Proposed Rule2026-01907
Improving Transparency Into Pharmacy Benefit Manager Fee Disclosure
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 30, 2026
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
The Department is proposing a regulation that would require providers of pharmacy benefit management services and affiliated providers of brokerage and consulting services to disclose information about their compensation to fiduciaries of self-insured group health plans subject to the Employee Retirement Income Security Act (ERISA). These disclosures are needed so that fiduciaries can assess the reasonableness of the contracts or arrangements with these service providers, including the reasonableness of the service providers' compensation. These disclosure requirements would apply for purposes of ERISA's statutory prohibited transaction exemption for services arrangements. This proposal implements section 12 of President Trump's Executive Order 14273, Lowering Drug Prices by Once Again Putting Americans First, which instructs the Department to propose regulations to improve employer health plan transparency into the direct and indirect compensation received by pharmacy benefit managers. If finalized, this regulation would affect sponsors and other fiduciaries of self-insured group health plans and certain service providers to such plans.
Full Text
<html>
<head>
<title>Federal Register, Volume 91 Issue 20 (Friday, January 30, 2026)</title>
</head>
<body><pre>
[Federal Register Volume 91, Number 20 (Friday, January 30, 2026)]
[Proposed Rules]
[Pages 4348-4425]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-01907]
[[Page 4347]]
Vol. 91
Friday,
No. 20
January 30, 2026
Part IV
Department of Labor
-----------------------------------------------------------------------
Employee Benefits Security Administration
-----------------------------------------------------------------------
29 CFR Part 2550
Improving Transparency into Pharmacy Benefit Manager Fee Disclosure;
Proposed Rule
Federal Register / Vol. 91, No. 20 / Friday, January 30, 2026 /
Proposed Rules
[[Page 4348]]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2550
RIN 1210-AB37
Improving Transparency Into Pharmacy Benefit Manager Fee
Disclosure
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Department is proposing a regulation that would require
providers of pharmacy benefit management services and affiliated
providers of brokerage and consulting services to disclose information
about their compensation to fiduciaries of self-insured group health
plans subject to the Employee Retirement Income Security Act (ERISA).
These disclosures are needed so that fiduciaries can assess the
reasonableness of the contracts or arrangements with these service
providers, including the reasonableness of the service providers'
compensation. These disclosure requirements would apply for purposes of
ERISA's statutory prohibited transaction exemption for services
arrangements. This proposal implements section 12 of President Trump's
Executive Order 14273, Lowering Drug Prices by Once Again Putting
Americans First, which instructs the Department to propose regulations
to improve employer health plan transparency into the direct and
indirect compensation received by pharmacy benefit managers. If
finalized, this regulation would affect sponsors and other fiduciaries
of self-insured group health plans and certain service providers to
such plans.
DATES: Comments are due on or before March 31, 2026.
ADDRESSES: You may submit comments, identified by RIN 1210-AB37, by one
of the following methods:
<bullet> Federal eRulemaking Portal: <a href="http://www.regulations.gov">http://www.regulations.gov</a>.
Follow the instructions for submitting comments.
<bullet> Mail or personal delivery: Office of Regulations and
Interpretations, Employee Benefits Security Administration, Room N-
5655, U.S. Department of Labor, 200 Constitution Avenue NW, Washington,
DC 20210.
Instructions: All submissions received must include the agency name
and Regulation Identifier Number (RIN) for this rulemaking. Comments
received, including any personal information provided, will be posted
without change to <a href="http://www.regulations.gov">http://www.regulations.gov</a> and <a href="http://www.dol.gov/ebsa">http://www.dol.gov/ebsa</a>, and made available for public inspection at the Public Disclosure
Room, N-1513, Employee Benefits Security Administration, 200
Constitution Avenue NW, Washington, DC 20210. Persons submitting
comments electronically are encouraged not to submit paper copies.
We encourage commenters to include supporting facts, research, and
evidence in their comments. When doing so, commenters are encouraged to
provide citations to the published materials referenced, including
active hyperlinks. Likewise, commenters who reference materials which
have not been published are encouraged to upload relevant data
collection instruments, data sets, and detailed findings as a part of
their comment. Providing such citations and documentation will assist
us in analyzing the comments.
Warning: Do not include any personally identifiable or confidential
business information that you do not want publicly disclosed. Comments
are public records posted on the internet as received and can be
retrieved by most internet search engines.
Docket: Go to the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> for access to the rulemaking docket, including the
plain-language summary of the proposed rule of not more than 100 words
in length required by the Providing Accountability Through Transparency
Act of 2023.
FOR FURTHER INFORMATION CONTACT: Stephen Sklenar or Saliha Moore,
Office of Regulations and Interpretations, Employee Benefits Security
Administration, Department of Labor, at 202-693-8513. This is not a
toll-free number.
Customer service information: Individuals interested in obtaining
general information from the Department of Labor concerning Title I of
ERISA may call the EBSA Toll-Free Hotline at 1-866-444-EBSA (3272) or
visit the Department's website (<a href="http://www.dol.gov/agencies/ebsa">www.dol.gov/agencies/ebsa</a>).
SUPPLEMENTARY INFORMATION:
A. Executive Summary
In Executive Order 14273, Lowering Drug Prices by Once Again
Putting Americans First, President Trump instructed the Department to
propose regulations to improve employer health plan transparency into
the direct and indirect compensation received by pharmacy benefit
managers.\1\ Businesses that provide pharmacy benefit management
services (hereinafter ``PBMs'' unless otherwise specified) to ERISA-
covered self-insured group health plans have acquired significant
influence over prescription drug costs in recent years. By addressing
the influence of PBMs and promoting transparent pricing, President
Trump's Executive Order aims to create a fairer and more competitive
prescription drug market that lowers costs and ensures accountability
across the health-care system.\2\ This proposed rule responding to
those directives is only one component of the Trump Administration's
larger initiative to address rising health-care costs for Americans.\3\
---------------------------------------------------------------------------
\1\ 90 FR 16441 (April 18, 2025).
\2\ See Fact Sheet: President Donald J. Trump Announces Actions
to Lower Prescription Drug Prices (April 15, 2025) (``The
[Executive] Order builds off [the Administration's] critical work
and reevaluates the role of middlemen by: Improving disclosure of
fees that pharmaceutical benefit managers (PBMs) pay to brokers for
steering employers to utilize their services . . .''), <a href="https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-announces-actions-to-lower-prescription-drug-prices/">https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-announces-actions-to-lower-prescription-drug-prices/</a>.
\3\ See e.g., Department of Labor News Release, Departments of
Labor, Health and Human Services, Treasury Announce Move to
Strengthen Healthcare Price Transparency, <a href="https://www.dol.gov/newsroom/releases/ebsa/ebsa20250522">https://www.dol.gov/newsroom/releases/ebsa/ebsa20250522</a>.
\4\ See e.g., Federal Trade Commission, Interim Staff Report,
Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug
Costs and Squeezing Main Street Pharmacies (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>.
\5\ A formulary is a list of drugs covered by the plan.
---------------------------------------------------------------------------
PBMs are described as the ``middlemen'' in the pharmaceutical
supply chain.\4\ For ERISA-covered self-insured group health plans,
PBMs perform a wide range of services including, but not limited to,
organizing pharmacy networks, negotiating pharmacy reimbursement
amounts and drug rebates, establishing drug formularies,\5\ and
processing claims. In connection with these services, PBMs receive
compensation from self-insured group health plans as well as other
sources in the pharmaceutical supply chain. Self-insured group health
plan sponsors and other fiduciaries who are responsible for prudently
selecting and monitoring service providers (referred to herein as
``responsible plan fiduciaries'') also commonly rely on brokers or
consultants to help them with advice, recommendations, and referrals
regarding pharmacy benefit management services.\6\ The brokers or
[[Page 4349]]
consultants may, in some cases, be affiliated with a PBM, and they also
may receive compensation from sources other than self-insured group
health plans.
---------------------------------------------------------------------------
\6\ It is well established that plan sponsors as defined in
ERISA section 3(16)(B)(i) often wear two hats--an employer or
settlor hat and a fiduciary hat. Yet it is equally well established
that ``ERISA does require, however, that the fiduciary with two hats
wear only one at a time, and wear the fiduciary hat when making
fiduciary decisions.'' Pegram v. Herdrich, 530 U.S. 211, 225 (2000).
Under this principle, a contract or arrangement with a covered
service provider necessary for the establishment or operation of the
self-insured group health plan does not evade the requirements of
this proposed regulation merely because it is signed by a plan
sponsor.
---------------------------------------------------------------------------
Concerns have existed for many years that PBMs, including in their
capacities as brokers and consultants with respect to pharmacy benefit
management services, are not fully disclosing their compensation to the
responsible plan fiduciaries. These concerns prompted the ERISA
Advisory Council to recommend that the Department consider extending
its service provider disclosure regulation to require specific
disclosures by PBMs.\7\ In addition, in 2020, Congress amended ERISA's
statutory service provider exemption to add a provision addressing
disclosure by brokers and consultants to group health plans'
responsible plan fiduciaries.\8\
---------------------------------------------------------------------------
\7\ See Advisory Council on Employee Welfare and Pension Benefit
Plans (ERISA Advisory Council), PBM Compensation and Fee Disclosure
at 20 (November 2014) (``Plan sponsors uniformly testified about the
difficulties in obtaining the disclosure of PBM compensation, and
how this interfered with their efforts to negotiate and monitor PBM
contracts.''), <a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
\8\ ERISA section 408(b)(2)(B), added by section 202 of Title II
of Division BB of the Consolidated Appropriations Act, 2021.
---------------------------------------------------------------------------
The Department's proposed regulation is intended to provide much
needed transparency into contracts and arrangements with PBMs and
affiliated brokers and consultants so that the responsible plan
fiduciaries of ERISA-covered self-insured group health plans can better
fulfill their statutorily mandated role to determine that the service
contracts or arrangements are reasonable. Under the Department's
proposed regulation, these service providers would be required to
provide robust disclosures to responsible plan fiduciaries of self-
insured group health plans regarding their compensation for such
services, including the advance disclosure of compensation they
reasonably expect to receive. The proposed regulation also includes
audit provisions designed to ensure that the responsible plan
fiduciaries of self-insured group health plans can verify the accuracy
of the disclosures. The responsible plan fiduciaries would be able to
use the disclosures in their process of selecting a provider of
pharmacy benefit management services, engaging an affiliated broker or
consultant, monitoring these service providers' operations and
compliance with contractual obligations, and also in analyzing the
drivers of prescription drug costs.
B. Background
1. Group Health Plan Prescription Drug Coverage
Approximately 136 million Americans receive health coverage through
their employers (or their family members' employers) in group health
plans covered by ERISA.\9\ Group health plans provide healthcare
benefits such as hospitalization, sickness, prescription drugs, vision,
and dental. Group health plans provide these benefits by purchasing
insurance or by self-funding benefits from the employer's general
assets or using a funded trust.
---------------------------------------------------------------------------
\9\ U.S. Department of Labor, Health Insurance Coverage
Bulletin: Abstract of Auxiliary Data for the March 2023 Annual
Social and Economic Supplement to the Current Population Survey at 6
(August 30, 2024), <a href="https://www.dol.gov/sites/dolgov/files/EBSA/researchers/data/health-and-welfare/health-insurance-coverage-bulletin-2023.pdf">https://www.dol.gov/sites/dolgov/files/EBSA/researchers/data/health-and-welfare/health-insurance-coverage-bulletin-2023.pdf</a>.
---------------------------------------------------------------------------
Retail prescription drug spending in the U.S. is expected to have
amounted to nearly $495 billion in 2024 and is projected to grow 7
percent in 2025, but grow more slowly from 2026 to 2033.\10\ In
employer-sponsored group health plans, the cost of prescription drugs
is usually shared between the group health plan and the individual
participant, where the participant pays a fixed amount (copayment) or a
percentage of the drug's cost (coinsurance). The group health plan's
drug formulary identifies the drugs that are covered and organizes the
drugs into tiers with different cost-sharing requirements imposed on
participants. The tiers often distinguish between generic drugs and
brand-name drugs, and may have a separate tier for ``specialty drugs.''
\11\
---------------------------------------------------------------------------
\10\ Centers for Medicare & Medicaid Services, National Health
Expenditure Projections 2024-2033, <a href="https://www.cms.gov/files/document/nhe-projections-forecast-summary.pdf">https://www.cms.gov/files/document/nhe-projections-forecast-summary.pdf</a>. ``From 2025-27,
average growth is projected to slow to 5.6 percent due to decreasing
Marketplace enrollment and slower anti-obesity medication uptake.
For 2028--33, growth is projected to average 4.7 percent.'' Centers
for Medicare & Medicaid Services, National Health Expenditure
Projections 2024-2033, <a href="https://www.cms.gov/files/document/nhe-projections-forecast-summary.pdf">https://www.cms.gov/files/document/nhe-projections-forecast-summary.pdf</a>.
\11\ Generic drugs are ``medication[s] created to be the same as
an already marketed brand-name drug in dosage form, safety,
strength, route of administration, quantity, performance
characteristics, and intended use.'' U.S. Food & Drug Administration
Generic Drugs: Questions & Answers, <a href="https://www.fda.gov/drugs/frequently-asked-questions-popular-topics/generic-drugs-questions-answers#q1">https://www.fda.gov/drugs/frequently-asked-questions-popular-topics/generic-drugs-questions-answers#q1</a>. Specialty drugs do not have a standard definition, but
some characteristics that may identify specialty drugs are special
handling requirements or high costs. Federal Trade Commission,
Interim Staff Report, Pharmacy Benefit Managers: The Powerful
Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies
at 17-18 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>.
---------------------------------------------------------------------------
Managing a group health plan's prescription drug coverage is
exceedingly complex for a number of reasons, including, but not limited
to, the vast number of drugs available on the market and the large
number of drug manufacturers and pharmacies. Further, the
pharmaceutical supply chain involves multiple entities--including drug
manufacturers, drug wholesalers, pharmacies, PBMs, payors (e.g., group
health plans), and participants--that interact with each other in
arrangements that can be quite opaque.\12\
---------------------------------------------------------------------------
\12\ See Federal Trade Commission, Interim Staff Report,
Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug
Costs and Squeezing Main Street Pharmacies at 1 (July 2024) (``PBM
business practices and their effects remain extraordinarily
opaque.''), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>; United States Senate Finance
Committee, Staff Report, Insulin: Examining the Factors Driving the
Rising Cost of a Century Old Drug at 65, <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf. Many sources that
discuss the pharmaceutical supply chain find it useful to include a
chart to map out the parties involved. See e.g., U.S. Government
Accountability Office, Prescription Drugs: Selected States'
Regulation of Pharmacy Benefit Managers at 9 (GAO-24-106898, March
2024), <a href="https://www.gao.gov/assets/gao-24-106898.pdf">https://www.gao.gov/assets/gao-24-106898.pdf</a>.
---------------------------------------------------------------------------
Due to the complexity of the pharmaceutical supply chain and the
multitude of players involved, responsible plan fiduciaries of group
health plans often outsource pharmacy benefit management services among
other types of services. When group health plan benefits are obtained
through insurance, pharmacy benefit management services are often
integrated with the insurance contract. When group health plans are
self-insured, however, the responsible plan fiduciaries may engage a
PBM directly or they may obtain pharmacy benefit management services
through a third-party administrator (TPA) or other entity.
2. Pharmacy Benefit Managers' Services Provided to Self-Insured Group
Health Plans
PBMs perform numerous services related to self-insured group health
plans' prescription drug coverage, including identifying the
prescription drugs that will be covered by a plan and negotiating
prices with various entities in the pharmaceutical supply chain.\13\
---------------------------------------------------------------------------
\13\ See National Association of Insurance Commissioners, A
Guide to Understanding Pharmacy Benefit Manager and Associated
Stakeholder Regulation (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>; U.S. Government Accountability
Office, Prescription Drugs: Selected States' Regulation of Pharmacy
Benefit Managers (GAO-24-106898, March 2024), <a href="https://www.gao.gov/assets/gao-24-106898.pdf">https://www.gao.gov/assets/gao-24-106898.pdf</a>; Federal Trade Commission, Interim Staff
Report, Pharmacy Benefit Managers: The Powerful Middlemen Inflating
Drug Costs and Squeezing Main Street Pharmacies (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>; Dennis W. Carlton, Mary Coleman, Nauman Ilias,
Theresa Sullivan, & Nathan Wilson, PBMs and Prescription Drug
Distribution: An Economic Consideration of Criticisms Levied against
Pharmacy Benefit Managers (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>; United States
Senate Finance Committee, Staff Report, Insulin: Examining the
Factors Driving the Rising Cost of a Century Old Drug (2021);
<a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf; Advisory Council on
Employee Welfare and Pension Benefit Plans, PBM Compensation and Fee
Disclosure (November 2014), <a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
---------------------------------------------------------------------------
[[Page 4350]]
2.1. Formulary Development and Design
PBMs develop a self-insured group health plan's prescription drug
formulary,\14\ which is a list of drugs that the self-insured group
health plan will cover, typically sorted into tiers of cost-sharing
requirements.\15\ Formularies generally balance access to prescription
drugs with managing costs, and their development is similar across PBMs
in that they follow a multi-step process involving several distinct
committees.\16\ For example, the Pharmacy and Therapeutics (P&T)
committee is often an external body of experts who ``evaluate clinical
and medical literature to select the most appropriate medications for
individual disease states and conditions.'' \17\ These committees are
staffed with health-care providers including physicians, pharmacists,
and patient representatives. Following their analyses, the P&T
Committee makes recommendations for the PBM's template formulary or for
an individual client's custom formulary.\18\ Notably, this is only one
of several PBM committees with influence over formulary design.\19\
There are also formulary review and value assessment committees which
review P&T Committee recommendations to make formulary placement
decisions and trade relations groups which negotiate and approve rebate
agreements with drug manufacturers.\20\
---------------------------------------------------------------------------
\14\ Some formularies are open--covering virtually all drugs
while others are more restrictive. There has been a growing trend
over the last decade, however, in usage of more restrictive
formularies, excluding more drugs. United States Senate Finance
Committee, Staff Report, Insulin: Examining the Factors Driving the
Rising Cost of a Century Old Drug, at 71, <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf; Federal Trade
Commission, Interim Staff Report, Pharmacy Benefit Managers: The
Powerful Middlemen Inflating Drug Costs and Squeezing Main Street
Pharmacies 66-67 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>.
\15\ Tasmina Hydery & Vimal Reddy, A Primer on Formulary
Structures and Strategies, Journal of Managed Care & Specialty
Pharmacy (February 3, 2024), <a href="https://www.jmcp.org/doi/10.18553/jmcp.2024.30.2.206">https://www.jmcp.org/doi/10.18553/jmcp.2024.30.2.206</a>.
\16\ Tasmina Hydery & Vimal Reddy, A Primer on Formulary
Structures and Strategies, Journal of Managed Care & Specialty
Pharmacy (February 3, 2024), <a href="https://www.jmcp.org/doi/10.18553/jmcp.2024.30.2.206">https://www.jmcp.org/doi/10.18553/jmcp.2024.30.2.206</a>.
\17\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 18 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>.
\18\ United States Senate Finance Committee, Staff Report,
Insulin: Examining the Factors Driving the Rising Cost of a Century
Old Drug at 35 (2021), <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf.
\19\ United States Senate Finance Committee, Staff Report,
Insulin: Examining the Factors Driving the Rising Cost of a Century
Old Drug at 36 (2021), <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf.
\20\ United States Senate Finance Committee, Staff Report,
Insulin: Examining the Factors Driving the Rising Cost of a Century
Old Drug at 36, 38 (2021), <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf.
---------------------------------------------------------------------------
In connection with formulary development, PBMs and their affiliates
negotiate with drug manufacturers for rebates and fees on prescription
drugs and other remuneration, in return for preferred formulary
placement.\21\ PBMs reportedly use the large number of participants
across multiple self-insured group health plans to negotiate with drug
manufacturers based on ``covered lives,'' primarily where there are
competing therapeutic alternatives.\22\ Rebates are paid to the PBM
periodically after the prescriptions are filled and are passed through
to the self-insured group health plan to the extent required by the
services contract.\23\
---------------------------------------------------------------------------
\21\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 10-11 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>; U.S. Government Accountability Office,
Prescription Drugs: Selected States' Regulation of Pharmacy Benefit
Managers at 8 (GAO-24-106898, March 2024), <a href="https://www.gao.gov/assets/gao-24-106898.pdf">https://www.gao.gov/assets/gao-24-106898.pdf</a>. National Association of Insurance
Commissioners, A Guide to Understanding Pharmacy Benefit Manager and
Associated Stakeholder Regulation at 19 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>.
\22\ Dennis W. Carlton, Mary Coleman, Nauman Ilias, Theresa
Sullivan, & Nathan Wilson, PBMs and Prescription Drug Distribution:
An Economic Consideration of Criticisms Levied against Pharmacy
Benefit Managers at 8 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>; United States
Senate Finance Committee, Staff Report, Insulin: Examining the
Factors Driving the Rising Cost of a Century Old Drug at 29 (2021),
<a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf.
\23\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 19 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>; United States Senate Finance Committee, Staff
Report, Insulin: Examining the Factors Driving the Rising Cost of a
Century Old Drug at 39 (2021), <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf.
---------------------------------------------------------------------------
More recently, PBM-affiliated group purchasing organizations
(GPOs), also known as rebate aggregators, have taken over much of the
rebate negotiation function for commercial health plans in return for
incremental fees, or for a portion of the rebate that is then shared
with the PBM and the self-insured group health plan, again pursuant to
contractual terms.\24\ Each of the three largest PBMs is part of a
vertically integrated entity which owns and controls such GPO
subsidiaries. These GPOs are affiliates of their respective PBMs and
perform the roles of rebate aggregators, two of which are headquartered
outside of the United States.\25\
---------------------------------------------------------------------------
\24\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 21 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>. United States Senate Finance Committee, Staff
Report, Insulin: Examining the Factors Driving the Rising Cost of a
Century Old Drug at 83 (2021), <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf.
\25\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 24 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>.
---------------------------------------------------------------------------
2.2. Drug Utilization Management
PBMs also provide drug utilization management services, which help
optimize medication use, improve clinical outcomes, and control drug
costs.\26\ For example, PBMs perform utilization management services by
[[Page 4351]]
which they determine specific drugs that require prior authorization,
under which prescribers must receive pre-approval from the PBM before a
particular drug can be prescribed to the patient. Another utilization
management technique is step therapy, under which a PBM determines that
patients must first try and fail a particular drug or drugs, typically
a lower cost or preferred drug, before moving to a different drug.
Another is quantity limits on the doses provided to patients in a year.
Other drug utilization management services PBMs provide include:
---------------------------------------------------------------------------
\26\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 12 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>; U.S. Government Accountability Office,
Prescription Drugs: Selected States' Regulation of Pharmacy Benefit
Managers at 8 (GAO-24-106898, March 2024), <a href="https://www.gao.gov/assets/gao-24-106898.pdf">https://www.gao.gov/assets/gao-24-106898.pdf</a>.
---------------------------------------------------------------------------
<bullet> Non-medical switching to move a patient from one drug to
another for a non-clinical reason, such as lowering cost; \27\
---------------------------------------------------------------------------
\27\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 19 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>.
---------------------------------------------------------------------------
<bullet> Patient compliance analysis, also known as medication
adherence analysis, in which a PBM reviews various data elements
related to a participant's prescription drug benefit claims to
determine whether (or to the extent which) a participant is indicated
as conforming to the usage of a drug as prescribed; \28\
---------------------------------------------------------------------------
\28\ Taiwo Opeyemi Aremu, Oluwatosin Esther Oluwole, Kehinde
Oluwatosin Adeyinka &, Jon C Schommer, Medication Adherence and
Compliance: Recipe for Improving Patient Outcomes, MDPI (August 28,
2022), <a href="https://pubmed.ncbi.nlm.nih.gov/36136839/">https://pubmed.ncbi.nlm.nih.gov/36136839/</a>.
---------------------------------------------------------------------------
<bullet> Therapeutic intervention, or therapeutic interchange
intervention, is the substitution of a prescribed drug for another drug
that is essentially equivalent in terms of efficacy, safety, and
outcomes; \29\ and,
---------------------------------------------------------------------------
\29\ Dennis W. Carlton, Mary Coleman, Nauman Ilias, Theresa
Sullivan, & Nathan Wilson, PBMs and Prescription Drug Distribution:
An Economic Consideration of Criticisms Levied against Pharmacy
Benefit Managers at 17 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
---------------------------------------------------------------------------
<bullet> Generic substitution, which is the practice of
substituting a prescribed brand name drug for a therapeutically
equivalent generic alternative to reduce cost.\30\
---------------------------------------------------------------------------
\30\ William H Shrank, Michael E. Porter, Sachin H. Jain, &
Niteesh K. Choudhry, A Blueprint for Pharmacy Benefit Managers to
Increase Value, Am J Manag Care (February 2009), <a href="https://pmc.ncbi.nlm.nih.gov/articles/PMC2737824/">https://pmc.ncbi.nlm.nih.gov/articles/PMC2737824/</a>.
---------------------------------------------------------------------------
2.3. Pharmacy Networks
PBMs also develop pharmacy networks for self-insured group health
plans which can be divided into three categories: retail, mail-order,
and specialty.\31\ Retail pharmacies, which may be part of a pharmacy
chain or independent, purchase prescription drugs from drug
manufacturers and drug wholesalers and make them available to self-
insured group health plan participants.\32\ Mail order pharmacies
dispense and deliver prescriptions directly to participants and are
often utilized for prescription drugs that are taken regularly.\33\
Specialty drugs that meet certain characteristics such as special
handling needs or high cost may be provided through a separate
pharmacy.\34\ As noted by the Federal Trade Commission (FTC), Congress,
and others, the largest PBMs are vertically integrated with retail,
specialty, and mail-order pharmacies.\35\
---------------------------------------------------------------------------
\31\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 11 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>; U.S. Government Accountability Office,
Prescription Drugs: Selected States' Regulation of Pharmacy Benefit
Managers at 8 (GAO-24-106898, March 2024), <a href="https://www.gao.gov/assets/gao-24-106898.pdf">https://www.gao.gov/assets/gao-24-106898.pdf</a>;.
\32\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 17 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>.
\33\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 17 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>.
\34\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 17-18 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>.
\35\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 15-18 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>; United States Senate Finance Committee, Staff
Report, Insulin: Examining the Factors Driving the Rising Cost of a
Century Old Drug at 31 (2021), <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf.
---------------------------------------------------------------------------
In developing a pharmacy network, PBMs negotiate dispensing fees
and reimburse pharmacies for the cost of a prescription drug.\36\ PBMs
will establish maximum allowable cost (MAC) lists that state the
greatest amount that a self-insured group health plan will pay for
generics and, in some cases, brand name drugs with generic
equivalents.\37\ As in their negotiations with drug manufacturers, PBMs
negotiate with pharmacies based on volume expected from the
participants of multiple plan sponsors.\38\
---------------------------------------------------------------------------
\36\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 11 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>; Dennis W. Carlton, Mary Coleman, Nauman Ilias,
Theresa Sullivan, & Nathan Wilson, PBMs and Prescription Drug
Distribution: An Economic Consideration of Criticisms Levied against
Pharmacy Benefit Managers at 26 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
\37\ U.S. Government Accountability Office, Prescription Drugs:
Selected States' Regulation of Pharmacy Benefit Managers at 13 (GAO-
24-106898, March 2024), <a href="https://www.gao.gov/assets/gao-24-106898.pdf">https://www.gao.gov/assets/gao-24-106898.pdf</a>.
\38\ Dennis W. Carlton, Mary Coleman, Nauman Ilias, Theresa
Sullivan, & Nathan Wilson, PBMs and Prescription Drug Distribution:
An Economic Consideration of Criticisms Levied against Pharmacy
Benefit Managers at 8 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
---------------------------------------------------------------------------
2.4. Claims Administration and Other Services
Finally, PBMs also perform prescription drug claims administration
services, which like the others, is key to a self-insured group health
plan's pharmacy benefit program. Claims processing may involve the
determination of ``(1) whether an individual was an eligible
participant: (2) whether the prescribed drug was covered by the plan;
(3) whether the participant met his or her deductible; and (4) what the
participant's co-payment would be if required by the plan.'' \39\ PBMs
have developed systems to transmit prescription information between
themselves and pharmacies, permitting the rapid processing of claims as
prescriptions are being filled.\40\ Other services include adjudicating
appeals, plan recordkeeping and regulatory compliance.\41\
---------------------------------------------------------------------------
\39\ Advisory Council on Employee Welfare and Pension Benefit
Plans, PBM Compensation and Fee Disclosure at 9 (November 2014),
<a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
\40\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 13 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>; Dennis W. Carlton, Mary Coleman, Nauman Ilias,
Theresa Sullivan, & Nathan Wilson, PBMs and Prescription Drug
Distribution: An Economic Consideration of Criticisms Levied against
Pharmacy Benefit Managers at 11 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
\41\ U.S. Government Accountability Office, Prescription Drugs:
Selected States' Regulation of Pharmacy Benefit Managers at 8 (GAO-
24-106898, March 2024), <a href="https://www.gao.gov/assets/gao-24-106898.pdf">https://www.gao.gov/assets/gao-24-106898.pdf</a>; Advisory Council on Employee Welfare and Pension Benefit
Plans, PBM Compensation and Fee Disclosure at 6 (November 2014)
<a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
---------------------------------------------------------------------------
[[Page 4352]]
3. PBM Contracts and Arrangements With Self-Insured Group Health Plans
When engaging in a request for proposal process, responsible plan
fiduciaries of self-insured group health plans receive bids to contract
directly with a PBM for services, or they may contract for services
with a third-party administrator (TPA) or other entity (examples
discussed herein) that agrees to provide pharmacy benefit management
services to the self-insured group health plan.\42\ Some responsible
plan fiduciaries also join coalitions or cooperatives that negotiate
with PBMs on behalf of a group of employer-sponsored self-insured group
health plans.\43\
---------------------------------------------------------------------------
\42\ See Matthew Fiedler, Loren Adler, & Richard G. Frank, A
Brief Look at Current Debates about Pharmacy Benefit Managers, The
Brookings Institution (2023) <a href="https://www.brookings.edu/articles/a-brief-look-at-current-debates-about-pharmacy-benefit-managers/">https://www.brookings.edu/articles/a-brief-look-at-current-debates-about-pharmacy-benefit-managers/</a>.
\43\ Dennis W. Carlton, Mary Coleman, Nauman Ilias, Theresa
Sullivan, & Nathan Wilson, PBMs and Prescription Drug Distribution:
An Economic Consideration of Criticisms Levied against Pharmacy
Benefit Managers at 19-20, 59 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
---------------------------------------------------------------------------
Negotiating a pharmacy benefit contract is a complex process that
requires specialized expertise. Responsible plan fiduciaries,
especially those without internal expertise and practices to manage
drug benefits, often work with a separate consultant or broker to
select and negotiate a direct contractual agreement with the PBM.
Services can include requests for proposals (RFPs), PBM oversight, and
PBM audit services.\44\ In some cases, the consultants and brokers
receive indirect compensation (e.g., compensation from the PBMs or
other sources other than the self-insured group health plan) that may
create a conflict of interest with respect to their self-insured group
health plan customers.\45\ Consulting firms and brokerages reportedly
may receive payments on a per prescription or per covered employee
basis, or they may share in rebates earned by PBMs.\46\ Consultants may
have preferred relationships with certain PBMs which may impact their
recommendations.\47\
---------------------------------------------------------------------------
\44\ Milliman, Pharmacy Benefits Consulting, <a href="https://www.milliman.com/en/services/pharmacy-benefits-consulting">https://www.milliman.com/en/services/pharmacy-benefits-consulting</a>.
\45\ Advisory Council on Employee Welfare and Pension Benefit
Plans, PBM Compensation and Fee Disclosure at 3 (November 2014),
<a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.; AJ Ally, Patrick Cambel, Mark
Gruenhaupt, & Kristin Niakan, Report of Pharmacy Benefit Manager
Practices at 34 (2025), <a href="https://portal.ct.gov/-/media/ohs/reports/ohs-report-of-pharmacy-benefit-manager-practices-pa-23-171-s7.pdf?rev=01a4809a4795421e890970d8cd5f2fc1">https://portal.ct.gov/-/media/ohs/reports/ohs-report-of-pharmacy-benefit-manager-practices-pa-23-171-s7.pdf?rev=01a4809a4795421e890970d8cd5f2fc1</a>.
\46\ Bob Herman, `It's beyond unethical': Opaque conflicts of
interest permeate prescription drug benefits (June 2023), <a href="https://www.statnews.com/2023/06/20/pbms-consulting-firms-investigation/">https://www.statnews.com/2023/06/20/pbms-consulting-firms-investigation/</a>.
\47\ Advisory Council on Employee Welfare and Pension Benefit
Plans, PBM Compensation and Fee Disclosure at 21 (November 2014),
<a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
---------------------------------------------------------------------------
In addition to the complexity of the negotiations, responsible plan
fiduciaries often lack a clear understanding of the contractual terms,
or knowledge of how PBMs operate and how they receive compensation.\48\
For example, PBM contracts may be for one year or multiple years, and
may be amended at any point during the contract period if the formulary
changes. The contracts may also allow for interim ``market checks.''
\49\ As described by one source, this involves ``a comparison of the
aggregate program pricing terms with the market access product types/
distribution channels, administrative fees, allowances, other financial
guarantees, and rebates to determine if the plan sponsor is receiving
competitive market rates.'' \50\ The contracts also address the ability
of the responsible plan fiduciary to audit the PBM's compliance with
the contract.\51\ PBMs often limit a self-insured group health plan's
audit rights, however, providing only a sample of records relating to
contractual performance, requiring that the auditor be approved by the
PBM, or that the audit be conducted on-site at a facility chosen by the
PBM.
---------------------------------------------------------------------------
\48\ While Congress has prohibited plans and issuers from
entering into contracts with health care providers, networks or
association of providers, third-party administrators, or other
service providers offering access to a network of providers that
would prohibit them from electronically accessing de-identified
claims and encounter information or data, including financial
information, such as the allowed amount, or any other claim-related
financial obligations included in the provider contract, such
provisions do not affirmatively provide disclosure to responsible
plan fiduciaries. See ERISA section 724; Code section 9824(a)(1)(B);
PHS Act section 2799A-9.
\49\ Dennis W. Carlton, Mary Coleman, Nauman Ilias, Theresa
Sullivan, & Nathan Wilson, PBMs and Prescription Drug Distribution:
An Economic Consideration of Criticisms Levied against Pharmacy
Benefit Managers at 60 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>. Alex Johnson &
Brian N. Anderson, PBM Best Practices Series, RFP Process; Milliman
White Paper (September 2016), <a href="https://edge.sitecorecloud.io/millimaninc5660-milliman6442-prod27d5-0001/media/Milliman/PDFs/Articles/Best-practices-PBM-RFP-process.pdf">https://edge.sitecorecloud.io/millimaninc5660-milliman6442-prod27d5-0001/media/Milliman/PDFs/Articles/Best-practices-PBM-RFP-process.pdf</a>.
\50\ Alex Johnson & Brian N. Anderson, PBM Best Practices
Series, RFP Process; Milliman White Paper (September 2016), <a href="https://edge.sitecorecloud.io/millimaninc5660-milliman6442-prod27d5-0001/media/Milliman/PDFs/Articles/Best-practices-PBM-RFP-process.pdf">https://edge.sitecorecloud.io/millimaninc5660-milliman6442-prod27d5-0001/media/Milliman/PDFs/Articles/Best-practices-PBM-RFP-process.pdf</a>.
\51\ Scott McEachern & Patrick Cambel, PBM Contracts: Understand
then Optimize; Milliman White Paper (August 2020) (``PBMs normally
define all audit rights and limitations in the PBM contract and plan
sponsors must initiate the audit.''), <a href="https://us.milliman.com/en/insight/pbm-contracts-understand-then-optimize">https://us.milliman.com/en/insight/pbm-contracts-understand-then-optimize</a>; Advisory Council on
Employee Welfare and Pension Benefit Plans, PBM Compensation and Fee
Disclosure at 24 (November 2014), <a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
---------------------------------------------------------------------------
3.1. Administrative Fees and Spread Pricing
PBM compensation arrangements with self-insured group health plans
may have multiple components, but the compensation models are sometimes
described as falling into two general categories: pass through pricing
and spread pricing.\52\
---------------------------------------------------------------------------
\52\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 13 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>; House Committee on Oversight and
Accountability Staff, The Role of Pharmacy Benefit Managers in
Prescription Drug Markets at 7 (2024), <a href="https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf">https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf</a>;
Dennis W. Carlton, Mary Coleman, Nauman Ilias, Theresa Sullivan, &
Nathan Wilson, PBMs and Prescription Drug Distribution: An Economic
Consideration of Criticisms Levied against Pharmacy Benefit Managers
at 2 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
---------------------------------------------------------------------------
In a pass-through pricing model, self-insured group health plans
may, for example, pay the PBM the average wholesale price (AWP) for a
drug minus a negotiated discount (also referred to as the negotiated
rate) plus an administrative fee, which may be structured on a per
claim basis, per participant basis, flat rate, or other mechanism.\53\
In a spread pricing model, self-insured group health plans may pay AWP
or AWP minus a smaller negotiated discount than in a pass-through
model, but will either not pay or pay a reduced administrative fee.\54\
The PBM will instead retain the spread between the price reimbursed to
the pharmacy, which might be based on
[[Page 4353]]
maximum allowable costs (MAC) or a different formula, and the
negotiated rate with self-insured group health plans.\55\
---------------------------------------------------------------------------
\53\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 13 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>; Dennis W. Carlton, Mary Coleman, Nauman
Ilias, Theresa Sullivan, & Nathan Wilson, PBMs and Prescription Drug
Distribution: An Economic Consideration of Criticisms Levied against
Pharmacy Benefit Managers at 142-43 (October 2024), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
\54\ Dennis W. Carlton, Mary Coleman, Nauman Ilias, Theresa
Sullivan, & Nathan Wilson, PBMs and Prescription Drug Distribution:
An Economic Consideration of Criticisms Levied against Pharmacy
Benefit Managers at 119 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
\55\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 13 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>; U.S. Government Accountability Office,
Prescription Drugs: Selected States' Regulation of Pharmacy Benefit
Managers at 7-8 (GAO-24-106898, March 2024), <a href="https://www.gao.gov/assets/gao-24-106898.pdf">https://www.gao.gov/assets/gao-24-106898.pdf</a>.
---------------------------------------------------------------------------
The spread pricing model presents challenges for responsible plan
fiduciaries in evaluating costs because there is no agreed upon AWP for
a given drug. Accessing AWP data may be costly, and AWP providers use
proprietary, hard-to-verify data sources and methodologies.\56\
Additionally, PBMs typically do not disclose to the responsible plan
fiduciaries either the reimbursement amount paid to pharmacies or the
pharmacies' acquisition costs.\57\ Even where a price guarantee is
included in a PBM contract, this guarantee may apply on an aggregate
basis where PBMs may use periodic true-ups to show compliance with the
price guarantee, rather than ensuring each individual prescription is
billed at or below the guaranteed price.\58\ One testimony to the ERISA
Advisory Council indicated that PBMs may also use complex pricing
algorithms in aggregate calculations, which can involve including or
excluding certain claims in ways that affect the calculations used to
measure the fulfillment of price guarantees.\59\
---------------------------------------------------------------------------
\56\ AWP is described as ``an estimate of the price wholesalers
charge for drugs.'' National Association of Insurance Commissioners,
A Guide to Understanding Pharmacy Benefit Manager and Associated
Stakeholder Regulation at 12 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>.<a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>. AWP prices are available from third-
party vendors. Andrew W. Mulcahy & Vishnupriya Kareddy, Prescription
Drug Supply Chains: An Overview of Stakeholder Relationships, RAND
Corporation at 30 (2021), <a href="https://aspe.hhs.gov/sites/default/files/documents/0a464f25f0f2e987170f0a1d7ec21448/RRA328-1-Rxsupplychain.pdf">https://aspe.hhs.gov/sites/default/files/documents/0a464f25f0f2e987170f0a1d7ec21448/RRA328-1-Rxsupplychain.pdf</a>. The Department reviewed the publicly available
information on the websites of AWP providers and found no
methodology documents, quality control practices, or sample price
lists or analysis that could validate the accuracy of the AWP.
\57\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 21 (2025) (``Pharmacy pricing is complex, and the
process is not transparent. Plan sponsors are often unaware of the
difference between the amount they are billed and the pharmacy
reimbursement.''), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>; Eastern Research Group, An Examination of
Pharmaceutical Supply Chain Intermediary Margins in the U.S. Retail
Chain at ii (September 2024), <a href="https://aspe.hhs.gov/sites/default/files/documents/db1adf86053b1fda8ae9efd01c10ddc8/Pharma%20Supply%20Chains%20Margins%20Report_Final_2024.09.27_Clean_508.pdf">https://aspe.hhs.gov/sites/default/files/documents/db1adf86053b1fda8ae9efd01c10ddc8/Pharma%20Supply%20Chains%20Margins%20Report_Final_2024.09.27_Clean_508.pdf</a>.
\58\ Scott McEachern & Patrick Cambel, PBM Contracts: Understand
then Optimize; Milliman White Paper (August 2020) (``Contracts with
PBMs typically involve guarantees in a number of pricing areas. The
PBM may guarantee individual pricing by dispensing channel (retail,
mail order, and specialty) as well as by drug type (brand or
generic). The PBM might commit to these pricing metrics such that
overall, at the end of the year, the aggregate pricing within each
channel and drug type will be at least as good as the guarantees
outlined in the contract. In the case that a PBM has not met a
guarantee, the PBM would issue a true-up payment to the plan sponsor
to make up for any deficiencies. However, some contracting language
may allow the PBM to cover its underperformance by using any
overperformance from other channels.''); <a href="https://us.milliman.com/en/insight/pbm-contracts-understand-then-optimize">https://us.milliman.com/en/insight/pbm-contracts-understand-then-optimize</a>.
\59\ Advisory Council on Employee Welfare and Pension Benefit
Plans, PBM Compensation and Fee Disclosure at 22 (November 2014),
<a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
---------------------------------------------------------------------------
Some responsible plan fiduciaries may view the spread pricing model
as providing potential benefits such as smoothing fluctuations in drug
costs, which could reduce unpredictability, compared to models where
the full drug costs are passed through to the self-insured group health
plan, without applying a price smoothing mechanism.\60\ However, the
spread pricing model may be less transparent to responsible plan
fiduciaries if there are no disclosures of the differences between the
amounts the PBM paid to pharmacies and the amounts charged to the self-
insured group health plan, or if pricing guarantees are verified only
in the aggregate. Comparatively, in the pass-through model, PBMs charge
the plan the same amount they reimburse pharmacies, and compensation is
more plainly identified, which some responsible plan fiduciaries
characterize as a more ``transparent'' arrangement.\61\ Some PBMs that
offer pass-through pricing also have business models that provide
customers with frequent audit opportunities and minimal limitations on
access to PBM data.\62\
---------------------------------------------------------------------------
\60\ Dennis W. Carlton, Mary Coleman, Nauman Ilias, Theresa
Sullivan, & Nathan Wilson, PBMs and Prescription Drug Distribution:
An Economic Consideration of Criticisms Levied against Pharmacy
Benefit Managers at 34 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
\61\ House Committee on Oversight and Accountability Staff, The
Role of Pharmacy Benefit Managers in Prescription Drug Markets at 26
(2024), <a href="https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf">https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf</a>; Dennis W. Carlton, Mary Coleman,
Nauman Ilias, Theresa Sullivan, & Nathan Wilson, PBMs and
Prescription Drug Distribution: An Economic Consideration of
Criticisms Levied against Pharmacy Benefit Managers at 142 (April
2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
\62\ House Committee on Oversight and Accountability Staff, The
Role of Pharmacy Benefit Managers in Prescription Drug Markets at 26
(2024), <a href="https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf">https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf</a>.
---------------------------------------------------------------------------
Additionally, as discussed in greater detail later in the
Regulatory Impact Analysis, the largest PBMs have become vertically
integrated with health insurance companies, pharmacies, drug
manufacturers, and other entities.\63\ PBMs sometimes operate
affiliated pharmacies and require plan participants to use these
affiliated pharmacies for certain prescriptions such as mail-order and/
or specialty drugs. \64\ In some ways, the vertically integrated
structure can be efficient and cost-effective, but some believe it may
affect price competition when participants are required to use a PBM-
affiliated pharmacy for certain prescriptions.\65\ With respect to
specialty drugs, which are an increasing source of drug spending, the
FTC found in a recent study that the three largest PBMs ``reimbursed
their affiliated pharmacies at a higher rate than unaffiliated
pharmacies on nearly every specialty generic drug examined.'' \66\
---------------------------------------------------------------------------
\63\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 1-2 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>.
\64\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 12 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>. Advisory Council on Employee Welfare and Pension
Benefit Plans, PBM Compensation and Fee Disclosure at 11 (November
2014), <a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
\65\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 23 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>; Dennis W. Carlton, Mary Coleman, Nauman
Ilias, Theresa Sullivan, & Nathan Wilson, PBMs and Prescription Drug
Distribution: An Economic Consideration of Criticisms Levied against
Pharmacy Benefit Managers at 18 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
\66\ Federal Trade Commission, Second Interim Staff Report,
Specialty Generic Drugs: A Growing Profit Center for Vertically
Integrated Pharmacy Benefit Mangers at 2 (January 2025), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/PBM-6b-Second-Interim-Staff-Report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/PBM-6b-Second-Interim-Staff-Report.pdf</a>.
---------------------------------------------------------------------------
3.2. Payments From Drug Manufacturers
Payments from drug manufacturers are another component of PBM
compensation. These types of payments include, but are not limited to,
rebates, administrative fees, and price protection
[[Page 4354]]
fees. These payments are often defined by reference to list price,
which commenters allege incentivizes PBMs to choose high-list price,
high-rebate drugs when creating a self-insured group health plan's
formulary.
Rebates are discounts on drugs offered by the pharmaceutical
manufacturer in return for preferred placement on a self-insured group
health plan's formulary; and the extent to which rebates are retained
by the PBM or passed through to the self-insured group health plan is
negotiated by the parties.\67\ PBMs also earn administrative fees from
drug manufacturers when prescriptions are filled based on the
utilization of the drugs and plan design decisions made by plan
sponsors, including formulary and utilization strategies.\68\ Price
protection fees are an additional rebate that a manufacturer pays the
PBM if list prices rise faster than inflation or another agreed upon
amount.\69\
---------------------------------------------------------------------------
\67\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 19 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>.
\68\ United States Senate Finance Committee, Staff Report,
Insulin: Examining the Factors Driving the Rising Cost of a Century
Old Drug at 8 (2021), <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf; Dennis W.
Carlton, Mary Coleman, Nauman Ilias, Theresa Sullivan, & Nathan
Wilson, PBMs and Prescription Drug Distribution: An Economic
Consideration of Criticisms Levied against Pharmacy Benefit Managers
at 13 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
\69\ United States Senate Finance Committee, Staff Report,
Insulin: Examining the Factors Driving the Rising Cost of a Century
Old Drug at 9 (2021), <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf ; Dennis W.
Carlton, Mary Coleman, Nauman Ilias, Theresa Sullivan, & Nathan
Wilson, PBMs and Prescription Drug Distribution: An Economic
Consideration of Criticisms Levied against Pharmacy Benefit Managers
at 13 (April 2025), <a href="https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921">https://compass-lexecon.files.svdcdn.com/production/files/documents/Carlton-PBM-Report-Sections-I-VII-2025.04.22.pdf?dm=1745347921</a>.
---------------------------------------------------------------------------
To the extent rebates, fees, and other sources of remuneration are
passed through to the self-insured group health plan, this can help
defray the cost of the health-care benefits being provided.\70\
However, some sources indicate that responsible plan fiduciaries may
benefit from more transparent disclosures to ensure that rebates, fees,
and other sources of remuneration are passed through as agreed to under
the contract with the PBM, in part due to evolving terminology used in
the contracts.\71\ Some have indicated that the role of rebate
aggregators adds complexity to drug pricing and transparency for
disclosure of rebates owed to group health plans.\72\
---------------------------------------------------------------------------
\70\ For example, rebates passed through to a trust established
to fund a self-insured group health plan would be required to be
used for the exclusive purposes of providing benefits to the plan's
participants and beneficiaries and defraying reasonable expenses of
administering the plan. See ERISA section 403(c)(1). See also, AJ
Ally, Patrick Cambel, Mark Gruenhaupt, & Kristin Niakan, Report of
Pharmacy Benefit Manager Practices at 40 (2025) (``From the plan
sponsor's perspective, rebates are a valuable tool in keeping plan
premiums low as most plans use rebate value to directly offset plan
liability and do not share rebate value with members at the point of
sale.''), <a href="https://portal.ct.gov/-/media/ohs/reports/ohs-report-of-pharmacy-benefit-manager-practices-pa-23-171-s7.pdf?rev=01a4809a4795421e890970d8cd5f2fc1">https://portal.ct.gov/-/media/ohs/reports/ohs-report-of-pharmacy-benefit-manager-practices-pa-23-171-s7.pdf?rev=01a4809a4795421e890970d8cd5f2fc1</a>.
\71\ Joanna Shepherd, Pharmacy Benefit Mangers, Rebates, and
Drug Prices: Conflicts of Interest in the Market for Prescription
Drugs, Yale Law & Policy Review at 382 (2020) (``PBMs rarely
disclose the rebates they receive from manufacturers, and in
situations in which they've agreed to share rebate information, the
PBMs may recategorize rebates as fees to circumvent disclosure
obligations.''), <a href="https://openyls.law.yale.edu/server/api/core/bitstreams/fc20e184-b2d6-4b02-a0f6-a495e3fb5cd2/content">https://openyls.law.yale.edu/server/api/core/bitstreams/fc20e184-b2d6-4b02-a0f6-a495e3fb5cd2/content</a>; Advisory
Council on Employee Welfare and Pension Benefit Plans, PBM
Compensation and Fee Disclosure at 22 (November 2014), <a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
\72\ Percher, Trends in Profitability and Compensation of PBMs &
PBM Contracting Entities, at 2 (Sep. 18, 2023).
---------------------------------------------------------------------------
The rebate payment structure would also benefit from more
transparent disclosure for other reasons. One commonly cited concern is
that PBMs may have an incentive to select certain drugs with high-list
prices over others for group health plan formularies due to the size of
the rebate payments from drug manufacturers.\73\ In addition to
providing PBMs with an incentive to select higher priced drugs for the
formularies, some sources indicate that rebates may be offered by drug
manufacturers to PBMs to exclude competing products from the
formulary.\74\ Disclosure of rebates and other payments from drug
manufacturers will allow self-insured group health plan responsible
plan fiduciaries to evaluate the impact of these payments on the plan's
formulary.
---------------------------------------------------------------------------
\73\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 20 (2025) (``The existence of rebates alone is not a
problem. However, the PBM's ability to retain a percentage of the
rebate creates a concern, as they are also commonly in charge of
formulary design. These two factors give PBMs a financial incentive
to prioritize drugs in the formulary based on the highest rebate
instead of the lowest total cost to the plan sponsor or
consumer.''), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a><a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a><a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>; House Committee on Oversight and Accountability
Staff, The Role of Pharmacy Benefit Managers in Prescription Drug
Markets at 7 (2024), <a href="https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf">https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf</a>; Shepherd, Pharmacy
Benefit Mangers, Rebates, and Drug Prices: Conflicts of Interest in
the Market for Prescription Drugs, Yale Law & Policy Review at 360
(2020), <a href="https://openyls.law.yale.edu/server/api/core/bitstreams/fc20e184-b2d6-4b02-a0f6-a495e3fb5cd2/content">https://openyls.law.yale.edu/server/api/core/bitstreams/fc20e184-b2d6-4b02-a0f6-a495e3fb5cd2/content</a>; T. Joseph Mattingly
2nd, David A Hyman, Ge Bai, Pharmacy Benefit Managers: History,
Business Practices, Economics, and Policy, <a href="https://pubmed.ncbi.nlm.nih.gov/37921745/https://pubmed.ncbi.nlm.nih.gov/37921745/">https://pubmed.ncbi.nlm.nih.gov/37921745/https://pubmed.ncbi.nlm.nih.gov/37921745/</a>.
\74\ Federal Trade Commission, Interim Staff Report, Pharmacy
Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies at 4 (July 2024) (``We share
evidence that PBMs and brand pharmaceutical manufacturers sometimes
enter agreements to exclude generic drugs and biosimilars from
certain formularies in exchange for higher rebates from the
manufacturer.''), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>. United States Senate
Finance Committee, Staff Report, Insulin: Examining the Factors
Driving the Rising Cost of a Century Old Drug at 8 (2021), <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf.
---------------------------------------------------------------------------
Sources also indicate that rebates and related PBM formulary
practices may be related to increases in the manufacturers' drug list
prices.\75\ Drug manufacturers may raise list prices to accommodate
rebate demands to secure preferred formulary placement to protect its
market share, profits, or to recoup the costs for research and
development.\76\ Increases in list prices do not directly impact self-
insured group health plans, as they generally pay a lower price due to
rebates and other discounts negotiated by the PBMs.\77\ However,
increases in list
[[Page 4355]]
prices may be a factor for a responsible plan fiduciary assessing the
overall reasonableness of the contract or arrangement. Participants in
self-insured group health plans that include a deductible not only
often pay the full cost of the drug up to the amount of the annual
deductible, but also a portion of prescription drug costs after the
deductible is satisfied, typically in the form of a copayment or
coinsurance. In many self-insured group health plans, cost sharing is
often based off list price, resulting in higher out-of-pocket costs for
participants.\78\
---------------------------------------------------------------------------
\75\ Neeraj Sood, Rocio Ribero, Martha Ryan, & Karen Van Nuys,
The Association Between Drug Rebates and List Prices at 3, U.S.C.
Schaeffer (February 2020) <a href="https://schaeffer.usc.edu/wp-content/uploads/2024/10/SchaefferCenter_RebatesListPrices_WhitePaper-1.pdf">https://schaeffer.usc.edu/wp-content/uploads/2024/10/SchaefferCenter_RebatesListPrices_WhitePaper-1.pdf</a>
(``Our finding that increased rebates are positively associated with
increased list prices supports the notion that PBMs' demand for
rebates is at least partly responsible for increasing list
prices.''),; United States Senate Finance Committee, Staff Report,
Insulin: Examining the Factors Driving the Rising Cost of a Century
Old Drug at 80 (2021), <a href="https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20">https://www.finance.senate.gov/imo/media/doc/Grassley-Wyden%20Insulin%20Report%20</a>(FINAL%201).pdf.
\76\ See Joanna Shepherd, Pharmacy Benefit Mangers, Rebates, and
Drug Prices: Conflicts of Interest in the Market for Prescription
Drugs, Yale Law & Policy Review at 362 (2020), <a href="https://openyls.law.yale.edu/server/api/core/bitstreams/fc20e184-b2d6-4b02-a0f6-a495e3fb5cd2/content">https://openyls.law.yale.edu/server/api/core/bitstreams/fc20e184-b2d6-4b02-a0f6-a495e3fb5cd2/content</a>.
\77\ U.S. Department of Health and Human Services, Office of the
Assistant Secretary for Planning and Evaluation, Report to Congress:
Prescription Drug Spending, Pricing Trends, and Premiums in Private
Health Insurance Plans at 4 (November 2024) (``For many drugs,
however, list prices are not the prices ultimately paid to
manufacturers; payers or pharmacy benefit managers (PBMs) negotiate
with manufacturers over formulary placement in exchange for
discounts in the form or rebates off the list price;'' noting that
``[a]s used throughout this report, the term `rebates' includes
rebates, fees, and other remuneration transferred to PBMs from drug
manufacturers and pharmacies.''), <a href="https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/laws/no-surprises-act/2024-report-to-congress-prescription-drug-spending.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/laws/no-surprises-act/2024-report-to-congress-prescription-drug-spending.pdf</a>.
\78\ Neeraj Sood, Rocio Ribero, Martha Ryan, & Karen Van Nuys,
The Association Between Drug Rebates and List Prices at 5, U.S.C.
Schaeffer (February 2020) (``We find that rebates and list prices
are positively related, with an increase in rebates associated with
a roughly dollar-for-dollar increase in list price. This suggests
that reducing or eliminating rebates could result in lower list
prices, thereby decreasing out-of-pocket costs for uninsured
patients and for insured patients with deductibles or
coinsurance.''), <a href="https://schaeffer.usc.edu/wp-content/uploads/2024/10/SchaefferCenter_RebatesListPrices_WhitePaper-1.pdf">https://schaeffer.usc.edu/wp-content/uploads/2024/10/SchaefferCenter_RebatesListPrices_WhitePaper-1.pdf</a>; Joanna
Shepherd, Pharmacy Benefit Mangers, Rebates, and Drug Prices:
Conflicts of Interest in the Market for Prescription Drugs, Yale Law
& Policy Review at 362-63 (2020), <a href="https://openyls.law.yale.edu/server/api/core/bitstreams/fc20e184-b2d6-4b02-a0f6-a495e3fb5cd2/content">https://openyls.law.yale.edu/server/api/core/bitstreams/fc20e184-b2d6-4b02-a0f6-a495e3fb5cd2/content</a>; T. Joseph Mattingly 2nd, David A Hyman, & Ge Bai, Pharmacy
Benefit Managers: History, Business Practices, Economics, and
Policy, <a href="https://pubmed.ncbi.nlm.nih.gov/37921745/https://pubmed.ncbi.nlm.nih.gov/37921745/">https://pubmed.ncbi.nlm.nih.gov/37921745/https://pubmed.ncbi.nlm.nih.gov/37921745/</a>.
---------------------------------------------------------------------------
While participants can obtain assistance with the cost of
prescription drugs from drug manufacturers in the form of copay cards
and coupons, which can lower cost sharing for participants, some argue
this effectively bypasses formulary designs, hindering generic drug
substitution and increasing overall out-of-pocket costs to
participants. Some self-insured group health plans have reacted to the
use of copay cards and coupons by adopting programs that address how
drug manufacturer assistance will interact with the self-insured group
health plan's cost sharing structure, sometimes referred to as ``copay
maximizer,'' ``copay accumulator,'' or ``alternative funding
programs.'' For example, a PBM or their affiliated entity might develop
a list of specialty medications as part of an alternative funding
program for exclusion from coverage under a self-insured group health
plan. This has the effect of allowing the plan sponsor to drop drug
coverage for participants and beneficiaries in order to access
assistance intended for uninsured patients. If a participant needs the
medication, he or she is then redirected to another funding source,
such as a patient assistance program, outside of the self-insured group
health plan. These programs reportedly may be administered by PBMs and
appear to be a source of additional PBM compensation.\79\
---------------------------------------------------------------------------
\79\ Michelle Long, Meghan Salaga, & Kaye Pestaina, Copay
Adjustment Programs: What Are They and What do They Mean for
Consumers (October 24, 2024), <a href="https://www.kff.org/report-section/copay-adjustment-programs-what-are-they-and-what-do-they-mean-for-consumers-issue-brief/">https://www.kff.org/report-section/copay-adjustment-programs-what-are-they-and-what-do-they-mean-for-consumers-issue-brief/</a>; David Choi, Autumn D. Zuckerman, Svetlana
Gerzenshtein, Katherine V. Katsivalis, Patrick J. Nichols, Marci C.
Saknini, Megan P. Schneider, Paige Taylor, & Stacie B. Dusetzina, A
Primer on Copay Accumulators, Copay Maximizers, and Alternative
Funding Programs (August 1, 2024), <a href="https://www.jmcp.org/doi/10.18553/jmcp.2024.30.8.883">https://www.jmcp.org/doi/10.18553/jmcp.2024.30.8.883</a>.
---------------------------------------------------------------------------
3.3. Payments From Pharmacies
PBMs receive payments from pharmacies in a number of different
circumstances. If a participant's copay is higher than the total
reimbursement owed to the pharmacy, a PBM may ``claw-back'' the
overpayment amount.\80\ For example, if a participant's copayment for a
generic drug is $15 dollars, but the PBM has agreed to pay the pharmacy
$5, the PBM will ``claw-back'' the excess $10. In such cases, it is not
clear whether such overpayments are generally or ever reimbursed to the
self-insured group health plan (or participant).\81\
---------------------------------------------------------------------------
\80\ National Association of Insurance Commissioners, A Guide to
Understanding Pharmacy Benefit Manager and Associated Stakeholder
Regulation at 21 (2025), <a href="https://content.naic.org/sites/default/files/pmbwhitepap.pdf">https://content.naic.org/sites/default/files/pmbwhitepap.pdf</a>. Advisory Council on Employee Welfare and
Pension Benefit Plans, PBM Compensation and Fee Disclosure at 23
(November 2014), <a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
\81\ Some self-funded plans have benefit design edits that make
copayments the ``lesser of'' the copayment amount and the
acquisition cost to prevent overpayment and therefore claw-backs.
---------------------------------------------------------------------------
PBMs also reportedly recoup amounts paid to pharmacies for other
reasons, including ``network participation fees, fees for non-
compliance or lower performance with quality measures, and
reimbursement reconciliation.'' \82\ A relatively new PBM practice is
``effective rate reconciliation,'' in which the contractual
reimbursement rate paid by a PBM to a pharmacy for dispensing a drug is
determined by an aggregate effective rate, typically expressed as a
percentage discount from AWP.\83\ The PBM periodically reconciles the
payments made to pharmacies at the point of sale with the specified
effective rate and will adjust future reimbursement to the pharmacy to
account for the difference between the amount paid at the point of sale
and the effective rate following the reconciliation.\84\ In addition to
generic effective rate and brand effective rate, the PBM may also
include a ``dispensing fee effective rate'' for the administrative cost
charged by a pharmacy to dispense a drug.\85\
---------------------------------------------------------------------------
\82\ AJ Ally, Patrick Cambel, Mark Gruenhaupt, & Kristin Niakan,
Report of Pharmacy Benefit Manager Practices at 17 (2025) (``Brokers
earn revenues in several ways that may not be apparent to the plan
sponsor, such as commissions, bonuses, fees, TPA fees paid by PBMs,
per prescription fees, etc.''), <a href="https://portal.ct.gov/-/media/ohs/reports/ohs-report-of-pharmacy-benefit-manager-practices-pa-23-171-s7.pdf?rev=01a4809a4795421e890970d8cd5f2fc1">https://portal.ct.gov/-/media/ohs/reports/ohs-report-of-pharmacy-benefit-manager-practices-pa-23-171-s7.pdf?rev=01a4809a4795421e890970d8cd5f2fc1</a>. Federal Trade
Commission, Interim Staff Report, Pharmacy Benefit Managers: The
Powerful Middlemen Inflating Drug Costs and Squeezing Main Street
Pharmacies at 11 (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>.
\83\ Andrew W. Mulcahy & Vishnupriya Kareddy, Prescription Drug
Supply Chains: An Overview of Stakeholder Relationships, RAND
Corporation at 19 (2021), <a href="https://aspe.hhs.gov/sites/default/files/documents/0a464f25f0f2e987170f0a1d7ec21448/RRA328-1-Rxsupplychain.pdf">https://aspe.hhs.gov/sites/default/files/documents/0a464f25f0f2e987170f0a1d7ec21448/RRA328-1-Rxsupplychain.pdf</a>.
\84\ U.S. Senate Committee on Finance, Pharmacy Benefit Managers
and the Prescription Drug Supply Chain: Impact on Patients and
Taxpayers, Written testimony of Jonathan Levitt (2023), <a href="https://www.finance.senate.gov/imo/media/doc/Jonathan%20Levitt%20Testimony%20US%20Senate%20Committee%20on%20Finance%20-%20Frier%20Levitt%20-%20March%202023_Redacted1.pdf">https://www.finance.senate.gov/imo/media/doc/Jonathan%20Levitt%20Testimony%20US%20Senate%20Committee%20on%20Finance%20-%20Frier%20Levitt%20-%20March%202023_Redacted1.pdf</a>.
\85\ Pharmacy Benefit Managers and the Prescription Drug Supply
Chain: Impact on Patients and Taxpayers, U.S. Senate Committee on
Finance, 118th Cong. (2023) (Written testimony of Jonathan Levitt);
Elevate Provider Network, What are GERs/BERs/DFERs?, <a href="https://www.alliantrx.com/wp-content/uploads/2020/05/GER-Explainer-Document.pdf">https://www.alliantrx.com/wp-content/uploads/2020/05/GER-Explainer-Document.pdf</a> (June 24, 2025).
---------------------------------------------------------------------------
C. Service Provider Arrangements Under ERISA
1. Prohibited Transaction Framework
Responsible plan fiduciaries of self-insured group health plans
must determine that service provider relationships involving the self-
insured group health plan meet certain conditions to avoid constituting
a prohibited transaction under ERISA. Specifically, unless an exemption
applies, the furnishing of goods, services, or facilities between a
self-insured group health plan and a party in interest to the plan is a
prohibited transaction under ERISA section 406(a)(1)(C). A person
providing services to the self-insured group health plan is defined by
ERISA to be a ``party in interest'' to the self-insured group health
plan.
ERISA section 408(b)(2) exempts certain arrangements between ERISA-
covered plans (including self-insured group health plans) and service
providers that otherwise would be prohibited transactions under ERISA
section 406. Section 408(b)(2) provides relief from ERISA's prohibited
transaction rules for service contracts or arrangements between a plan
and a party in interest if the contract or
[[Page 4356]]
arrangement is reasonable, the services are necessary for the
establishment or operation of the plan, and no more than reasonable
compensation is paid for the services.
The Department's regulation under ERISA section 408(b)(2) clarifies
the exemption's ``necessary service,'' ``reasonable contract or
arrangement'' and ``reasonable compensation'' conditions.\86\ The
regulation also clarifies that the exemption in ERISA section 408(b)(2)
does not extend to acts described in ERISA section 406(b) relating to
fiduciary conflicts of interest and provides examples illustrating this
principle.\87\
---------------------------------------------------------------------------
\86\ 29 CFR 2550.408b-2(b), (c), (d).
\87\ 29 CFR 2550.408b-2(e).
---------------------------------------------------------------------------
In 2012, the Department amended its regulation under ERISA section
408(b)(2) to require parties who are ``covered service providers'' with
respect to pension plans to disclose specified information to a
responsible plan fiduciary, in order for certain services contracts or
arrangements to be reasonable.\88\ The amended regulation generally
requires covered service providers to provide initial disclosure of:
the services to be provided; the status of the covered service
provider, an affiliate, or subcontractor as a fiduciary, if applicable;
the direct and indirect compensation reasonably expected to be received
by the covered service provider, their affiliates and their
subcontractors; as well as allocations of compensation reasonably
expected to be made among the covered service providers and its
affiliates and subcontractors. The amended regulation also establishes
ongoing disclosure obligations in the event of a change in the
information required to be provided in the initial disclosures and
disclosures to be provided upon the written request of the responsible
plan fiduciary as needed for the plan to comply with the reporting and
disclosure requirements of title 1 of ERISA. The amended regulation
also carries over a provision from the initial regulation regarding
termination of the contract or arrangement.\89\
---------------------------------------------------------------------------
\88\ Reasonable Contract or Arrangement Under Section
408(b)(2)--Fee Disclosure; Final Rule, 77 FR 5632 (Feb. 3, 2012).
\89\ 29 CFR 2550.408b-2(c)(3)(``No contract or arrangement is
reasonable within the meaning of section 408(b)(2) of the Act and
paragraph (a)(2) of this section if it does not permit termination
by the plan without penalty to the plan on reasonably short notice
under the circumstances to prevent the plan from becoming locked
into an arrangement that has become disadvantageous. A long-term
lease which may be terminated prior to its expiration (without
penalty to the plan) on reasonably short notice under the
circumstances is not generally an unreasonable arrangement merely
because of its long term. A provision in a contract or other
arrangement which reasonably compensates the service provider or
lessor for loss upon early termination of the contract, arrangement,
or lease is not a penalty. For example, a minimal fee in a service
contract which is charged to allow recoupment of reasonable start-up
costs is not a penalty. Similarly, a provision in a lease for a
termination fee that covers reasonably foreseeable expenses related
to the vacancy and reletting of the office space upon early
termination of the lease is not a penalty. Such a provision does not
reasonably compensate for loss if it provides for payment in excess
of actual loss or if it fails to require mitigation of damages.'').
---------------------------------------------------------------------------
The amended regulation defines a responsible plan fiduciary as a
fiduciary with authority to cause the plan to enter into, or extend or
renew, a contract or arrangement for the provision of services to the
plan.\90\ The Department's amended regulation is accompanied by an
administrative class exemption for responsible plan fiduciaries,
codified at paragraph (c)(1)(ix), which provides prohibited transaction
relief for responsible plan fiduciaries in the event a covered service
provider fails to disclose information as required under the
regulation. In the absence of an exemption providing otherwise, the
service provider's failure to comply with the regulation will result in
a prohibited transaction by the responsible plan fiduciary.\91\
---------------------------------------------------------------------------
\90\ 29 CFR 2550.408b-2(c)(1)(viii)(E).
\91\ See ERISA section 406(a)(1) (``Except as provided in
[section 408] . . . [a] fiduciary with respect to a plan shall not
cause the plan to engage in a transaction, if he knows or should
know that such transaction constitutes a direct or indirect . . .
furnishing of goods, services, or facilities between the plan and a
party in interest.'')
---------------------------------------------------------------------------
In the final rule amending its regulation, the Department reserved
paragraph (c)(2) for future guidance on disclosure with respect to
welfare plans (including self-insured group health plans). The
Department concluded that there were significant differences between
service and compensation arrangements for welfare plans and those
involving pension plans, and that those differences supported the
development of specifically tailored disclosure requirements for
welfare plans.\92\
---------------------------------------------------------------------------
\92\ 77 FR at 5649. The Department held a public hearing on
December 7, 2010, to explore operational, disclosure, and fee
transparency issues concerning welfare benefit plans. See <a href="https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB37">https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB37</a>.
---------------------------------------------------------------------------
In 2014, the ERISA Advisory Council studied PBM fee disclosures and
recommended that the Department should ``consider making Section
408(b)(2) Regulations applicable to welfare plan arrangements with
PBMs, and thereby deem such arrangements reasonable only where PBMs
disclose direct and indirect compensation, including compensation paid
among related parties such as subcontractors, in a manner consistent
with current Section 408(b)(2) Regulations.'' \93\
---------------------------------------------------------------------------
\93\ Advisory Council on Employee Welfare and Pension Benefit
Plans, PBM Compensation and Fee Disclosure at 3-4 (November 2014),
<a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
---------------------------------------------------------------------------
The report included several findings related to this
recommendation, including:
<bullet> ``Plan sponsors of group health plans who testified at the
Council hearings were unanimous in their view that they face many
challenges managing pharmacy benefits on a cost-effective basis.
However, plan sponsors uniformly testified that PBM services are a
valuable part of this effort.''
<bullet> ``Testimony submitted to the Council revealed that drug
pricing methodologies and PBM compensation are complex and evolving,
including rebates, price spreads, discounts, and other payments from
retail pharmacy chains and manufacturers. Substantial evidence was
submitted to the Council from ERISA plan sponsors and others that many
PBMs do not fully disclose compensation in a manner which is readily
understandable to even the most sophisticated plan sponsors and
consultants.''
<bullet> ``Testimony before the Council indicated that some forms
of PBM compensation have the potential for creating conflicts of
interest. Sponsors of ERISA health plans may or may not be aware of
these potential conflicts.''
<bullet> ``ERISA group health plans that contract directly with
PBMs frequently use consultants to assist in negotiations with the PBM.
Testimony was submitted to the Council that it is common for
consultants to receive indirect compensation. The payment of indirect
compensation to consultants who are advising plan sponsors in
negotiations with the PBM may create the potential for conflicts of
interest that may be adverse to the plan sponsor. Sponsors of ERISA
health plans may or may not be informed of such indirect
compensation.''
<bullet> ``Plan sponsors testified that disclosure of PBM
compensation would better enable them to comply with their obligations
to determine reasonable compensation under Section 408(b)(2).
Nondisclosure creates the potential for impediments to plan sponsors'
ability to comply with 408(b)(2).''
The second recommendation of the ERISA Advisory Council related to
audits of a PBM's compliance with its contract with the welfare
plan.\94\ Specifically, the Council recommended
[[Page 4357]]
that the Department should ``consider issuing guidance to assist plan
sponsors in determining whether to and how to conduct a PBM audit of
direct and indirect compensation.'' \95\
---------------------------------------------------------------------------
\94\ The council noted this audit should not be confused with
the requirement under ERISA section 103(3)(A).
\95\ Advisory Council on Employee Welfare and Pension Benefit
Plans, PBM Compensation and Fee Disclosure at 5 (November 2014),
<a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
---------------------------------------------------------------------------
Findings related to this recommendation included identification of
the following problem areas, among others:
<bullet> ``The exclusion of auditors who the PBM believes hold
hostile views.''
<bullet> ``On-site audits are required at PBM headquarters.''
<bullet> ``PBMs limit the auditor to transcribing notes of
documents.''
<bullet> ``Confidentiality agreements can be overly broad and put
unnecessary burdens on the parties when they prohibit disclosure of
information by an auditor to its client plan.''
<bullet> ``PBMs will not disclose documents requested by some
auditors such as PBM contracts with retail pharmacies and drug
manufacturers.''
<bullet> ``Access to claims data is restricted.''
<bullet> ``Audit rights restricted to limited periods (such as 2
years).''
<bullet> ``Some necessary data sources such as AWP pricing are not
public and access is expensive . . . and disclosure is limited.''
2. Consolidated Appropriations Act, 2021 408(b)(2) Amendment
In the Consolidated Appropriations Act (CAA), 2021, Congress
amended the ERISA section 408(b)(2) statutory exemption to add a new
paragraph (B) applicable to certain services arrangements with group
health plans, effective December 27, 2021.\96\ As part of the
amendment, Congress designated the pre-existing text as ERISA section
408(b)(2)(A).\97\ The requirements in ERISA section 408(b)(2)(B) apply
to a group of covered service providers, defined as persons or entities
who provide ``brokerage services'' or ``consulting'' to group health
plans with respect to a list of sub-services including pharmacy benefit
management services.\98\
---------------------------------------------------------------------------
\96\ Section 202 of Title II of Division BB of the Consolidated
Appropriations Act, 2021.
\97\ ERISA section 408(b)(2)(A) now provides an exemption for
``[c]ontracting or making reasonable arrangements with a party in
interest for office space, or legal, accounting, or other services
necessary for the establishment or operation of the plan, if no more
than reasonable compensation is paid therefor.''
\98\ Specifically, see ERISA section 408(b)(2)(B)(ii)(I)(bb)(AA)
(defining a covered service provider as one who provides brokerage
services ``provided to a covered plan with respect to selection of
insurance products (including vision and dental), recordkeeping
services, medical management vendor, benefits administration
(including vision and dental), stop-loss insurance, pharmacy benefit
management services, wellness services, transparency tools and
vendors, group purchasing organization preferred vendor panels,
disease management vendors and products, compliance services,
employee assistance programs, or third party administration
services'') and ERISA sections 408(b)(2)(B)(ii)(I)(bb)(BB) defining
a covered service provider as one who provides consulting services
``related to the development or implementation of plan design,
insurance or insurance product selection (including vision and
dental), recordkeeping, medical management, benefits administration
selection (including vision and dental), stop-loss insurance,
pharmacy benefit management services, wellness design and management
services, transparency tools, group purchasing organization
agreements and services, participation in and services from
preferred vendor panels, disease management, compliance services,
employee assistance programs, or third party administration
services.)''
---------------------------------------------------------------------------
The new ERISA section 408(b)(2)(B) closely tracks the Department's
regulation for pension plan arrangements. It requires disclosure of:
the services to be provided; the status of the covered service
provider, an affiliate, or subcontractor as a fiduciary, if applicable;
the direct and indirect compensation reasonably expected to be received
by the covered service provider, their affiliates and their
subcontractors; as well as allocations of compensation reasonably
expected to be made among the covered service providers and its
affiliates and subcontractors. The new provision also establishes
ongoing disclosure obligations in the event of a change in the
information required to be provided in the initial disclosures and
disclosures to be provided upon the written request of the responsible
plan fiduciary as needed for the plan to comply with the reporting and
disclosure requirements of title I of ERISA.
In December 2021, the Department provided a guidance and temporary
enforcement policy addressing questions about ERISA section
408(b)(2)(B).\99\ In general, the policy provided that, pending future
guidance or rulemaking, covered service providers and responsible plan
fiduciaries would be expected to implement the ERISA section
408(b)(2)(B) requirements using a good faith, reasonable interpretation
of the law.
---------------------------------------------------------------------------
\99\ Field Assistance Bulletin No. 2021-03, <a href="https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2021-03">https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2021-03</a>.
---------------------------------------------------------------------------
With respect to the terms ``brokerage services'' and ``consulting''
as used in ERISA section 408(b)(2)(B) to define a covered service
provider, the Department noted that neither term was defined and the
categories may overlap in some circumstances, but that the fact that a
service provider did not call itself a broker or consultant would not
be dispositive. Instead, the Department's enforcement policy would
apply to parties who reasonably and in good faith determined their
status as a covered service provider. The Department expressed that
``service providers who reasonably expect to receive indirect
compensation from third parties in connection with advice,
recommendations, or referrals regarding any of the listed sub-services
. . . should be prepared, if the Department is auditing their
408(b)(2)(B) compliance, to be able to explain how a conclusion that
they are not covered service providers is consistent with a reasonable
good faith interpretation of the statute.'' \100\
---------------------------------------------------------------------------
\100\ Id. (emphasis added). In addition to the new ERISA section
408(b)(2)(B), in 2019, Congress added a distinct statutory exemption
in ERISA section 408(h) for the provision of pharmacy benefit
services, although in a limited context. The exemption is available
to ``an entity described in [ERISA section 3(37)(G)(vi)]'' or any
related organization or subsidiary, provides pharmacy benefit
services to a group health plan sponsored by the entity or any other
group health plan sponsored by a regional council, local union, or
other labor organization affiliated with such entity, see Section
1302 of Division P of the Further Consolidated Appropriations Act,
2020. The Department is aware that the United Brotherhood of
Carpenters and Joiners of America takes the position that it is a
501(c)(5) organization, tax exempt under Section 501(a) of the Code,
and was established in Chicago, Illinois, on August 12, 1881, as
referenced in ERISA section 3(37)(G)(vi), see Exemption from Certain
Prohibited Transaction Restrictions Involving the United Brotherhood
of Carpenters and Joiners of America, 90 FR 2748, n. 3 (January 13,
2025).
---------------------------------------------------------------------------
D. Description of the Proposed Regulation
1. Scope of the Proposed Regulation
1.1. General--Proposed Paragraph (a)
As discussed above in section C of this preamble, ERISA section
408(b)(2) provides an exemption for services contracts and arrangements
with ERISA-covered plans, provided the contracts or arrangements are
reasonable, the services are necessary for the establishment or
operation of the plan, and that no more than reasonable compensation is
paid. Paragraph (a) of the proposed regulation provides that for
purposes of the statutory exemption under ERISA section 408(b)(2), no
contract or arrangement for services between a ``covered plan'' and a
``covered service provider,'' nor any extension or renewal, is
reasonable unless the requirements of the regulation are
satisfied.\101\
---------------------------------------------------------------------------
\101\ Title I of ERISA sets forth various requirements for
covered plans, which, subject to certain specific exceptions,
``apply to any employee benefit plan if it is established or
maintained . . . by any employer . . . or . . . by any employee
organization . . . or . . . by both.'' ERISA section 4(a); 29 U.S.C.
1003(a). However, Title I of ERISA specifically does ``not apply to
any employee benefit plan if . . . such plan is a governmental
plan.'' ERISA section 4(b); 29 U.S.C. 1003(b). ``Governmental plan''
is defined for purposes of this exclusion as ``a plan established or
maintained for its employees by the Government of the United States,
by the government of any State or political subdivision thereof, or
by any agency or instrumentality of any of the foregoing.'' ERISA
section 3(32); 29 U.S.C. 1002(32).
---------------------------------------------------------------------------
[[Page 4358]]
1.2. Covered Plan--Proposed Paragraph (b)
Paragraph (b) of the proposed regulation provides that, for
purposes of the regulation, a covered plan means a group health plan as
defined in ERISA section 733(a), other than a group health plan in
which all of the benefits are provided exclusively through a contract
or policy of insurance issued by a health insurance issuer as defined
in Sec. 2590.701-2.\102\ ERISA section 733(a) defines a ``group health
plan'' as ``an employee welfare benefit plan to the extent that the
plan provides medical care . . . to employees or their dependents . . .
directly or through insurance, reimbursement, or otherwise.'' The term
``group health plan'' includes both insured and self-insured group
health plans, and includes grandfathered health plans, as defined in
section 1251(e) of the Patient Protection and Affordable Care Act.
Excepted benefits, such as limited scope dental and vision plans, are
also group health plans for purposes of the definition of a covered
plan in this proposal.\103\ However, ERISA section 733(a)(1) expressly
excludes qualified small employer health reimbursement arrangements
from the definition of group health plan, and therefore such
arrangements would not be covered plans under the regulation.
---------------------------------------------------------------------------
\102\ 29 U.S.C. 1191b.
\103\ See Field Assistance Bulletin No. 2021-03, Q&A 3 (``ERISA
section 733(c)(2) provides that certain benefits are not subject to
certain requirements of Part 7 of ERISA if offered separately,
including limited scope dental or vision benefits . . . . The view
of the Department is that limited scope dental and vision plans,
although excepted from certain requirements in Part 7 of ERISA, are
``covered plans'' subject to the requirements of ERISA section
408(b)(2)(B). The definition of a ``covered plan'' in ERISA section
408(b)(2)(B) refers to ERISA section 733(a), without any indication
that the definition is further limited by ERISA section
733(c)(2).''), <a href="https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2021-03">https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2021-03</a>.
---------------------------------------------------------------------------
The definition of ``covered plan'' in the proposal excludes fully
insured group health plans, and disclosure obligations with respect to
these plans are reserved for future action. Accordingly, the
requirements in the proposed regulation would apply only to contracts
and arrangements involving self-insured group health plans. For
clarity, this preamble description of the proposed regulation uses the
term ``self-insured group health plan'' instead of the term ``covered
plan.''
The Department has reserved obligations with respect to fully
insured group health plans for future action based on the preliminary
view that responsible plan fiduciaries may focus on different
considerations when contracting with an insurance company for health
insurance coverage that integrates prescription drug coverage, as
opposed to self-funding medical care and contracting for pharmacy
benefit management services. Specifically, the Department questions
whether responsible plan fiduciaries responsible for procuring fully
insured health insurance policy would find the specific disclosures
proposed in the regulation sufficiently useful when they are
negotiating more comprehensive health insurance coverage as to justify
the costs associated with the disclosures (both to the covered service
provider providing the disclosures and the responsible plan fiduciary
reviewing and analyzing the disclosures). It is also the Department's
understanding that, in some instances, other relevant reporting and
disclosure requirements may apply under State law to the health
insurance issuer, either independently under the applicable insurance
code, or as part of the issuer's routine form filing review.
However, the reservation of these disclosure obligations should not
be interpreted as alleviating responsible plan fiduciaries of group
health plans of any other obligations under ERISA. Responsible plan
fiduciaries must continue to satisfy their general fiduciary
obligations under ERISA with respect to the selection and monitoring of
all service providers. Further, service contracts or arrangements with
these service providers must be ``reasonable'' and otherwise satisfy
the requirements of ERISA section 408(b)(2). For covered service
providers as described in ERISA section 408(b)(2)(B), this includes
providing the disclosures specified in that statutory provision.
The Department seeks comments on the relevance of the disclosures
in this proposed regulation to responsible plan fiduciaries of fully
insured group health plans. As indicated, the proposal would not apply
to fully insured group health plans, in which the prescription drug
coverage is integrated as a component of the insurance coverage and the
insurance coverage is subject to State law. In these circumstances, in
which services are fully bundled with insurance, the proposal assumes
the responsible plan fiduciary discharges its obligation to ensure that
the contract or arrangement is reasonable by focusing on premiums,
covered benefits, coverage limits, exclusions, and cost-sharing
requirements. The proposal further assumes that responsible plan
fiduciaries would not, in these circumstances, benefit from the
specific disclosures required under the proposal because when the
pharmacy benefit management services are fully bundled with insurance,
the responsible plan fiduciary has a clearer understanding of the total
compensation paid for the services.
The proposal could have required a disclosure from the insurance
company in which each premium dollar is apportioned to the various
elements comprising the insurance product, including insurance and
services components. Moreover, the disclosure could have further
required the prescription drug coverage portion to be divided between
the insurance component and the services components, with an
itemization of compensation received and expected to be received with
respect to each of the service components. The Department has no basis,
however, to determine whether the responsible plan fiduciaries of fully
insured group health plans would benefit from these or similar
disclosures. The Department welcomes comments on this conclusion in
general, on the two specific disclosure regimes laid out above, and on
whether (and, if so, how) the responsible plan fiduciary would benefit
from such disclosures.
1.3. Covered Service Providers--Proposed Paragraph (c)
Paragraph (c) of the proposed regulation defines the entities that
would be covered service providers under the regulation and therefore
would have disclosure and related audit obligations. The proposal
identifies two types of covered service providers: (i) providers of
pharmacy benefit management services (as defined in paragraph (d) of
the proposal) and (ii) providers of advice, recommendations, or
referrals regarding pharmacy benefit management services who are
themselves providers of pharmacy benefit management services or their
affiliates.\104\ In each case, to be a covered service provider, the
entity must reasonably expect to receive $1,000 \105\ or more in
compensation,
[[Page 4359]]
direct or indirect, in connection with providing the services.\106\
---------------------------------------------------------------------------
\104\ Non-affiliated brokers and consultants remain subject to
the ERISA section 408(b)(2)(B) disclosures.
\105\ This $1,000 threshold is consistent with the thresholds in
the statute (29 U.S.C. 408(b)(2)(B)(ii)(I)(bb)) and the Department's
service provider disclosure regulation for pension plans (29 CFR
2550.408b-2(c)(1)(iii)).
\106\ Under proposed paragraph (m)(3), compensation is defined
as ``anything of monetary value but does not include any item or
service valued at $250 or less, in the aggregate, during the term of
the service contract or arrangement.'' The $250 threshold in this
context is consistent with the definitions in the statutory
provision (29 U.S.C. 408(b)(2)(B)(ii)(I)(dd)(AA)) and the
Department's service provider disclosure regulation for pension
plans (29 CFR 2550.408b-2(c)(1)(viii)(B)).
---------------------------------------------------------------------------
The proposal's focus on providers of pharmacy benefit management
services is consistent with President Trump's Executive Order 14273,
Lowering Drug Prices by Once Again Putting Americans First, which
instructs the Department to propose regulations to improve employer
health plan transparency into the direct and indirect compensation
received by pharmacy benefit managers. However, the Department
recognizes that self-funded group health plans have other service
providers that are not covered by this proposal and that may not be
considered providers of ``brokerage services'' or ``consulting'' for
purposes of ERISA section 408(b)(2)(B). These service providers include
TPAs, health insurers, and others involved in the administration of
self-insured group health plans' medical claims, such as for hospital
stays, surgeries, and chronic treatment. Stakeholders have indicated
that group health plan fiduciaries may not have access to all claims
data, payments to providers, and fee and pricing data that could enable
negotiation for cost savings to group health plans and
participants.\107\ The Department seeks comment on whether, and the
extent to which it could and should expand the disclosures in this
proposal to cover additional service providers and if so, which service
providers should be covered. Additionally, the Department seeks comment
on whether the disclosures proposed herein would be sufficient to bring
transparency into arrangements with those additional service providers
or whether additional disclosures would be needed, such as claims data,
payments to providers, and other fee and pricing data.
---------------------------------------------------------------------------
\107\ See letter to The Honorable Donald J. Trump from Cynthia
A. Fisher, <a href="http://PatientRightsAdvocate.org">PatientRightsAdvocate.org</a> (November 25, 2025), <a href="https://www.patientrightsadvocate.org/lettertopresidentonaffordabilityandhealthcare">https://www.patientrightsadvocate.org/lettertopresidentonaffordabilityandhealthcare</a>.
---------------------------------------------------------------------------
1.4. Providers of Pharmacy Benefit Management Services--Proposed
Paragraph (c)(1)(i)
Paragraph (c)(1)(i) of the proposal defines, as covered service
providers, service providers that enter into a contract or arrangement
with a self-insured group health plan to provide pharmacy benefit
management services. The proposal clarifies that this would be the case
regardless of whether the services will be performed by the covered
service provider, an affiliate, an agent, or a subcontractor.\108\
Thus, the proposed definition recognizes that the pharmacy benefit
management services may be performed by the covered service provider,
or they may be performed by an affiliate, agent, or subcontractor of
the covered service provider. Likewise, the proposed definition
recognizes that compensation in connection with the services may be
received by the covered service provider or it may be received by an
affiliate, agent, or subcontractor of the covered service provider.
---------------------------------------------------------------------------
\108\ The definition of pharmacy benefit management services is
in paragraph (d) of the proposal, discussed in the next subsection
of this preamble. The terms affiliate, agent, and subcontractor are
defined in paragraph (m) of the proposal and are discussed in the
following subsection of this preamble.
---------------------------------------------------------------------------
Under this framework, paragraph (c)(1)(i) of the proposed rule
focuses on the entity that has a contract or arrangement with the self-
insured group health plan to provide any pharmacy benefit management
services to that self-insured group health plan--that counterparty is
the covered service provider. The Department believes that the service
provider directly responsible to the self-insured group health plan for
the provision of pharmacy benefit management services is the
appropriate party to ensure that the required disclosures under the
regulation are made. This approach is consistent with the Department's
service provider regulation applicable to pension plans (29 CFR
2550.408b-2(c)(1)) as well as in the new statutory provision in ERISA
section 408(b)(2)(B).\109\
---------------------------------------------------------------------------
\109\ Reasonable Contract or Arrangement Under Section
408(b)(2)--Fee Disclosure; Interim Final Rule, 75 FR 41600, 41606
(July 16, 2010) (``In the view of the Department, the service
provider directly responsible to the plan for the provision of
services is the appropriate party to ensure that the required
disclosures under the regulation are made.''); ERISA section
408(b)(2)(B)(ii)(I)(bb) (``The term `covered service provider' means
a service provider that enters into a contract or arrangement with
the covered plan . . .'').
---------------------------------------------------------------------------
In this regard, the Department understands that responsible plan
fiduciaries to self-insured group health plans may take a number of
different approaches in identifying and selecting a provider of
pharmacy benefit management services. The self-insured group health
plan may ultimately contract directly with the entity that will perform
the services, or it may enter into a contract with a different entity
that agrees to provide the services to the self-insured group health
plan through an affiliate, agent, or subcontractor. It is common, for
example, for responsible plan fiduciaries to work with a consultant or
broker to conduct a request for proposal and to assist in negotiations
with the providers of pharmacy benefit management services. In that
case, the self-insured group health plan will enter into a contract
directly with the PBM.
On the other hand, the Department understands that TPAs may
contract directly with self-insured group health plans to provide a
range of health-care related services, such as creating networks of
health-care providers, negotiating payments rates, and processing and
paying health claims. One component of these services may be pharmacy
benefit management services. If the TPA contracts with the self-insured
group health plan to provide pharmacy benefit management services, the
TPA would be a covered service provider under this regulation, even if
it intends to rely on another provider to perform those services. In
that event, the TPA would be responsible for making the disclosures to
the responsible plan fiduciary required under the proposed rule and
therefore must be able to obtain information from the provider
performing the pharmacy benefit management services necessary for those
disclosures.
Self-insured group health plans may access pharmacy benefit
management services through other similar types of arrangements, where
the provider may or may not refer to itself as a TPA. For example, it
is common for group health plans to enter into level-funded
arrangements that have excessive stop loss policies to emulate
characteristics of fully insured arrangements, such as predictable
spending, but that are actually self-funded arrangements. These
arrangements commonly include pharmacy benefit services and the entity
that contracts with the self-insured group health plan to provide those
services would be the covered service provider. As in the TPA example,
if the entity contracting or arranging with the self-insured group
health plan is not providing the services itself, it would be
responsible for making the disclosures to the responsible plan
fiduciary required under the proposal, and therefore must be able to
obtain information from the provider performing the pharmacy benefit
management services necessary for those disclosures.
Questions may arise regarding which party is the covered service
provider and which party is the responsible plan
[[Page 4360]]
fiduciary in the context of a multiple employer welfare arrangement
(MEWA).\110\ For MEWAs that are considered single ERISA plans, the
responsible plan fiduciary for the self-insured group health plan would
receive the disclosures from the party that contracts with the self-
insured group health plan to provide pharmacy benefit management
services. In the case of a MEWA that is not considered a single ERISA
plan, but rather involves a number of self-insured group health plans
each sponsored by an employer individually, the party operating the
MEWA is likely to be the covered service provider that contracts with
the individual self-insured group health plans to provide pharmacy
benefit management services. In that case, the MEWA operator would have
the responsibility to make the disclosures required by the proposed
rule to the responsible plan fiduciaries (i.e., the employers or other
fiduciary responsible for entering into the contract or arrangement to
provide such services),\111\ and therefore must obtain the necessary
information from the provider (e.g., as a subcontractor) performing the
pharmacy benefit management services.
---------------------------------------------------------------------------
\110\ For more information on MEWAs, see MEWAs Multiple Employer
Welfare Arrangements under the Employee Retirement Income Security
Act (ERISA): A Guide to Federal and State Regulation, <a href="https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf</a>.
\111\ See proposed paragraph (m)(4) defining ``responsible plan
fiduciary.''
---------------------------------------------------------------------------
Self-insured group health plans alternatively may access pharmacy
benefit management services through employer consortiums or other types
of employer groups. The analysis of who the covered service provider is
in those arrangements would depend on the details of the arrangement
and specifically, which entity contracts with the self-insured group
health plan to provide the pharmacy benefit management services. If the
consortium or other group assists in negotiating with the provider of
pharmacy benefit management services but the self-insured group health
plan contracts directly with the provider--which the Department
believes is the predominant approach--the provider of pharmacy benefit
management services would be the covered service provider.\112\
However, if the consortium or other employer group were to contract to
provide the services to the self-insured group health plan, the
consortium or other group would be the covered service provider.
---------------------------------------------------------------------------
\112\ Although the Department assumes these consortiums and
employer groups are not affiliates of providers of pharmacy benefit
management services (and therefore would not be affiliates providing
advice, recommendations and referrals for purposes of paragraph
(c)(2) of the proposal), depending on the facts, the consortium or
other group may be considered to be a provider of ``brokerage
services'' or ``consulting'' under ERISA section 408(b)(2)(B).
---------------------------------------------------------------------------
Finally, a single self-insured group health plan may directly
contract with more than one entity for pharmacy benefit management
services as such services are defined in paragraph (d) of the proposal.
In such circumstances, the self-insured group health plan would thus
have more than one PBM, each of which would be a covered service
provider and responsible for making its own disclosures with respect to
services under its contract or arrangement with the self-insured group
health plan.
1.4.1. Definition of Pharmacy Benefit Management Services--Proposed
Paragraph (d)
Paragraph (d) of the proposed regulation defines pharmacy benefit
management services as services necessary for the management or
administration of a self-insured group health plan's prescription drug
benefits (including the self-insured group health plan's provision of
prescription drugs through the plan's medical benefit), regardless of
whether the person, business, or entity performing the service
identifies itself as a `pharmacy benefit manager.' The proposed
definition includes a list of examples of such services, as follows:
<bullet> acting as a negotiator or aggregator of rebates, fees,
discounts and other price concessions for prescription drugs;
<bullet> establishing or maintaining prescription drug formularies;
<bullet> establishing or maintaining pharmacy networks, through
contract or otherwise, including a mail order pharmacy, a specialty
pharmacy, a retail pharmacy, a nursing home pharmacy, a long-term care
pharmacy, and an infusion or other outpatient pharmacy, to provide
prescription drugs;
<bullet> processing and payment of claims for prescription drugs;
<bullet> performing utilization review and management, including
the processing of prior authorization requests for drugs, step therapy
protocols, patient compliance analyses, conducting therapeutic
intervention, and administering generic substitution programs;
<bullet> adjudicating appeals or grievances related to the self-
insured group health plan's prescription drug benefits;
<bullet> recordkeeping related to the self-insured group health
plan's prescription drug benefits; and
<bullet> in conjunction with any of these other services,
performing regulatory compliance with respect to the self-insured group
health plan's prescription drug benefits under the contract or
arrangement.
As discussed above, pharmacy benefit management encompasses a
number of services related to: developing drug formularies; negotiating
with drug manufacturers for rebates and other discounts; negotiating
with pharmacies; and processing claims and other functions for self-
insured group health plans. The examples provided in the proposed
definition are intended to describe the services expansively to ensure
comprehensive disclosures are made. Consequently, the proposed
definition specifies that whether the person providing the services
identifies itself as a PBM is not dispositive of the requirement to
disclose. Additionally, a person will be a covered service provider by
virtue of performing any of the services identified in the definition;
covered service provider status does not depend on comprehensively
providing all the services set forth in the proposed definition.
The Department requests comments on its proposed definition of
pharmacy benefit management services, including whether the description
of any of the services should be altered and whether any services
should be expressly added as examples.
1.4.2. Affiliates, Agents and Subcontractors--Proposed Paragraph (m)
The proposed terms ``affiliate,'' ``agent,'' and ``subcontractor,''
identify parties other than the covered service provider that may
perform pharmacy benefit management services and also may receive
compensation in connection with pharmacy benefit management services,
and would be required to be disclosed under the regulation. As noted
above, the regulation places the obligation on the covered service
provider to make the disclosures and to seek any required information
from these parties as needed for the disclosure. Proposed paragraph
(c)(2) would clarify that affiliates, agents, and subcontractors of
covered service providers do not, themselves, become covered service
providers as a result of providing services pursuant to the contract or
arrangement.\113\
---------------------------------------------------------------------------
\113\ This clarifying provision is also in the Department's
service provider disclosure regulation for pension plans (29 CFR
2550.408b-2(c)(1)(iii)(D) and is in ERISA section
408(b)(2)(B)(ii)(III).
---------------------------------------------------------------------------
[[Page 4361]]
Under paragraph (m)(1) of the proposal, an affiliate is an entity
that ``directly or indirectly (through one or more intermediaries)
controls, is controlled by, or is under common control with such person
or entity; or is an officer, director, or employee of, or partner in,
such person or entity.'' The proposed definition states that unless
otherwise specified, an ``affiliate'' in the regulation refers to an
affiliate of the covered service provider. In other contexts, the
Department has said ``control'' refers to the power to exercise a
controlling influence over the management or policies of a person other
than an individual.\114\
---------------------------------------------------------------------------
\114\ See e.g., 29 CFR 2550.404c-1(e)(3).
---------------------------------------------------------------------------
Paragraph (m)(5) defines a subcontractor as a ``person or entity
(or an affiliate of such person or entity) that is not an affiliate of
the covered service provider and that, pursuant to a contract or
arrangement with the covered service provider or an affiliate,
reasonably expects to receive $1,000 or more in compensation for
performing one or more services described pursuant to paragraph (d) of
this section provided for by the contract or arrangement'' with the
self-insured group health plan. Accordingly, under the proposed
definition, an affiliate of a subcontractor would also be considered a
subcontractor for purposes of the regulation, including the disclosure
requirements.
The proposed definitions of the terms ``affiliate'' and
``subcontractor'' are consistent with the definitions of these terms in
the Department's service provider disclosure regulation for pension
plans (29 CFR 2550.408b-2(c)) as well as the new service provider
disclosure obligations in ERISA section 408(b)(2)(B), and the
Department believes they are well understood by stakeholders.\115\
---------------------------------------------------------------------------
\115\ See 29 CFR 2550.408b-2(c)(1)(viii)(A) and (F); ERISA
section 408(b)(2)(B)(ii)(I)(cc) and (ff).
---------------------------------------------------------------------------
The proposal also includes, in addition to ``affiliates'' and
``subcontractors,'' the term ``agent,'' defined in paragraph (m)(2) as
``any person or entity authorized (whether that authorization is
expressed or implied) to represent or act on behalf of another person
or entity.'' Unless otherwise specified, an ``agent'' for purposes of
the regulation refers to an agent of the covered service provider. This
additional proposed term is included based on the concern that, in the
context of pharmacy benefit management services, entities that receive
undisclosed compensation in connection with pharmacy benefit management
services may not technically fall within the definition of an
``affiliate'' or a ``subcontractor.'' As one example, the Department is
aware that some providers of pharmacy benefit management services have
formed rebate aggregators or GPOs outside of the laws of the United
States.\116\ The Department intends that any compensation received by
these entities in connection with pharmacy benefit management services
to a self-insured group health plan would be disclosed under the
regulation.
---------------------------------------------------------------------------
\116\ See e.g., Federal Trade Commission, Interim Staff Report,
Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug
Costs and Squeezing Main Street Pharmacies (July 2024), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf</a>.
---------------------------------------------------------------------------
The Department requests comments on the proposed definitions of
affiliate, agent, and subcontractor, including whether parties such as
rebate aggregators or GPOs (or any other parties that fall within the
proposed definition of agent) are likely to be covered by either of the
other proposed definitions (i.e., affiliate or subcontractor).
1.5. Affiliated Providers of Brokerage or Consulting Services--Proposed
Paragraph (c)(1)(ii)
Concerns have been raised that brokers and consultants may receive
payments from parties they are recommending, which may be undisclosed
to their self-insured group health plan clients.\117\ These
arrangements have a high potential for conflicts of interest that
warrant disclosure, as evidenced by Congress's amendment to ERISA
section 408(b)(2) requiring disclosure of, among other things, indirect
compensation reasonably expected to be received by providers of
``brokerage services'' and ``consulting'' with respect to pharmacy
benefit management services.
---------------------------------------------------------------------------
\117\ Advisory Council on Employee Welfare and Pension Benefit
Plans, PBM Compensation and Fee Disclosure at 3 (November 2014)
(``Testimony was submitted to the Council that it is common for
consultants to receive indirect compensation. The payment of
indirect compensation to consultants who are advising plan sponsors
in negotiations with the PBM may create the potential for conflicts
of interest that may be adverse to the plan sponsor. Sponsors of
ERISA health plans may or may not be informed of such indirect
compensation.''), <a href="https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/about-us/erisa-advisory-council/2014-pbm-compensation-and-fee-disclosure.pdf">https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/about-us/erisa-advisory-council/2014-pbm-compensation-and-fee-disclosure.pdf</a>.
---------------------------------------------------------------------------
To the extent that PBMs as described in paragraph (c)(1)(i) of the
proposal, or their affiliates, also provide ``brokerage services'' or
``consulting'' to self-insured group health plans regarding pharmacy
benefit management services, the Department has determined that special
provisions under the proposal are needed. Paragraph (c)(1)(ii) of the
proposed regulation therefore identifies as covered service providers
those parties described in paragraph (c)(1)(i) of the proposal or their
affiliates, that enter into a contract or arrangement with a self-
insured group health plan to provide advice, recommendations, or
referrals of pharmacy benefit management services. These covered
service providers would have the obligation proposed in the regulation
to disclose their compensation and to allow for an audit, as discussed
below.
Although the terms ``brokerage services'' and ``consulting'' in
ERISA section 408(b)(2)(B) are not defined, entities that would be
covered service providers under paragraph (c)(1)(ii) of the regulation
are also likely to be covered service providers under ERISA section
408(b)(2)(B). In the Department's view, the obligations under the
proposal may be more specific than the statutory disclosure
requirements but are not inconsistent with them. Moreover, because this
proposed regulation provides specific descriptions of compensation
streams and arrangements in the pharmaceutical supply chain that must
be disclosed, the Department envisions that compliance with the
requirements of the regulation, if adopted, would also satisfy the
requirements of section 408(b)(2)(B) with respect to provision of
brokerage services or consulting with respect to pharmacy benefit
management services.
The Department believes that these brokers and consultants should
be described as covered service providers under this regulation, rather
than only under ERISA section 408(b)(2)(B), because of their
affiliation with providers of pharmacy benefit management services. The
conflicts associated with that affiliation should be disclosed to the
self-insured group health plans' responsible plan fiduciaries. Further,
if this regulation is adopted, it may be difficult as a practical
matter for affiliated brokers and consultants to determine the extent
of their obligations under the statutory provision given the lack of a
definition of ``brokerage services'' and ``consulting'', and ambiguity
surrounding the ``indirect compensation'' that must be disclosed.
Additionally, the Department has tailored the requirements of this
proposal to the practices of pharmacy benefit management service
providers and therefore to the extent that their broker and consultant
affiliates receive compensation that is specifically described in the
regulation, responsible plan fiduciaries may receive higher
[[Page 4362]]
quality disclosures from these brokers and consultants than they would
receive absent such tailoring. Brokers and consultants may benefit from
greater confidence in satisfying their disclosure requirements under
the prohibited transaction exemption. Therefore, including these
entities in the regulation would serve a compliance assistance
function. On the other hand, to the extent brokers and consultants that
are covered service providers have very simple compensation
arrangements--e.g., they only receive direct payments from the self-
insured group health plan--the obligations under the regulation would
be relatively minor.
The Department intends that brokers and consultants that provide
advice, recommendations, or referrals regarding pharmacy benefit
management services, but are not affiliates of these providers, would
be able to determine their disclosure obligations under ERISA section
408(b)(2)(B), which is self-effecting.\118\ With respect to these
entities, the Department does not envision that its enforcement
policies announced in Field Assistance Bulletin 2021-03 would change in
connection with this proposal. Thus, entities that are not affiliated
with providers of pharmacy benefit management services would continue
to use a good faith, reasonable interpretation of ERISA section
408(b)(2)(B), including with respect to determining their status as
covered services providers. The Department continues to believe that
``service providers who reasonably expect to receive indirect
compensation from third parties in connection with advice,
recommendations, or referrals regarding any of the listed sub-services
. . . should be prepared, if the Department is auditing their
408(b)(2)(B) compliance, to be able to explain how a conclusion that
they are not covered service providers is consistent with a reasonable
good faith interpretation of the statute.'' \119\
---------------------------------------------------------------------------
\118\ See Field Assistance Bulletin No. 2021-03, (``The CAA does
not require the Department to issue regulations under ERISA section
408(b)(2)(B) . . .''), <a href="https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2021-03">https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2021-03</a>. Likewise,
to the extent that PBMs were to provide ``brokerage services'' or
``consulting'' to group health plans with respect to any of the
listed sub-services in ERISA section 408(b)(2)(B)(ii)(I)(bb) other
than regarding the provision of pharmacy benefit management services
as defined in paragraph (d) of the proposed regulation, such PBMs,
in that capacity, would be subject to the disclosure requirements in
ERISA section 408(b)(2)(B) and not the disclosure requirements in
this proposed regulation.
\119\ Id (emphasis added).
---------------------------------------------------------------------------
2. Overview of Covered Service Provider Obligations Under This Proposed
Regulation
Under this proposed regulation, covered service providers would be
required to provide specified disclosures to a responsible plan
fiduciary of the self-insured group health plan, and also to permit the
responsible plan fiduciary to conduct an audit for accuracy of the
disclosures. The disclosures would focus on the services provided, the
compensation received, and the arrangements with other parties in the
pharmaceutical supply chain.\120\ The disclosures generally would be
provided on an initial basis prior to the self-insured group health
plan entering into the service contract or arrangement and then on a
semiannual basis thereafter.
---------------------------------------------------------------------------
\120\ The term ``compensation'' is defined in paragraph (m)(3)
of the proposed regulation as anything of monetary value but does
not include any item or service valued at $250 or less, in the
aggregate, during the term of the contract or arrangement.
---------------------------------------------------------------------------
As discussed in greater detail below, the disclosure obligations of
providers of pharmacy benefit management services (covered service
providers under paragraph (c)(1)(i)) would ensure that both the service
provider and the responsible plan fiduciary are clear as to the
services to be provided. The disclosures would also ensure that
responsible plan fiduciaries are aware of all compensation that the
provider of pharmacy benefit management services (and its affiliates,
agents, and subcontractors) will receive from other parties in the
pharmaceutical supply chain in connection with their services to the
plan as well as the arrangements (such as formulary incentives) and
practices (such as claw-backs) that may impact the performance of the
services or the reasonableness of the compensation received.
With respect to brokers and consultants that are affiliated with
providers of pharmacy benefit management services and recommend those
services (covered service providers under paragraph (c)(1)(ii)), the
required disclosures under the regulation would ensure that the
responsible plan fiduciaries that may hire these brokers or consultants
for their advice, recommendations, and referrals, are aware of the
other sources of compensation that the brokers and consultants may be
receiving, also so as to evaluate the potential impact on their
services to the plan and the reasonableness of their compensation. The
other compensation sources received by the brokers and consultants may
be specifically described in the proposed regulation (e.g., payments
from drug manufacturers), but if not, they would be disclosed under the
catch-all provisions in paragraphs (e)(8) (initial disclosure) and
(g)(6) (semiannual disclosure).
Throughout the proposed regulatory text, the disclosure requirement
is phrased in terms of compensation ``in connection with services under
the service contract or arrangement.'' The Department intends that the
proposed language ``in connection with'' would be construed broadly.
This is consistent with the approach taken in the Department's service
provider disclosure regulation for pension plans (29 CFR 2550.408b-
2(c)(1)), where the Department stated in the preamble that: ``[t]o the
extent a covered service provider reasonably expects that compensation
will be received, which is based in whole or in part on its service
contract or arrangement with the covered plan, the compensation will be
considered `in connection with' such contract or arrangement.'' \121\
Therefore, for example, the required disclosures under the proposal of
payments from drug manufacturers would extend to payments based on a
structure of incentives not solely related to the contract or
arrangement with the self-insured group health plan.\122\ The
Department seeks comment on whether the final rule should specify that
such disclosures would be made on a pro-rata basis.
---------------------------------------------------------------------------
\121\ Reasonable Contract or Arrangement Under Section
408(b)(2)--Fee Disclosure 77 FR 5632, 5637 (February 3, 2012).
\122\ See also ERISA section 408(b)(2)(B)(iii)(IV) (requiring a
description of all indirect compensation ``including compensation
from a vendor to a brokerage firm based on a structure of incentives
not solely related to the contract with the covered plan'').
---------------------------------------------------------------------------
Paragraph (k) of the proposed regulation provides information about
the manner of disclosure, including a requirement that disclosures must
be ``clear and concise, free of misrepresentation, and contain
sufficient specificity to permit evaluation of the reasonableness of
the contract or arrangement.'' For required descriptions of
compensation amounts, paragraph (k) provides that these descriptions
must be expressed as a monetary amount, may be estimated to the extent
that the actual amount is not reasonably ascertainable, but in any
event shall contain sufficient information and specificity to permit
evaluation of the reasonableness of the compensation received by the
covered service provider, affiliate, agent or subcontractor.
[[Page 4363]]
The specific elements of the disclosure and audit provisions are
discussed in greater detail below. Paragraph (e) of the proposed
regulation would establish initial disclosure requirements. Paragraph
(f) is reserved for initial disclosure requirements for fully insured
group health plans. Paragraph (g) would establish semiannual disclosure
obligations. Paragraph (h) is reserved for semiannual disclosure
obligations for fully insured group health plans. Paragraph (i) would
establish a requirement for the covered service provider to provide
certain information upon request of the responsible plan fiduciary of
the self-insured group health plan. Paragraph (j) would establish the
audit rights that must be provided to the self-insured group health
plan under the service contract or arrangement. Paragraph (k) would
address the manner of disclosure and paragraph (l) would address
disclosure errors. Paragraph (m) provides definitions for certain terms
used in the regulation.
Overall, the disclosures are intended to provide responsible plan
fiduciaries with a fuller picture of the terms under which the services
will be provided, so they can assess both the reasonableness of the
compensation in light of the services being provided and the potential
for or existence of conflicts of interest that may impact the quality
of services provided. The Department believes that these disclosures
will provide necessary information to responsible plan fiduciaries who
are required to determine that the services contract or arrangement
meets the standards for an exemption under ERISA section 408(b)(2).
3. Initial Disclosure Requirements--Proposed Paragraph (e)
Paragraph (e) of the proposal sets forth the initial disclosure
requirements. These disclosures would be required to be provided to the
responsible plan fiduciary, in writing, no later than the date that is
reasonably in advance of the date on which the contract or arrangement
is entered, extended, or renewed. For extensions and renewals, the
proposal specifies that 30 calendar days in advance is deemed to be a
reasonable period of time absent an agreement by the parties to a
longer timeframe. This timeframe is similar to other disclosure
requirements in the Title XXVII of the Public Health Service (PHS) Act,
Chapter 100 of the Internal Revenue Code, and Part 7 of ERISA that
require 30-day timelines for disclosures, including the summary of
benefits and coverage (SBC) requirements under PHS Act section 2715, as
added by the Affordable Care Act, and incorporated into ERISA section
715 and Code section 9815, for renewals, reissuances and
reenrollments.\123\ The Department is of the view that aligning the
timing requirements with other disclosures that group health plans and
issuers already comply with may provide clarity and minimize compliance
burdens by streamlining the collection of similar data and disclosure
for multiple purposes during the same cadence. The Department seeks
comment on the proposed timing requirements for the initial disclosure
including whether additional specificity is needed for the timing of
the disclosure outside of the context of contract extensions and
renewals. If commenters believe that additional specificity is needed,
the Department requests that commenters identify the appropriate
timing.
---------------------------------------------------------------------------
\123\ 29 CFR 2590.715-2715.
---------------------------------------------------------------------------
The required disclosures in some instances would require disclosure
of amounts reasonably expected to be paid to the covered service
provider or an affiliate, agent, or subcontractor. As noted above,
paragraph (k) of the proposal would require descriptions of
compensation to be expressed as a monetary amount, for example, $1,000.
The amounts could be estimated to the extent that the actual amount is
not reasonably ascertainable, but they must contain sufficient
information and specificity to permit evaluation of the reasonableness
of the compensation to be received by the covered service provider, an
affiliate, agent, or subcontractor.
In proposing paragraph (k), the Department intends that disclosures
of a monetary amount (even if estimated) in this context would further
the transparency goals of this rulemaking which are intended to make
possible a responsible plan fiduciary's assessment of reasonableness of
compensation and potential for or existence of conflicts of interest.
This would also foster a fairer prescription drug market that lowers
costs. Accordingly, on this point, the proposal offers less flexibility
than the Department's service provider disclosure regulation for
pension plans (29 CFR 2550.408b-2) and the statutory provision at ERISA
section 408(b)(2)(B), each of which permit compensation disclosure to
be expressed as an alternative to a monetary amount, such as a
``formula,'' ``per capita charge'' for each participant, or, if the
compensation cannot reasonably be expressed in such terms, ``by any
other reasonable method.'' \124\ However, consistent with this
proposal, the Department's service provider disclosure regulation for
pension plans (29 CFR 2550.408b-2) and the statutory provision at ERISA
section 408(b)(2)(B) also require that any description contain
``sufficient information to permit evaluation of the reasonableness of
the compensation or cost.'' \125\
---------------------------------------------------------------------------
\124\ 29 CFR 2550.408b-2(c)(1)(viii)(B)(3) (also permitting
disclosure expressed as a percentage of the covered plan's assets);
ERISA section 408(b)(2)(B)(ii)(II).
\125\ 29 CFR 2550.408b-2(c)(1)(viii)(B)(3); ERISA section
408(b)(2)(B)(ii)(II).
---------------------------------------------------------------------------
3.1. Description of Services
Under proposed paragraph (e)(1), the initial disclosure must
include a description of each pharmacy benefit management service or of
the advice, recommendations, or referrals regarding the provision of
pharmacy benefit management services to be provided to the self-insured
group health plan pursuant to the contract or arrangement. Full
disclosure of the services is essential so that the responsible plan
fiduciary can satisfy its duties under ERISA at the outset of the
contract or arrangement and its ongoing duty to monitor. Full
disclosure helps ensure that both parties have a common understanding
of the services to be performed as part of the contract or arrangement.
Absent full disclosure of services, questions may arise as to whether a
responsible plan fiduciary has effectively approved otherwise
discretionary behavior by the covered service provider.
Full disclosures are also important for covered service providers.
Depending on the particular pharmacy benefit services being provided,
if they are not performed in accordance with parameters established
with the plan, the provider may have assumed discretionary authority or
control over the administration of the plan. Providers who exercise
such discretionary authority or control fall within the definition of a
fiduciary under ERISA section 3(21)(A) and are subject to ERISA's
fiduciary duties in section 403 and 404, and the prohibited transaction
provisions in ERISA section 406. Therefore, it is crucial that
disclosures be complete and accurate and carefully written in a manner
that conforms with the plain language requirements in paragraph (k) of
the proposal. When disclosures meet these standards, both parties to
the contract or arrangement are more likely to have a common
understanding of their roles and limitations under the contract or
arrangement and the law.
[[Page 4364]]
3.2. Direct Compensation
Under proposed paragraph (e)(2), the initial disclosure must
include a description of direct compensation the covered service
provider, an affiliate, agent, or subcontractor reasonably expects to
receive in connection with the pharmacy benefit management services
under the contract or arrangement. Specifically, the proposal requires
a description of the amount of all direct compensation, both in the
aggregate and by service, that the covered service provider, an
affiliate, agent, or subcontractor reasonably expects to receive on a
quarterly basis in connection with pharmacy benefit management services
under the contract or arrangement. An example is an administrative fee
calculated on a per-participant, per-month basis.
For purposes of paragraph (e)(2) of the proposal, the term ``direct
compensation'' means compensation received directly from the self-
insured group health plan, or from the plan sponsor on behalf of the
self-insured group health plan regardless of whether such compensation
is paid from plan assets. It is important to ensure that all direct
compensation is disclosed, regardless of the source of the payment, to
avoid frustrating the purposes of this proposal, because service
providers to self-insured group health plans sometimes are paid, in
whole or in part, directly from the general assets of the employer
sponsoring the self-insured group health plan as opposed to a plan
asset trust. Consequently, responsible plan fiduciaries may find it
challenging to assess the overall reasonableness of the covered service
provider's compensation if this source of revenue is excluded from
disclosure. An example of compensation covered by paragraph (e)(2) of
the proposal is an administrative fee calculated on a per-participant,
per-month basis, paid directly by the self-insured group health plan.
The Department requests comments as to whether the requirements
under the proposed rule for disclosure of direct compensation as
defined in paragraph (e)(2) ensure sufficient disclosure of information
for bundled services. If not, should the description of direct
compensation under paragraph (e)(2) for a bundled services option
include additional information, such as the bundled discounted value
along with a description of services provided in the bundle?
3.3. Payments From Drug Manufacturers
Under proposed paragraph (e)(3), the initial disclosure must
include the amount, in dollars, of payments from drug manufacturers (or
rebate aggregators) reasonably expected to be received by the covered
service provider, affiliate, agent, or subcontractor in connection with
the contract or arrangement. The disclosure must cover the amount of
any payment, both in the aggregate and for each drug on the formulary,
and it must be expressed as an amount reasonably expected to be paid on
a quarterly basis. It also must specify both the amount that will be
passed on to the self-insured group health plan and, if applicable, the
plan sponsor, and the amount that will be retained by the covered
service provider, affiliate(s), agent(s), or subcontractor(s).
Under proposed paragraph (e)(6), the initial disclosure must
include a description of any inflation protection or price protection
agreements that the covered service provider, an affiliate, agent, or
subcontractor has entered with any drug manufacturer or other party
regarding each prescription drug dispensed under the service contract
or arrangement. The disclosure must specify the quarterly amount
reasonably expected to be retained by the covered service provider,
affiliate, agent, or subcontractor in connection with each prescription
drug product and under each such contract or arrangement and the price
protection amount that will be passed on to the self-insured group
health plan and, if applicable, plan sponsor. The Department separated
the disclosure required under this proposed paragraph (e)(6) from the
disclosure required under proposed paragraph (e)(3) because of the
contingent nature of inflation and price protection.
The disclosure required by these provisions would be intended to
apply broadly to payments, including but not limited to rebates, fees,
and other remuneration reasonably expected to be received from drug
manufacturers by the covered service provider, affiliate, agent, or
subcontractor in connection with their services to the self-insured
group health plan, regardless of how they are characterized. The
disclosure also would extend to payments received from rebate
aggregators or other entities that negotiate rebates with drug
manufacturers.
Disclosure of aggregate payments reasonably expected from drug
manufacturers and rebate aggregators is important for responsible plan
fiduciaries in their evaluation of the reasonableness of the
compensation that the covered service provider, affiliate, agent, and
subcontractor will receive. Additionally, disclosure of payments for
each drug on the formulary may assist responsible plan fiduciaries in
evaluating the covered service provider's incentives to select
particular prescription drugs for the formulary.
The Department seeks comments on the proposed disclosure of
payments from drug manufacturers and rebate aggregators. Do the
provisions in proposed paragraph (e)(3) and proposed paragraph (e)(6)
adequately describe the type of payments that may be received in this
respect? Given the varied payment structures and definitional terms, is
broad term ``payments'' sufficient to define the disclosure obligation
or is more specificity needed to ensure full disclosure?
3.4. Spread Compensation
Under proposed paragraph (e)(4), the initial disclosure must
include the dollar amount of spread compensation both in the aggregate
and for each drug on the formulary, and for each pharmacy channel
(i.e., retail pharmacy, mail order pharmacy, and specialty pharmacy)
available under the contract or arrangement. Spread compensation is
defined under the proposal as the difference between the negotiated
rate reasonably expected to be paid by the self-insured group health
plan to the covered service provider, an affiliate, agent, or
subcontractor and the negotiated rate reasonably expected to be paid by
such entity to the pharmacy for dispensing drugs.
As discussed in greater detail elsewhere in this preamble, spread
pricing is one of the primary sources of compensation in some PBM
contracts or arrangements. Proposed paragraph (e)(4) would require a
covered service provider to disclose two distinct amounts of spread
compensation reasonably expected to be received each quarter. The
covered service provider must disclose the amount of reasonably
expected spread compensation for each drug on the formulary and in the
aggregate (i.e., the total spread on all drugs). These disclosures must
be made for each pharmacy channel available under the contract or
arrangement. Disclosure of spread compensation in these distinct
amounts would serve multiple purposes in assisting a responsible plan
fiduciary in evaluating the reasonableness of the contract or
arrangement with the covered service provider.
Disclosure of the expected aggregate spread compensation, per
pharmacy channel, would provide a high-level view of how much revenue
the PBM earns from spread pricing across the entire self-insured group
health plan. This would allow a responsible plan fiduciary to evaluate
the reasonableness
[[Page 4365]]
of compensation, including whether any amounts of spread compensation
appear to be excessive under the circumstances, and to compare the
initial disclosures of expected aggregate compensation to semi-annual
disclosures made pursuant to proposed paragraph (g)(3) of actual
aggregate compensation received by the covered service provider.
Disclosure of spread at the level of each drug on the formulary
would further transparency goals by affording a responsible plan
fiduciary access to profit variations across specific drugs such as
branded versus generic or biologics versus biosimilars, which can be
used to evaluate whether selection of a particular drug by the covered
service provider is driven by spread compensation rather than cost-
effectiveness or clinical effectiveness.
Finally, disclosure of spread at the pharmacy channel level,
separately for retail, mail order, and specialty pharmacies, would
reveal whether the covered service provider earns disproportionate
compensation based on which dispensing pharmacy is used.
The Department is seeking comments on the requirements under the
proposed rule for disclosure of spread compensation as defined in
proposed section (e)(4). Does the proposed provision require disclosure
of information that is sufficient to assess reasonableness? Are
arrangements with retail, mail order, and specialty pharmacies
sufficiently similar to one another that dividing disclosures into
these three channels is efficient? Would greater transparency
incentivize the use of a pass-through pricing or a flat-fee
compensation model? What challenges would arise from a covered service
provider providing or a responsible plan fiduciary reviewing this level
of disclosure?
3.5. Copay Claw-Backs
Under proposed paragraph (e)(5), the initial disclosure must
include a description of amounts of copay claw-back compensation
reasonably expected to be recouped from a pharmacy by a covered service
provider, an affiliate, agent, or subcontractor in connection with
prescription drugs dispensed under the contract or arrangement. The
disclosure must be expressed as amounts per quarter and must specify
the total number of transactions.
The proposed regulatory text specifies that a copay claw-back means
the dollar amount of the difference between a copayment or coinsurance
amount paid to the pharmacy by a self-insured group health plan
participant or beneficiary and the reimbursement to the pharmacy by the
covered service provider. There would be no claw-back compensation to
disclose, however, if the pharmacy reimbursement amount exceeded the
copayment amount.
Where a covered service provider, affiliate, agent, or
subcontractor claws back any portion of a payment to a pharmacy made at
point-of-sale and does not pass along the full amount recouped to the
self-insured group health plan, information as to the value of any such
amount recouped may not be otherwise available to a responsible plan
fiduciary assessing the reasonableness of compensation under the
contract or arrangement. For example, where the pharmacy's
reimbursement price for dispensing a drug is less than the copayment
made to the dispensing pharmacy by a participant or beneficiary and the
self-insured group health plan's cost share for the drug is zero
dollars, the responsible plan fiduciary may be unaware of the
difference between the cost of the drug and the copayment that results
in compensation to the covered service provider, affiliate, agent, or
subcontractor recouping such difference. The Department believes that
additional disclosure of the total number of transactions reasonably
expected to occur in the quarter would provide the responsible plan
fiduciary key information needed to assess the pervasiveness of this
practice and whether adjustments to the plan's cost sharing structure
may be appropriate.
The Department seeks comments on the requirements under the
proposed rule for the disclosure of copay claw-back compensation as
defined in proposed paragraph (e)(5). Is the proposed provision's scope
of required disclosure of information for copay claw-back payments
sufficient to assess reasonableness in this respect or should other
types of recouped payments be included? If commenters believe the
provision should require disclosure of information for recouped
payments other than copay claw-backs, commenters are requested to
describe the type(s) of recouped payments recommended to be included
and how disclosure of this information is necessary to assess the
reasonableness of the compensation under the contract or arrangement.
3.6. Compensation for Termination of Contract or Arrangement
Under proposed paragraph (e)(7), the initial disclosure must
include a description of any compensation that the covered service
provider, an affiliate, agent, or a subcontractor reasonably expects to
receive in connection with termination of the contract or arrangement,
and how any prepaid amounts will be calculated and refunded upon such
termination. A determination of reasonableness necessitates that a
responsible plan fiduciary be aware of any termination costs or
potential costs to a self-insured group health plan upfront. Without
this information, a responsible plan fiduciary cannot sufficiently
evaluate the economic consequences of such termination to the self-
insured group health plan. Proposed paragraph (e)(7), for example, will
enable the responsible plan fiduciary to understand and ensure proper
treatment of any rebates owed at the time of the termination. While
covered service providers may recoup reasonable amounts for actual
losses upon early termination of the contract or arrangement, no
contract or arrangement is reasonable if it does not permit termination
by the self-insured group health plan without penalty on reasonably
short notice under the circumstances to prevent the self-insured group
health plan from becoming locked into a contract or arrangement that
has become disadvantageous.\126\
---------------------------------------------------------------------------
\126\ 29 CFR 2550.408b-2(c)(3).
---------------------------------------------------------------------------
3.7. Other Compensation
Proposed paragraph (e)(8) provides a catch-all provision for any
compensation not disclosed under proposed paragraphs (e)(1)-(7). The
disclosure must include a description of all compensation that the
covered service provider, affiliate(s), agent(s), or subcontractor(s)
reasonably expects to receive on a quarterly basis in connection with
the contract or arrangement along with an identification of the payer
of such compensation, an identification of the services for which such
compensation will be received, and a description of the arrangement
between the payer and the covered service provider, affiliate, agent,
or subcontractor, as applicable, pursuant to which such compensation is
paid.
This category of ``other'' compensation may be particularly
relevant to covered service providers defined in proposed paragraph
(c)(1)(ii) of the regulation (i.e., affiliates of providers of pharmacy
benefit management services that provide advice, recommendations and
referrals regarding the pharmacy benefit management services). The
compensation of these covered service providers may come from the
providers of pharmacy benefit management services themselves, as
opposed to the compensation described in the other
[[Page 4366]]
subparagraphs in paragraph (e). The Department requests comments on
whether the final regulation should specify payments that these covered
service providers may receive.
In connection with this category of ``other'' compensation, the
Department also seeks comments on whether it should specify any other
type of compensation that may be received by covered service providers,
instead of having those items disclosed under paragraph (e)(8). For
example, should there be specific disclosure requirements related to
compensation received by entities providing pharmacy benefit management
services in connection with copay maximizer, copay accumulator, or
alternative funding programs? More generally, the Department seeks
comments on the role of entities earning compensation in connection
with these programs, including the mechanics of these programs and
payment amounts related to these programs. The Department is also
seeking comments on the extent to which self-insured group health plans
use each of these types of programs.
3.8. Formulary Placement Incentives
Proposed paragraph (e)(9) would require the initial disclosures to
include specified information regarding formulary placement incentives.
The purpose of proposed paragraph (e)(9) would be to assist responsible
plan fiduciaries in evaluating the covered service provider's formulary
selections and how the selections might be influenced by incentives,
arrangements, and payments. While proposed paragraph (e)(3) would
require covered service providers to provide a description of the
amounts of payments reasonably expected to be paid by drug
manufacturers or rebate aggregators in connection with the contract or
arrangement, proposed paragraph (e)(9) would require description of the
arrangements so that the responsible plan fiduciary would gain
additional insight as to their impact. The proposed disclosures are set
forth in three subparagraphs, described below, each of which addresses
a different aspect of formulary design and maintenance.
3.8.1. Proposed Paragraph (e)(9)(i)
Under proposed paragraph (e)(9)(i), the initial disclosure would
include a description of any formulary placement incentives and
arrangements that the covered service provider, an affiliate, an agent,
or a subcontractor has entered with any drug manufacturer in connection
with the contract or arrangement. The disclosure would also include an
explanation of how the incentives and arrangements affect services to
and are aligned with the interests of the self-insured group health
plan and/or its participants and beneficiaries, such as by controlling
prescription drug costs, providing clinically superior drugs, or both.
Formulary incentives or arrangements widely reported on in industry
literature include concessions made by a drug manufacturer to include
its drugs in a formulary, for tiering of drugs within a formulary, for
excluding or tiering of other manufacturers' drugs within a formulary,
and for a drug to be treated differently than therapeutically
equivalent drugs under a utilization management protocol. In addition,
adding to a formulary a drug that is manufactured or co-manufactured by
the PBM or an affiliate, in the view of the Department, would be a
formulary placement incentive that triggers the disclosure required
under proposed paragraph (e)(9)(i).
Under proposed paragraph (e)(9)(i), the covered service provider is
required to provide an explanation of how the formulary placement
incentives and arrangements affect services to and align with the
interests of the self-insured group health plan and/or its participants
and beneficiaries. The concept of alignment is inherently factual and
depends on the specific facts and circumstances of the incentive or
arrangement in question. However, examples of incentives or
arrangements that are aligned with the interests of the self-insured
group health plan and/or its participants and beneficiaries, include
incentives or arrangements to control prescription drug costs, provide
clinically superior drugs, or both. In this regard, the Department
notes that a particular formulary placement incentive or arrangement
can be aligned with the interests of the self-insured group health plan
and/or its participants and beneficiaries based on a combination of the
clinical value and cost-effectiveness of the associated drug, even
though the drug is not necessarily clinically superior to all
alternatives.
The Department anticipates that, in connection with developing
these disclosures, covered service providers will carefully review the
incentives and arrangements to determine how the incentives and
arrangements would impact services to the self-insured group health
plan. Likewise, covered service providers would be required to
determine that they could accurately disclose how the incentives and
arrangements are aligned with the interests of the self-insured group
health plan and/or its participants and beneficiaries, whether by
contributing to controlling prescription drug costs, by providing
clinically superior drugs, or both.
The Department requests comments on the proposed requirement to
explain how formulary incentives and arrangements affect services to
and are aligned with the interests of the self-insured group health
plan and/or its participants and beneficiaries. Do commenters believe
this requirement will contribute to the elimination of incentives and
arrangements that are not aligned with the interests of the self-
insured group health plan and/or its participants and beneficiaries? To
ensure that the regulation appropriately protects the interests of the
participants in self-insured group health plans, should any assertions
of clinical superiority provided in the disclosure be required to be
accompanied by evidence? Are there other examples of incentives or
arrangements that align with the interests of the self-insured group
health plan and/or its participants and beneficiaries (other than by
controlling prescription drug costs, providing clinically superior
drugs, or both) that should be specified in the regulatory text?
3.8.2. Proposed Paragraph (e)(9)(ii)
Under proposed paragraph (e)(9)(ii), the initial disclosure also
must include an identification of reasonably available therapeutically
equivalent alternatives for any drug on the formulary with respect to
which the covered service provider, an affiliate, agent, or
subcontractor reasonably expects to receive any payment by the
manufacturer or rebate aggregator (and not passed through to the self-
insured group health plan). This provision also requires the covered
service provider to explain the reason for omitting such alternatives
from the plan's formulary.
The purpose of this provision is to provide the responsible plan
fiduciary with information on the constitution of the formulary and the
extent to which its overall composition was influenced by lower cost
and/or clinical efficacy, as discussed above, as opposed to financial
incentives. For instance, when the formulary contains a drug for which
the PBM will receive a payment from the drug manufacturer (and not pass
the payment through to the self-insured group health plan), proposed
paragraph (e)(9)(ii) requires the subject disclosure to identify
reasonably available therapeutically equivalent alternatives that do
not similarly compensate the PBM. This disclosure, thus, enables
responsible plan fiduciaries to evaluate the way the PBM has designed
the formulary and the extent to which its
[[Page 4367]]
composition might be overly influenced by conflicts of interests that
impact the quality or performance of services and that require
mitigation. Because the mere fact that alternatives without
manufacturers' payments may exist in the marketplace is not dispositive
of an unreasonable contract or arrangement, proposed paragraph
(e)(9)(ii) requires the disclosure to explain the reason for their
omission from the formulary, such as the alternatives having lower
clinical efficacy, higher pricing, or inadequate supply.
Paragraph (e)(9)(ii) of the proposal does not define what is meant
by ``identification'' with respect to the reasonably available
alternatives. At a minimum, however, this identification must include
enough information about the alternatives that the responsible plan
fiduciary is able to consult a publicly available directory to complete
a prudent analysis.\127\ Typically, this will include the
manufacturer's name, the generic or trade name of the drug, and dosage
form. The disclosure is required to include only a reasonable number of
alternatives, not every alternative on the market. The Department
requests comments on whether the final rule should contain an explicit
standard on this topic versus allowing the contracting parties the
leeway to establish parameters on their own.
---------------------------------------------------------------------------
\127\ See, e.g., U.S. Food and Drug Administration's National
Drug Code Directory available at <a href="https://dps.fda.gov/ndc">https://dps.fda.gov/ndc</a> (last
accessed July 31, 2025); U.S. Food and Drug Administration's Orange
Book: Approved Drug Products with Therapeutic Equivalence
Evaluations available at <a href="https://www.accessdata.fda.gov/scripts/cder/ob/index.cfm">https://www.accessdata.fda.gov/scripts/cder/ob/index.cfm</a> (last accessed July 31, 2025).
---------------------------------------------------------------------------
3.8.3. Proposed Paragraph (e)(9)(iii)
Under proposed paragraph (e)(9)(iii), if the covered service
provider, an affiliate, an agent, or a subcontractor retains authority
to modify the formulary during the term of the contract or
arrangement--such as by adding or removing drugs or changing their
tiering--the initial disclosure must include an explanation of the
reasons for retaining such authority and the expected frequency of such
changes. Further, the disclosure must provide that the responsible plan
fiduciary will be notified reasonably in advance of any modifications
that, individually or in the aggregate, are reasonably expected to have
a material impact on the reasonableness of compensation under the
contract or arrangement. The disclosure also must notify the
responsible plan fiduciary of the self-insured group health plan's
right to terminate the contract or arrangement on reasonably short
notice under the circumstances.
The purpose of the advance disclosure requirement is to notify the
responsible plan fiduciary sufficiently in advance of the upcoming
modification so that the responsible plan fiduciary can either consent
or raise an objection. Modifying the formulary is an act of plan
administration, with important consequences to the self-insured group
health plan and its participants. The responsible plan fiduciary could
not properly carry out its administrative responsibilities under ERISA
without this advance notice, and likewise the covered service provider
might be exercising discretionary authority or responsibility in the
administration of the self-insured group health plan if it unilaterally
effected the modifications without the responsible plan fiduciary's
consent.
With respect to this advance notice requirement, the proposed
regulation does not specify a number of days ``in advance'' for the
notice to be provided. Ideally, the notice would be given sufficiently
in advance so that responsible plan fiduciary has a reasonable period
to consider the modification and consent or raise an objection.
Comments are requested on whether the final regulation should provide
more specificity regarding the timing of this advance notice. In this
regard, for example, the Department currently is considering whether to
require the notice to be furnished at least 75 days in advance of the
change, to allow the self-insured group health plan to provide notice
to plan participants at least 60 days prior to the date the upcoming
material modification becomes effective, if required.\128\
---------------------------------------------------------------------------
\128\ See 29 CFR 2590.715-2715(b).
---------------------------------------------------------------------------
This advance notice requirement would be triggered only with
respect to formulary modifications that, individually or in the
aggregate, are reasonably expected to have a material impact on the
reasonableness of compensation under the contract or arrangement. In
this way, the trigger is carefully tied to matters of compensation--the
chief topic of section 408(b)(2) of ERISA.
For this purpose, proposed paragraph (e)(9)(iii) provides that the
term ``material'' means an amount that is 5 percent or more, or such
lower percentage or dollar amount that may be agreed to by the
responsible plan fiduciary and set forth in writing in the contract or
arrangement, of the aggregate compensation (on a quarterly basis)
disclosed pursuant to paragraph (e)(3) of the proposed regulation,
adjusted for any increases previously disclosed under paragraph (e)(9).
Thus, the base amount on which the materiality of the modification is
judged would initially be the amount disclosed pursuant to paragraph
(e)(3), but it would increase by the amount of any modifications
disclosed under proposed paragraph (e)(9)(iii).
The following example illustrates how the base amount paragraph
(e)(9)(iii) adjusts as material modifications are made to the
formulary. Assume that in advance of entering a contract with a self-
insured group health plan, a covered service provider discloses
pursuant to paragraph (e)(3) reasonably expected payments on a
quarterly basis of 100 dollars. After entering the contract, the drug
formulary is not modified in the first quarter. In the second quarter,
a contemplated modification would result in an increase in compensation
above the initially-disclosed amount (100 dollars) by two percent.
Advance disclosure of this modification would not be required by
proposed paragraph (e)(9)(iii), unless the parties had agreed to a two
percent threshold. No changes are made in the third quarter. Then, a
contemplated modification in the fourth quarter would result in an
increase in compensation above the initially-disclosed amount (100
dollars) by four percent. Because the aggregate of the fourth quarter
modification (four percent increase to initially-disclosed amount) and
the second quarter modification (two percent increase to initially-
disclosed amount) collectively are expected to exceed five percent,
advance notice of the fourth quarter modification would be required
under proposed paragraph (e)(9)(iii). The disclosure would need to
describe the aggregate (six percent) increase to the initially-
disclosed amount. Going forward, the five percent threshold in proposed
paragraph (e)(9)(iii) would apply to the initially disclosed amount
(100 dollars) plus the amount disclosed under paragraph (e)(9) (six
dollars, or six percent of 100 dollars).
The Department is proposing a materiality standard as a trigger to
balance the amount of disclosure provided to responsible plan
fiduciaries. Without a materiality standard, the Department is
concerned that responsible plan fiduciaries might be inundated with
advance notices of formulary modifications. This concern is based on
the understanding that PBMs make frequent changes to formularies.
[[Page 4368]]
The proposed materiality standard has two components: it would
include a ceiling of a five percent impact over the base amount, and it
would also allow for the covered service provider and responsible plan
fiduciary to negotiate a lower threshold (dollar or percentage).\129\
The Department understands that in other contexts, materiality is
determined based on the significance to the impacted parties.\130\
However, the Department also believes that covered service providers
and responsible plan fiduciaries may appreciate a bright line rule as
an alternative. In another context, the Department has used a five
percent standard to define materiality.\131\
---------------------------------------------------------------------------
\129\ The parties may agree to other changes to the formulary
that would trigger advance notification to the responsible plan
fiduciary. It is a best practice to memorialize in writing any such
negotiated advance notice thresholds or triggers.
\130\ See e.g., Basic Inc. v. Levinson, 485 U.S. 224, 240
(1988).
\131\ See 29 CFR 2520.101-5(g)(3) (in the annual funding notice
for defined benefit pension plans, providing that events having a
material effect on liabilities or assets would be defined, in part,
as events resulting in or projected to result in an increase or
decrease of five percent or more in the value of assets or
liabilities from the valuation date of the notice year); see also
Annual Funding Notice for Defined Benefit Plans, 80 FR 5626
(February 2, 2015).
---------------------------------------------------------------------------
The Department seeks comments on the approach in proposed paragraph
(e)(9)(iii), including whether it is common for providers of pharmacy
benefit management services to retain authority to modify the formulary
during the term of the contract or arrangement--such as by adding or
removing drugs, changing their tiering, or changing utilization
management strategies. If it is common, how frequently do PBMs make
formulary changes, and is advance notice of such modifications given to
self-insured group health plans? Further, the Department seeks comments
on the proposed definition of materiality. Do commenters believe the
approach taken in the proposal is workable and identifies an
appropriate test for materiality? For example, should the test for
materiality in the proposal--which is based on a 5 percent increase
over the estimated amount of expected rebates from manufacturers or
aggregators--be broadened to include other compensation, such as
spread? Are there alternative tests for materiality, such as the annual
increase in the average cost of health care, that would be more
appropriate? Alternatively, would it be better to trigger advance
disclosure on ``any non-trivial changes in the formulary that could
affect the covered service provider's own compensation?''
The Department also seeks comments on the proposed requirements in
paragraph (e)(9) as a whole. Is the information required for disclosure
under paragraph (e)(9) useful to a responsible plan fiduciary in
assessing the reasonableness of compensation under the terms of the
contract or arrangement, or potential conflicts on the part of the
provider of services? Are there additional factors or considerations
related to the use of formulary placement incentives that the
Department should consider? What challenges are likely to arise in
requiring a covered service provider to disclose this information? What
challenges will a responsible plan fiduciary encounter in using the
information disclosed to assess the reasonableness of compensation?
3.9. Drug Pricing Methodology
Under proposed paragraph (e)(10), the initial disclosure must
include a description of the net cost to the self-insured group health
plan of each drug on the formulary, for each pharmacy channel,
expressed as a monetary amount. If a monetary amount is not
ascertainable, the covered service provider must disclose the
methodology used by the covered service provider, an affiliate, an
agent, or a subcontractor, under the contract or arrangement, to
determine the cost the self-insured group health plan will pay for each
drug on the formulary, for each pharmacy channel, along with an
objective means to verify the accuracy.
The proposed regulation would require the covered service provider
to disclose the net cost to the self-insured group health plan of each
drug on the formulary by pharmacy channel, including mail order
pharmacy, retail pharmacy, and specialty pharmacy. The net cost refers
to the total cost to the self-insured group health plan after all
discounts, rebates, or other adjustments are applied by the covered
service provider pursuant to the contract or arrangement. The covered
service provider would disclose to the responsible plan fiduciary the
cost of each drug as a monetary amount when such figures can be
ascertained by available information.
In instances where a monetary amount cannot be ascertained by the
covered service provider, the (e)(10) disclosure requirement may be
satisfied if the covered service provider instead discloses the
methodology that will be used to determine the cost to the self-insured
group health plan and an objective means to verify the accuracy of that
methodology. An example of this methodology would be a price determined
by reference to AWP, and a direction to the plan as to where the AWP
that will be used may be located. Depending on the specific pricing
methodology being used, other examples of information that may be
provided by the covered service provider, enabling the responsible plan
fiduciary to verify the accuracy of the disclosed drug pricing
methodology, could include pricing indices, rate schedules, benchmark
formulas, or similar objective data sources.
The Department has no single specific list or benchmark in mind to
satisfy this verification requirement. The self-insured group health
plan and PBM are best situated, on a case-by-case basis, to establish
solutions that meet their individual needs. The intent of this
provision is to address the reported opacity in the pharmaceutical
supply chain and to remedy the imbalance in bargaining power between
self-insured group health plans and large PBMs.
The (e)(10) disclosure requirements serve to establish price
transparency to ensure a responsible plan fiduciary can effectively
evaluate whether the contract or arrangement with the covered service
provider is reasonable. The responsible plan fiduciary gains clear and
upfront awareness of drug costs and can assess the fairness and
predictability of such prices, preventing arbitrarily inflated net
costs, and enabling the selection of pricing models most aligned with
the interests of the self-insured group health plan. Additionally, the
(e)(10) provision limits opportunities for covered service providers to
use non-transparent discretionary pricing formulas that could obscure
the true costs of drugs on the formulary.
The Department requests comment on whether the language in
paragraph (e)(10) provides sufficient clarity to covered service
providers regarding their disclosure obligations or whether adjustments
should be made. For example, should the provision specify how the term
``drug'' will be defined? If so, the Department requests that
commenters please provide suggested language.
3.10. Statement of Fiduciary Status
Under proposed paragraph (e)(11), the initial disclosure must
include, if applicable, a statement that the covered service provider,
an affiliate, an agent, or a subcontractor will provide, or reasonably
expects to provide, services pursuant to the contract or arrangement
directly to
[…truncated; see source link]Indexed from Federal Register on January 30, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.