The new PBM disclosure rule: Shedding light on opaque compensation 

The Department of Labor released a highly-anticipated final rule requiring Pharmacy Benefit Management service providers and certain affiliates to disclose extensive compensation information to most ERISA-covered, large self-funded group health plans. The rule is intended to provide fiduciaries with sufficient information to satisfy their ERISA fiduciary duties, evaluate whether PBM compensation is reasonable and identify potential conflicts of interest.

The transparency gap the rule addresses

For years, PBMs have operated in a largely opaque environment. Plan sponsors may pay explicit administrative fees to their PBMs but often remain unaware of other revenue streams — such as manufacturer rebates, spread pricing, affiliate arrangements and pharmacy recoupments. Beginning with plan years starting on or after July 1, 2027, PBMs will need to fully disclose all their direct and indirect compensation to plan fiduciaries, including compensation from drug manufacturers, pharmacies and affiliated entities.

How the rule works

ERISA generally treats contracts between a plan and its service providers as “prohibited transactions.” However, an exemption allows plans to work with service providers if three conditions are met: the contract is reasonable, the services are necessary to establish or operate the plan and the compensation is reasonable. Compensation disclosures by plan service providers are already required to meet this prohibited transaction exemption. The new DOL rule will require PBMs and their affiliates that provide advice, recommendations or referrals regarding PBM services to disclose additional detailed compensation information to plan fiduciaries to satisfy this exemption.

What PBMs will be required to disclose

PBMs must provide two types of disclosures. Initial disclosures come before contract signing and must include a description of all services, direct and indirect compensation, drug pricing methodology, formulary placement incentives, compensation for contract termination, fiduciary status and audit rights. The rule defines indirect compensation to include revenue streams such as manufacturer payments, spread compensation by channel, pharmacy recoupment including copay claw-backs and price protection agreements. For contract renewals or extensions, PBMs should provide these disclosures at least 90 days in advance.

Semiannual disclosures will report actual compensation received, allowing plan fiduciaries to compare estimates against what was actually paid. These disclosures must specify direct and indirect compensation, plus include material overage explanations, fiduciary status and audit rights. A group health plan may request quarterly disclosures.

All disclosures must be provided in plain language, with compensation expressed as a dollar amount. If actual amounts are not reasonably available, a good faith estimate is acceptable. Upon request, plan fiduciaries can obtain this information in a machine-readable file. The rule is intended to ensure that fiduciaries may share information with third parties, though reasonable confidentiality agreements may limit further use or disclosure.

The rule does not require disclosures to fully insured, church or local government plans, qualified small employer health reimbursement arrangements, plans sponsored by an entity in the drug supply chain or to self-funded plans that do not qualify as large under the rule.

Plan fiduciaries must ensure receipt of disclosures

Plan fiduciaries must ensure receipt of all mandated compensation disclosures. The rule provides relief for plan fiduciaries if their PBM fails to meet its disclosure obligations, but only if the fiduciary takes specific steps upon discovering the failure, including notifying the DOL. To satisfy their duty of prudent PBM oversight, plan fiduciaries will need a process for reviewing and retaining disclosures and acting on the information when necessary.

Plan fiduciaries’ right to audit

The rule allows plan fiduciaries to audit the accuracy of PBM compensation disclosures annually. They may use an auditor of their choosing. The rule limits a PBM's ability to restrict that auditor's access to claims and other relevant data or scope of review. The covered plan pays for the auditor, while the service provider pays for the costs of providing required information.

What's next for plan sponsors

This rule will change how plan sponsors evaluate and oversee their pharmacy benefits. Plan sponsors will gain visibility into whether PBMs are earning undisclosed revenue through spread pricing, manufacturer rebates or affiliated pharmacy arrangements. They will be better positioned to assess whether current PBM arrangements provide fair value or whether alternative models may serve their employees better.

Plan fiduciaries should begin reviewing PBM arrangements now, understanding available compensation and audit rights, and considering how future disclosures will fit within their broader fiduciary process. Plan sponsors should prepare for these changes before the rule takes effect.

More changes are on the horizon. PBM reforms in the 2026 Consolidated Appropriations Act, effective for plan years beginning on or after August 3, 2028, will bring even more transparency and changes to PBM compensation.