New DOL Rule Forces PBMs Into the Open: What Self-Insured Employers Need to Know

Under a final rule from the Department of Labor, pharmacy benefit managers must disclose how they get paid — and employers gain enforceable audit rights to verify it.

The Department of Labor has finalized a rule under the Employee Retirement Income Security Act (ERISA) requiring pharmacy benefit managers (PBMs) and their affiliates — including affiliated brokerage and consulting firms — to make detailed disclosures of their fees and compensation to the fiduciaries of large, employer-sponsored, self-insured group health plans. Regulators project the rule will lower drug costs for employers and their workers by $22 billion over a decade.

The rule implements Executive Order 14273, Lowering Drug Prices by Once Again Putting Americans First, which directed the Department to improve employer health plan fiduciary transparency into the direct and indirect compensation PBMs receive. It fills a long-standing gap: PBMs may receive compensation not only from the health plan, but also from drug manufacturers, pharmacies, rebate aggregators, and others — arrangements that have historically been complex and difficult for plan fiduciaries to evaluate.

Who Is Covered

The rule applies to “covered service providers” (CSPs) serving large self-insured group health plans — generally plans with 100 or more participants, or plans offered by employers with 100 or more employees. A CSP is any entity providing pharmacy benefit management services, regardless of whether it calls itself a PBM, that contracts with a large self-insured plan and expects to receive $1,000 or more in compensation, directly or through affiliates, agents, or subcontractors.

Covered services include the full scope of PBM work: negotiating rebates, managing drug formularies and pharmacy networks, conducting utilization review, processing claims, and performing compliance activities.

What PBMs Must Disclose

Initial disclosures must be provided in writing reasonably ahead of entering into, extending, or renewing a contract — at least 90 days in advance for renewals and extensions. They must describe:

• Services to be delivered under the contract or arrangement
• Direct compensation from the plan or plan sponsor, by service and in total, including amounts allocated to each service in a bundled arrangement
• Indirect compensation from sources other than the plan, including:
  • Manufacturer payments — rebates, fees, discounts, and other payments from drugmakers and related entities, specifying what will be passed to the plan and what the PBM will retain
  • Spread compensation — the difference between what the plan pays the PBM and what the PBM pays pharmacies, specified by drug and pharmacy channel, plus any incentives or policies that steer patients to PBM-affiliated pharmacies
  • Pharmacy recoupment — copay “claw-backs” and other retroactive adjustments to pharmacy reimbursement
  • Price protection agreements with manufacturers, including amounts passed through to the plan versus retained by the PBM
• Compensation related to contract termination, including how prepaid amounts are calculated and refunded
• Formulary placement incentives — arrangements with manufacturers that affect where drugs sit on the formulary, and in some cases a list of alternatives omitted from the formulary with an explanation
• Drug pricing methodology — the net price paid for drugs after rebates and fees, or the methodology used to calculate it
• A statement of fiduciary status, if the PBM expects to act as an ERISA fiduciary for the plan
• A statement of audit rights, explaining the plan’s right to audit the disclosures and how to request one

Ongoing disclosures are due no later than 30 calendar days after the end of each semiannual period under the contract — or quarterly, if the plan requests it. These report actual amounts received in each category, allowing fiduciaries to compare actual compensation against the initial disclosure. If an amount exceeds the initial disclosure by 5 percent or more (or a lower threshold the parties agree to), the PBM must provide an overage explanation identifying the amount and the reason for it.

All disclosures must be clear, concise, free from misrepresentation, expressed as monetary amounts, and available in a standard machine-readable file upon request. PBMs may not restrict a plan’s use of the disclosures.

New Audit Rights

For the first time, the rule grants plans explicit audit rights. A plan may audit its PBM at least once a year to verify the accuracy of its disclosures, and the plan — not the PBM — independently chooses the auditor. The PBM may not restrict that choice, or limit the timing, location, or information access needed for the audit.

Once an audit is requested, the PBM must acknowledge within 10 business days and generally provide the necessary information within 60 calendar days. That includes all relevant records, claims and transaction-level data, and — subject to reasonable confidentiality agreements — contracts with retail pharmacies, drug manufacturers, and rebate aggregators. The plan pays its auditor; the PBM pays for producing the requested information.

Consequences for Non-Compliance

A PBM that fails to make required disclosures cannot rely on ERISA’s prohibited transaction exemption — exposing the arrangement to potential invalidation and financial penalties. The rule also establishes an administrative class exemption for responsible plan fiduciaries when a CSP fails to comply, provided the fiduciary takes specified steps, including notifying the Department if the failure is not corrected.

Key Dates

Effective date: 60 days after publication in the Federal Register
Applicability: Plan years beginning on or after July 1, 2027

A temporary enforcement policy applies from February 3, 2026 until the rule’s requirements apply, for parties acting in good faith

Why This Matters Now

The rule arrives as pharmacy spending consumes a growing share of employers’ health budgets. Drug costs are expected to jump 11.5% in 2026, up from 9% the year prior, according to advisory firm WTW. And oversight has been lacking: just under half of large employers report getting sufficient insight into how much pharmaceutical companies are paying their health plan or PBM, according to a recent KFF report.

Disclosure, however, is only the first step. The rule gives employers the data and the audit rights — but realizing the savings requires knowing what to look for in the disclosures and acting on what an audit finds.

How TFG Partners Can Help

The new rule creates rights; TFG Partners provides the independent expertise to exercise them. As the pioneer of full-service, 100% medical and Rx claims auditing — and fully independent of PBMs, TPAs, carriers, and consultants — TFG is positioned to serve as the auditor your plan chooses under the rule, and to do far more between audits:

• Independent annual audits. The rule lets your plan — not your PBM — choose its auditor. TFG’s 100% claims audits review every claim, not a sample, and verify PBM disclosures against actual claims and transaction-level data, including the manufacturer payments, spread compensation, and rebate categories the rule now requires PBMs to disclose.
• Continuous claims monitoring. An annual audit is retrospective; errors surface months after they occur. TFG’s continuous monitoring service screens every medical and Rx claim in near real time, catching discount shortfalls, missed or under-credited rebates, spread pricing errors, copay claw-backs, and formulary misapplications in the same billing cycle — and producing the monthly and quarterly reporting that documents your fiduciary oversight under ERISA.
• RFP and contract support. With initial disclosures due 90 days before every renewal, employers now have unprecedented leverage in PBM negotiations. TFG’s PBM RFP management and market check services help you use that leverage to secure competitive pricing and contract terms ahead of the July 2027 applicability date.

The economics are straightforward: TFG’s savings often exceed four or more times the cost of its services, billed as a fixed quarterly fee based on plan size.

Is your PBM contract ready for July 2027? Contact TFG Partners to make sure the new disclosures work in your favor — not just your PBM’s.