Introduction.

Navigating the complexities of Pharmacy Benefit Manager (PBM) agreements can be just as challenging as managing Third Party Administrator (TPA) contracts for self-insured health and welfare plans. With growing regulatory scrutiny on PBMs, recent legislation such as the Consolidated Appropriations Act (CAA) and new state transparency laws have introduced transformative changes aimed at enhancing cost transparency, fairness, and fiduciary accountability.

For plan sponsors, understanding and leveraging these legislative mandates is crucial for optimizing PBM agreements, securing rebate transparency, and eliminating excessive costs. This blog post explores key regulatory provisions relevant to PBM negotiations and how they can be strategically applied to drive financial benefits for plan sponsors.

Overview of the CAA and New PBM Transparency Laws

The Consolidated Appropriations Act (CAA) of 2021 introduced sweeping reforms aimed at enhancing healthcare cost transparency. While the No Surprises Act (NSA) has received attention for addressing balance billing issues, other provisions of the CAA—and more recent state-level PBM reform laws—target pharmacy benefit arrangements to promote fair pricing and protect plan sponsors from hidden costs.

In addition to federal regulations, multiple states have passed PBM reform laws requiring full rebate disclosures, bans on spread pricing, and fair pricing methodologies to reduce cost burdens on self-insured plans. These laws present an opportunity for plan sponsors to renegotiate PBM contracts, ensuring pricing transparency, fiduciary protection, and cost efficiency.

Key Legislative Provisions Relevant to PBM Agreements.

Understanding which CAA and state PBM laws can be leveraged in PBM contract negotiations is essential for plan sponsors. Here are some of the most impactful provisions:

1. Transparency in Prescription Drug Pricing

The CAA mandates greater transparency in pharmacy benefit pricing by requiring PBMs to disclose:

• Negotiated drug prices
• Actual manufacturer rebates
• Spread pricing practices

Many state-level PBM laws have gone even further, requiring 100% rebate pass-throughs and full disclosure of drug acquisition costs. Plan sponsors can leverage these laws to demand clearer pricing structures and greater rebate transparency in PBM contracts.

2. Prohibition of Spread Pricing

Several states have now banned spread pricing, a practice where PBMs charge the plan sponsor more for a prescription than they reimburse the pharmacy, pocketing the difference.

Plan sponsors should negotiate contract terms that ensure:

• Direct pass-through pricing models
• Elimination of inflated prescription drug markups
• PBM compensation transparency

3. Good Faith Estimate (GFE) Requirements for Pharmacy Costs

PBMs are increasingly being held to the same cost estimation standards as other healthcare providers. Some state laws now require PBMs to provide accurate cost estimates for prescription drugs before dispensing.

Plan sponsors can incorporate GFE clauses into PBM contracts to ensure:

• Upfront pricing disclosures before prescriptions are filled
• Greater cost predictability for plan participants
• Stronger financial protections for the plan sponsor

4. Prohibition of Gag Clauses

Under the CAA, PBMs are now prohibited from using gag clauses that prevent plan sponsors from accessing critical data about drug pricing and rebates.

By renegotiating PBM contracts, plan sponsors can:

• Demand unrestricted access to claims and rebate data
• Ensure full transparency in PBM financial arrangements
• Gain better control over cost management and formulary decisions

5. Enhanced Fiduciary Responsibilities for Plan Sponsors

The CAA reinforced the fiduciary duties of plan sponsors, requiring them to ensure that PBM agreements act in the best financial interests of plan participants. This means that plan sponsors are obligated to renegotiate contracts that include non-transparent pricing, excessive markups, or misaligned rebate structures.

Why PBM Negotiation is Essential for Plan Sponsors.

With increased legislative oversight, plan sponsors have a unique opportunity to renegotiate PBM contracts and demand better pricing models, clearer rebate structures, and stronger participant protections. Here’s why PBM negotiation is critical:

1. Aligning with Legislative Compliance

Ensuring PBM agreements meet transparency mandates under the CAA and state laws helps plan sponsors avoid regulatory penalties and reduce legal exposure.

By renegotiating PBM contracts, plan sponsors can:

• Ensure compliance with federal and state pricing disclosure laws
• Prevent hidden pricing tactics that violate fiduciary standards
• Enhance overall contract transparency

2. Enhancing Cost Efficiency

With greater visibility into drug pricing and rebate structures, plan sponsors can:

• Identify hidden costs and markups
• Eliminate excessive PBM service fees
• Leverage competitive pricing models to secure better terms

3. Mitigating Fiduciary Risk

The CAA requires plan sponsors to ensure that PBM agreements are structured in the best interests of plan participants. Contracts that contain excessive markups, rebate misalignment, or spread pricing models put plan sponsors at risk of fiduciary breaches.

By renegotiating PBM contracts, plan sponsors can:

• Demonstrate compliance with fiduciary obligations
• Mitigate financial risks associated with non-transparent PBM arrangements
• Protect plan participants from inflated prescription drug costs

4. Driving Value and Participant Protection

PBM contract negotiations allow plan sponsors to enforce stronger compliance measures, ensuring that:

• Plan participants receive full protections under NSA balance billing rules
• Out-of-pocket costs for prescriptions remain fair and predictable
• PBMs remain accountable for their pricing and rebate practices

Practical Steps for Applying CAA and PBM Transparency Laws to Negotiations

To maximize the impact of PBM contract renegotiations, plan sponsors should follow these strategic steps:

Step 1: Conduct a Comprehensive Contract Review: Analyze existing PBM agreements for compliance gaps and hidden costs that conflict with transparency mandates.

Step 2: Identify Opportunities for Cost Savings: Use pricing transparency requirements to highlight inefficiencies in current agreements and negotiate financial credits or reduced service fees.

Step 3: Develop a Compliance Checklist: Create a compliance checklist to ensure all contract revisions align with CAA provisions, PBM transparency mandates, and fiduciary best practices.

Step 4: Engage Legal and Compliance Experts: Collaborate with legal teams well-versed in PBM regulations to negotiate contract amendments that maximize financial efficiency and compliance.

Step 5: Establish Ongoing Monitoring: Regularly review PBM performance metrics and financial disclosures, ensuring contracts remain aligned with evolving regulations and plan sponsor goals.

Conclusion.

The CAA and new PBM transparency laws have reshaped the compliance landscape, requiring greater accountability and financial clarity in PBM agreements. For plan sponsors, these regulatory changes present not just a compliance challenge, but an opportunity to renegotiate PBM contracts—securing millions in cost savings, eliminating non-transparent pricing, and ensuring alignment with fiduciary obligations.

By understanding and strategically applying these regulations, plan sponsors can enhance financial sustainability, reduce prescription drug costs, and drive better value for their organizations and plan participants. Now is the time to take control of your PBM contract negotiations. Contact PBM NEGOTIATOR™ today to secure more transparent, cost-effective agreements that benefit both your organization and your plan participants.