Some states look to strengthen PBM standards 

Raising the bar is nothing new for someone like Mondo Duplantis, renowned pole vault champion. He has set a world record in the event over a dozen times. Raising the bar on Pharmacy Benefit Managers has seen a similar takeoff. Several states’ approach has been to pass laws establishing a standard of conduct. These efforts are not without controversy.

As prescription drug costs have generally outpaced inflation, PBMs have become a common target of state legislators, accustomed to hearing from constituents about the cost of prescription drugs. In response, some laws impose a specific standard of conduct on PBMs working on behalf of both fully insured and self-funded ERISA plans. Required standards of conduct tend to fall into one of three buckets:

• Good faith and fair dealing standard. This is a legal term often used by courts to require honesty and fairness between two parties in a contractual relationship. Connecticut (2025), North Carolina (2025) and New Jersey (2024) have enacted laws requiring this standard from PBMs in the performance of their contractual duties. Similar bills in other states fell short this year.
• Fiduciary standard. The term “fiduciary” is common in the context of ERISA, which imposes a duty to act “with the care, skill, prudence and diligence … that a prudent man … would use” on those with discretionary authority or responsibility over the plan.  This is generally a higher standard than good faith and fair dealing. Indiana (2025) and Vermont (2022) have enacted laws imposing this fiduciary standard on PBMs, including an ERISA-like requirement to act with loyalty and care in the best interest of the plan sponsor or insurer.
• Specific duty of care standard. These laws provide more detail on PBM expectations. A 2024 Alaska law detailed a PBM’s duty of care, including notification and disclosure requirements to plan sponsors of any direct or indirect conflicts of interest. A California bill (SB 41) — currently on the governor’s desk — would impose these duties on a PBM: “to be fair and truthful toward the client, to act in the client’s best interests, to avoid conflicts of interest and to perform its duties with care, skill, prudence and diligence.”

At first blush, these requirements seem sensible. PBMs play a significant role in the prescription drug ecosystem. Few (if any) would debate that PBMs should act reasonably and responsibly in their interactions with insurers, plan sponsors, pharmacies and participants.

And yet, concerns exist.

First, exactly how does the required standard of conduct apply? The good faith and fair dealing provisions tend to be silent, presumably applying the standard to all PBM contractual duties. PBMs typically have contracts with plan sponsors, insurers and pharmacies. The laws imposing fiduciary standards apply to PBM interactions with either the plan sponsor or the insurer. The Alaska law extends the duty of care to the plan sponsor, benefits administrator and covered person, while the new California law specifically addresses the duty separately to self-funded employer plans and purchasers. A PBM owing the same standard of conduct to multiple entities may sometimes create a no-win situation. As the saying goes, you cannot serve two masters.

Second, while none of these laws explicitly provide a right of action to the plan sponsors, pharmacies or carriers, the potential for increased PBM liability for falling short of the required standard of conduct exists. A PBM might factor this risk into its costs, which is ultimately borne by the plan and its participants.

Third, to the extent that a plan sponsor wants to hold a PBM to a particular standard of conduct, it is free to spell it out in the service agreement, perhaps backing it up with performance guarantees. No doubt, some plan sponsors already do.

Finally, there is always the specter of ERISA preemption, particularly as these state laws relate to PBM conduct on behalf of self-funded plans. It is an open question as to whether PBMs exercise sufficient discretion to be considered a functional fiduciary, as defined by ERISA § 3(21). Nevertheless, ERISA arguably preempts state laws imposing additional fiduciary requirements on an ERISA fiduciary, if the laws “relate to” an ERISA plan. But for now, state legislatures show no signs of slowing their efforts to continue raising the bar for PBMs.

What is a plan sponsor to do? As needed, note the trend, monitor developments in the statehouse and courthouse, discuss with legal counsel and address with your PBM. After all, unlike pole vaulters, a plan sponsor does not want to land in the pit.