities.
Entities that contract with self-insured group health plans, including PBMs, TPAs and PBM-affiliated brokers or consultants, may also wish to evaluate whether existing contractual arrangements would allow them to obtain the information necessary to comply with the proposed disclosure and audit requirements. This includes assessing rights to manufacturer and rebate payment data, pharmacy pricing information and affiliate-level compensation.
The DOL has requested public comment on several aspects of the proposal, including the classification of which entities qualify as “covered service providers” and the definitions of affiliate, agent and subcontractor. Comments on the proposed regulation are due on or before March 31, 2026.
If finalized, the regulation would become effective 60 days after publication of the final rule and would apply to plan years beginning on or after July 1, 2026.
If you have questions or would like more information about this or other PBM topics, please contact:
- Julie Lappas at (317) 977-1490 or jlappas@hallrender.com;
- Calvin Chambers at (317) 977-1459 or cchambers@hallrender.com;
- Matt Reed at (317) 429-3609 or mreed@hallrender.com;
- Raminta Kizyte at (303) 557-2112 or rkizyte@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
