On February 3, 2026, the Consolidated Appropriations Act, 2026 (CAA 2026) was signed into law, introducing significant federal reforms for pharmacy benefit managers (PBMs). These extensive changes are designed to increase transparency, standardize reporting, and enhance federal oversight of PBM practices. For Plan Sponsors, this legislation will reshape PBM contracts and operations, with most provisions taking effect for plan years beginning on or after August 3, 2028, or January 1, 2029, for calendar year plans.
Understanding these new regulations is the first step toward a smooth transition. While no immediate action is required, preparing now can help simplify future compliance and make the process easier for your business.
The CAA 2026 focuses on several critical areas that will directly impact how you work with PBMs. The primary goals are to provide greater clarity into prescription drug costs and ensure that financial arrangements are more transparent and favorable to health plans.
A core component of the new law is the mandate for increased transparency. PBMs will be required to provide detailed reports to group health plans at least twice a year, or quarterly upon request. These reports will cover a wide range of information, including gross and net prescription drug spending, manufacturer rebates and fees, and details on spread pricing arrangements.
For large employers with 100 or more employees, these reports will be even more comprehensive, offering drug-level details. This increased access to data will empower policyholders to better oversee PBM performance and make more informed decisions about benefits strategy.
The CAA 2026 requires PBMs to pass through 100% of all rebates, fees, and other forms of remuneration they receive from drug manufacturers directly to the group health plan or issuer. These funds must be remitted on a quarterly basis. This provision is set to eliminate spread pricing models, where PBMs could retain the difference between what they charged the plan and what they paid the pharmacy. This change aims to align incentives more effectively and provide greater clarity on drug costs.
Under the new law, group health plans must provide an annual written notice to all participants and beneficiaries. This notice will explain that their PBM is required to submit prescription drug spending reports. Additionally, ERISA’s definition of a "covered service provider" has been expanded to explicitly include PBMs, requiring them to disclose all direct and indirect compensation to plan fiduciaries. This allows policyholders to better assess the reasonableness of PBM contracts and fees.
The reforms introduced by CAA 2026 represent a major shift in the regulation of the PBM industry. Although the effective dates are a few years away, the operational and contractual changes will be substantial. We recommend that Plan Sponsors begin reviewing their current PBM contracts and assessing their data and reporting infrastructure.
Significant penalties for non-compliance are also part of the law, with civil monetary penalties of up to $10,000 per day for failures to provide required information. Staying informed and preparing early will be crucial for navigating these new requirements.
Sentinel Group is committed to helping you understand these changes and what they mean for your benefits plan. Our goal is to make this transition as easy as possible, so you can remain compliant and continue to offer valuable benefits to your people.
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