PBM Reform Laws Reach Mainstream

By: Bryan M. Dunton, Esq.

It may feel like everyone is suddenly talking about prescription drugs and pharmacy benefit managers (PBMs) this year, and that’s because they are. PBM reform has shifted from obscure policy debates to a regulatory groundswell of support for new laws in many states as well as a bipartisan federal bill. Collectively, these will fundamentally change how PBMs operate and are paid for services.

Many of these reforms impose limitations or outright bans on spread pricing and strengthen protections for pass-through pricing models. Spread pricing is when the PBM charges the health plan more for a drug than it pays the pharmacy, with the PBM keeping the difference (the so-called “spread”) as profit. In contrast, pass-through pricing is when PBMs charge health plans exactly what the pharmacy was paid and only make money through transparent administrative fees.

For self-funded health plans, TPAs, and plan sponsors, these reforms will directly impact contract design, pricing models, pharmacy networks, and the plan participant experience with their pharmacies.

California’s SB 41: A New Floor for PBM Conduct

In October 2025, California enacted SB 41, a sweeping law that state officials and those within the health insurance industry described as one of the toughest in the country. This law bans the act of spread pricing for PBMs operating in California and requires pass-through pricing. In fact, the law mandates that PBMs pass one hundred percent of manufacturer rebates and other price concessions back to the respective health plans. Importantly, the law also restricts steering plan participants to PBM-affiliated pharmacies, imposes licensure and oversight requirements on PBMs, and places fiduciary-like obligations and transparency mandates on PBMs so they act in the best interest of the health plans. The takeaway message for PBMs in California is that opaque spread pricing will not be allowed within the state. Secondarily, plan participants may be able to access a broader range of pharmacies since the law targets the vertical relationship between pharmacies owned by PBMs.

Due to California’s immense market, this cannot be considered an outlier. As is often the case, it is likely that other states will use this law as a template for drafting similar legislation across the country. It is also operationally difficult for PBMs to handle contracting differently in California. PBMs will want a solution that works elsewhere and may attempt to reconcile by changing their contracting standards to meet those required in California, a net positive for plans and their participants.

Self-funded plans in California may see reduced pricing as PBMs will not be able to retain spreads on claims. Increased transparency means a potentially stronger negotiating position for plans prioritizing cost containment. But compliance burdens are also likely to increase for PBMs within the state, which could also be passed onto groups via increased administrative fees.

Legislation in Other States

California is not alone. All 50 states now have some form of PBM regulation on the books, ranging from basic licensure and reporting requirements or network design components, to more detailed limitations like bans on spread pricing or pharmacy steering.

Two years ago, Florida enacted a law that requires pass-through pricing and bans spread pricing, among other requirements. Last year, Idaho and Vermont both banned spread pricing. This year, Arkansas became the first state in the country to ban PBMs and health plan affiliates from owning or operating pharmacies, thereby targeting vertical integration and what it alleges is anticompetitive behavior. This year Iowa also passed legislation which restricts pharmacy steering, underpayment of drugs, and misclassification of drugs designed to limit access to them.

Even when these laws formally regulate PBMs, the economic impact still flows through to self-funded employer contracts, pricing, and network design. Plans should be aware of these laws even if they are technically directed at PBMs.

Proposed Federal Legislation

Congress is once again attempting to enact PBM reform at the federal level. H.R. 4317, dubbed the “PBM Reform Act of 2025,” is a bill introduced in July. The bill not only has bipartisan support in the House of Representatives but also is heavily endorsed by physician and patient advocate groups. While this bill remains in committee, the key components are:

• Ban spread pricing in Medicaid.
• Delink PBM compensation from drug prices.
• Require PBMs to pass through manufacturer rebates and other price concessions.
• Broaden pharmacy access for Medicare beneficiaries.

The bill’s future, much like its congressional predecessors, remains uncertain. However, congressional policy direction is clear: eliminate spread pricing and promote pass-through pricing and transparency to group health plans. Congress appears to be taking cues from the states.

Impact for Self-Funded Plans

For plan sponsors and plan administrators, PBM reform is now a priority for contracting and operational compliance. Employers will need to ask targeted questions about spread versus pass-through pricing models, rebate guarantees and compliance with state-specific laws (where necessary). Contracts that rely on traditional PBM practices may no longer align with state laws or expectations.

Initially, plans should expect a patchwork approach sorted along line of business, network-specific design, or formulary design offered by their PBM. Ultimately, PBMs are likely to move to a uniform, nationwide model that mirrors the strictest state requirements, rather than patchwork implementation that is more difficult to maintain.

For self-funded ERISA plans, understanding where state PBM laws apply, and where ERISA preemption provides relief, will be crucial.

Laws restricting steerage and supporting independent pharmacies can change pharmacy network composition and reimbursement levels. Both can directly impact plan participant access patterns. Plans should monitor network access and pricing models for changes, ensuring there is negligible disruption to pharmacy access for their plan participants.

If any federal legislation passes, PBMs will need to redesign impacted lines of business for compliance; those changes, even if Medicare- and Medicaid-based, may spill over into their commercial and self-funded products.

Actions Self-Funded Plans Should Take Now

We recommend that self-funded plans begin by reviewing existing contracts for provisions relating to spread pricing, rebate retention, and steering. Given the current additional scrutiny on PBMs, plans have more leverage than usual to negotiate improvements that lower costs, enhance transparency, and include compliance representations toward applicable PBM laws.

Lastly, tracking pending legislation as well as litigation over recently enacted laws is always prudent. This will help self-funded plans anticipate cost and operational changes, as well as any disruption in services to plan participants.

PBM reform has become a driving force in national healthcare policy, reshaping incentives, transparency, expectations, and finances within the pharmacy ecosystem. With legislators at every level now rewriting PBM rules, the impact on self-funded plans will be both immediate and long-term. The Phia Group’s expert consulting team maintains a PBM state law tracker and the team is here to help you understand these developments, anticipate operational changes, and position your plan for optimal compliance with these changes.