Employers who pay their workers’ drug bills without knowing how much their pharmacy benefit manager keeps are about to get an answer. The US Department of Labor finalized a rule on October 29 requiring pharmacy benefit managers (PBMs) to disclose the full scope of their fees and compensation to large self-insured employer health plans, with requirements taking effect for plan years beginning on or after July 1, 2027.
Employers on non-calendar fiscal years may reach that threshold before January 1, 2028, when calendar-year plans come into scope.
The rule, published in the Federal Register, applies to PBMs contracting with ERISA-covered self-insured group health plans. Under it, PBMs must disclose direct and indirect compensation, manufacturer rebates, spread payments, formulary placement incentives, and pharmacy recoupments, both at contract initiation or renewal and every six months thereafter.
Spread payments refer to the difference between what a plan pays for a drug and what the PBM reimburses the pharmacy, a gap that has historically been difficult for employers to quantify. Employers also gain an annual audit right. The rule defines covered plans as self-insured health plans with 100 or more participants, or those offered by employers with at least 100 employees. Plans below that threshold are not subject to the disclosure requirements.
PBMs that don’t comply face financial penalties and potential contract invalidation. The Employee Benefits Security Administration (EBSA) estimates the rule will reduce drug costs by $22 billion over a decade.
The rule draws a distinction from PBM transparency provisions already enacted in the Consolidated Appropriations Act of 2026 (CAA 2026). The CAA requires detailed retrospective reporting on drug spending and utilization. The DOL rule is prospective, mandating upfront disclosure before and during contract negotiations so plan sponsors can evaluate and compare PBMs on cost, not just on rebate guarantees. The DOL said the two regimes “complement each other.”
Rebate guarantees have grown as a sales tool even as employer drug costs continue rising. Business Group on Health’s 2027 Employer Healthcare Strategy Survey, released in August 2026 and covering 127 employers representing more than 8.7 million Americans, found that employer drug costs were projected to rise 12 percent in 2026, with pharmacy spending now accounting for 25 percent of employers’ total healthcare expenditure. The DOL rule changes the calculus for plan sponsors who have delayed moving to transparent PBM arrangements.
The fiduciary dimension adds another layer. By tying PBM disclosure to ERISA’s prohibited transaction exemption framework, the rule requires plan fiduciaries to actively evaluate the reasonableness of PBM compensation, not simply receive disclosures. That creates an active compliance obligation.
The rule’s disclosure structure reaches beyond PBMs to include affiliated brokers and consultants who recommend PBM services and receive compensation for doing so. Their fees and any conflicts of interest will also need to be disclosed to plan fiduciaries at contract initiation and on a semiannual basis.
Advisors working with self-insured clients are increasingly being asked to demonstrate the independence of their PBM recommendations, particularly as the conflicts embedded in PBM arrangements have come under sharper scrutiny alongside rising benefit costs that have pushed employers to examine vendor relationships more closely. The DOL rule gives plan sponsors a formal basis for asking that question, and expecting an answer.
PBM industry groups, led by the Pharmaceutical Care Management Association (PCMA), have argued the rule is redundant given the CAA reforms and excessively burdensome, particularly for smaller PBMs. David Marin, president and CEO of the PCMA, called it "a solution in search of a problem" when the rule was first proposed earlier this year. Legal challenges remain a possibility, though the DOL indicated it has statutory authority under ERISA Section 408(b)(2)(B).
