Labor Department Forces PBMs to Open Their Books to Employers in Rule Projected to Save $22 Billion

For years, employers that pay for their workers’ prescriptions have struggled to answer a basic question: how much of that money is their pharmacy benefit manager keeping? A new federal rule is about to force an answer. On October 29, the U.S. Department of Labor finalized a regulation that requires pharmacy benefit managers (PBMs) and their affiliated brokers and consultants to disclose, in detail, how they are paid by large self-insured employer health plans. Regulators expect the change to cut drug costs for employers and their workers by $22 billion over a decade, according to Healthcare Dive.

The rule is scheduled for publication in the Federal Register on November 2. It becomes effective January 4, 2027, and applies to plan years beginning on or after July 1, 2027. For any company that sponsors a large self-funded health plan, that gives benefits teams one renewal cycle to get ready.

Who the Rule Covers

The regulation, issued under the Employee Retirement Income Security Act (ERISA), targets large, employer-sponsored, self-insured group health plans. Per the Labor Department’s fact sheet, those are generally self-insured plans with 100 or more participants, or self-insured plans offered by employers with 100 or more employees.

On the other side of the contract, the rule applies to “covered service providers”: companies that provide pharmacy benefit management services, including PBM-affiliated brokers and consultants, that expect to receive $1,000 or more in compensation from the arrangement. Service providers to smaller and fully insured plans still face separate statutory disclosure requirements under ERISA, Healthcare Finance News reported.

What PBMs Will Have to Disclose

The heart of the rule is an upfront disclosure that PBMs must give plan fiduciaries reasonably ahead of signing, renewing or extending a contract. For renewals and extensions, the department considers at least 90 days in advance to be reasonable. That disclosure must spell out the services provided and the direct compensation the PBM expects from the plan, broken out by service. It must also detail indirect compensation, which is where most of the hidden money has historically lived:

• Manufacturer payments: rebates, fees and discounts from drugmakers, including how much is passed to the plan and how much the PBM keeps.
• Spread compensation: the gap between what the plan pays the PBM and what the PBM pays the pharmacy, itemized by drug and pharmacy channel, plus any incentives used to steer patients to PBM-affiliated pharmacies.
• Pharmacy recoupment: copay clawbacks and other retroactive adjustments to pharmacy reimbursement.
• Price protection agreements: inflation-protection deals with manufacturers and how much of that value reaches the plan.

After the contract is in place, PBMs must report the compensation they actually received every six months, or quarterly if the plan asks. Plan fiduciaries can audit the disclosures at least once a year, choosing the auditor themselves, with the plan paying for the review. If a provider fails to comply, the rule offers relief to fiduciaries who take specified steps, including notifying the Labor Department when the failure isn’t corrected. Healthcare Dive notes that noncompliant PBMs face potentially severe consequences, including financial penalties and possible invalidation of their contracts.

Supporters and Critics

Administration officials framed the rule as a direct win for workers. “This is a win for every American worker who has ever paid too much at the pharmacy counter,” Secretary of Labor Keith Sonderling said in a statement. CMS Administrator Dr. Mehmet Oz added that “more transparency means more competition, and more competition means lower health care costs.”

Employer groups cheered. “Large employers pay for their workers’ prescriptions, but many can’t see how much of that money their PBM and any affiliated entity keeps,” said James Gelfand, president and CEO of the ERISA Industry Committee. “This rule changes that.”

The PBM industry is pushing back. The Pharmaceutical Care Management Association, the largest PBM lobby, argues the rule duplicates transparency reforms already enacted in the Consolidated Appropriations Act of 2026 and is especially burdensome for smaller PBMs. PCMA president and CEO David Marin called it “a solution in search of a problem.” The Labor Department acknowledged areas of overlap but says the two regimes complement each other: the 2026 law requires detailed, backward-looking drug spending data, while the new rule requires forward-looking disclosures that help plans compare PBMs before they sign. The department estimates compliance will cost PBMs about $1 million in the first year and $300,000 in later years.

Why It Matters for Business

Pharmacy costs are one of the fastest-growing lines in employer health budgets. Advisory firm WTW expects employer drug costs to rise 11.5% in 2026, up from 9% the year before, as cited by Healthcare Dive. Yet just under half of large employers say they get sufficient insight into how much drugmakers pay their health plan or PBM, according to a KFF report released last week. That combination, rising costs and limited visibility, is exactly what the rule aims to fix.

The bigger shift is in leverage. The “Big Three” PBMs, Cigna’s Express Scripts, CVS’ Caremark and UnitedHealth’s Optum Rx, jointly control about 80% of U.S. prescriptions. Standardized, auditable disclosures make it far easier for an employer to put two PBM bids side by side and see which one actually delivers more value, rather than relying on headline discount guarantees. That is good news for smaller “transparent” PBMs that already sell on pass-through pricing, and a challenge for incumbents whose margins depend on rebate retention and spread pricing.

It also raises the bar for plan sponsors themselves. Because the rule ties these disclosures to ERISA’s fiduciary standards, employers will be expected to actually read them and judge whether their PBM’s compensation is reasonable. Companies with self-funded plans should start now: map out which contracts renew after July 1, 2027, ask benefits consultants whether they have PBM affiliations, budget for an annual audit, and make sure someone in HR or finance owns the review.

The push extends beyond employer plans. CMS has proposed requiring PBM compensation for Medicare Part D services to reflect fair market value rather than drug prices, with those requirements set to begin in 2028, Healthcare Finance News reported.

The Bottom Line

The Labor Department’s PBM rule doesn’t cap fees or ban rebates, but it ends the era of employers signing drug contracts mostly in the dark. Starting with plan years that begin in mid-2027, large self-funded employers will see rebates, spreads and clawbacks itemized, will get updates twice a year, and will have the right to audit. Whether that turns into the projected $22 billion in savings depends on how aggressively employers use the new information at the negotiating table.

Edited by Coron @QUE.COM
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