Federal PBM Compensation Shifts: Early CAA 2026 Considerations

ABSTRACT

The Consolidated Appropriations Act, 2026 (CAA 2026) introduces the most significant federal restructuring of pharmacy benefit manager (PBM) compensation to date. Effective January 2028, the act restructures Medicare Part D by effectively eliminating spread pricing, mandating the full pass-through of manufacturer remuneration, restricting PBM revenue to bona fide service fees delinked from drug prices and codifying “any willing pharmacy” network inclusivity. Similar mandates apply under the Employee Retirement Income Security Act of 1974 (ERISA) for employer-sponsored plans, though they are primarily subject to mandatory pass‑through and fiduciary reasonableness standards rather than explicit statutory delinking of service fees.

Reforms to the Internal Revenue Code of 1986, the Public Health Service Act, Medicare, and ERISA aim to improve transparency and auditing for patients, payers, and the federal government while reducing incentives tied to high list prices. This transparency redefines PBM-payer engagement, reconfiguring the PBM’s role within the drug supply chain. Furthermore, the CAA 2026 redistributes PBM profits to Medicare and ERISA plans, shifting the emphasis from rebate maximization to net cost savings and transferring greater financial risk to plan sponsors.

This commentary examines the structural implications of these reforms for managed care pharmacy, including emerging challenges related to incentive alignment, administrative burden, and formulary design. Importantly, these implications represent early interpretations of potential downstream effects rather than finalized regulatory outcomes.

Early evidence suggests that while the CAA 2026 enhances accountability, it may also introduce new distortions in pricing strategies. Managed care organizations will likely need to adapt to a data-intensive, plan-centric model of oversight as these reforms continue to evolve.

Am J Manag Care. 2026;32(9):In Press

doi:10.37765/ajmc.2026.90007

Takeaway Points

• The Consolidated Appropriations Act, 2026 (CAA 2026) establishes Medicare Part D reforms that eliminate spread pricing, mandate the full pass-through of manufacturer remuneration, limit pharmacy benefit manager revenue to delinked service fees, and mandate network inclusivity for “any willing pharmacy.”
• The CAA 2026 requires 100% rebate pass-through for employer-sponsored Employee Retirement Income Security Act of 1974 (ERISA) plans.
• The CAA 2026 stipulates rigorous transparency and auditing requirements for health plans under Medicare Part D, ERISA, the Internal Revenue Code, and the Public Health Service Act.

Pharmacy benefit managers (PBMs) have long occupied a central yet controversial role in the prescription drug supply chain. Acting as intermediaries between manufacturers, pharmacies, and payers, PBMs negotiate rebates, design formularies, and manage drug utilization for most insured residents in the US. Estimates indicate that PBMs serve approximately 289 million individuals in the US across the primary insurance markets (commercial, Medicare Part D, and Medicaid). At the same time, more than26 million Americans lack insurance coverage entirely.¹

The Consolidated Appropriations Act, 2026 (CAA 2026) represents a major federal intervention into this system.² Drawing from earlier PBM reform proposals, the legislation introduces sweeping changes to PBM compensation, transparency requirements, and pharmacy network design. The biggest changes were made regarding Medicare Part D, but many adjustments extend to plans governed by the Employee Retirement Income Security Act (ERISA), Internal Revenue Code (IRC), and Public Health Service Act (PHSA), which broadens the scope of enforcement to include employer-sponsored, tax-code, and church-based plans and other private-sector group health plans.

At its core, the CAA 2026 seeks to address long-standing concerns regarding opaque pricing practices, particularly spread pricing and rebate retention. However, by restructuring how PBMs generate revenue and interact with plan sponsors, the law does more than increase transparency: It fundamentally alters the incentive architecture of the pharmacy benefit ecosystem. This commentary evaluates the early implications of these reforms for managed care, focusing on how changes in compensation models, regulatory oversight, and market dynamics may influence cost containment, access, and competition.

Structural Reform of PBM Compensation

The CAA 2026 introduces 3 key interrelated reforms that collectively redefine PBM compensation within the Medicare Part D space.²

First, the law effectively eliminates spread pricing, the practice of retaining the difference between payer reimbursement and pharmacy payment. Of note, although margin-based revenue exists across the pharmaceutical supply chain, the CAA 2026 specifically restructures the PBM’s role within this model. Second, it requires that 100% of manufacturer rebates and other price concessions be passed through to the federal government; this also applies to ERISA-related plans, but rebates are passed through to the other plans. Third, PBMs are limited to collecting “bona fide service fees,” defined as flat, fair-market-value payments (as defined by the HHS secretary) for services rendered. These fees must not be tied to drug prices or utilization volume. This provision explicitly delinks PBM compensation from drug pricing, marking a departure from prior models in which revenue was often correlated—directly or indirectly—with list prices or rebate magnitude. Of note, ERISA-governed employer plans are also subject to rebate pass-through requirements, but without explicit delinking of fees from drug prices. Additionally,ERISA-, IRC-, and PHSA-governed plans require reporting of remuneration. This creates various compensation frameworks under which PBMs may operate, with different economic models depending on the line of business. Such divergence introduces the potential for cross-subsidization, strategic pricing adjustments, and inconsistent incentives across markets. For managed care organizations operating in both Medicare and commercial segments, this complexity may complicate contracting and performance evaluation.

Transparency and Data Infrastructure Expansion

In parallel with compensation reforms, the CAA 2026 imposes extensive transparency and reporting requirements.² PBMs must now provide reports to large group health plans governed by ERISA, IRC, and PHSA every 3 to 6 months containing a list of all the drug-related claims, including the “compensation paid by the health plans,” the “compensation paid to the pharmacy,” “the difference between the amount paid [to the health plan and the pharmacy],”total PBM remuneration including rebates and fees, “description[s] of formulary tiers [and rationale for placement for drugs with gross spending more than $10,000] and utilization mechanisms (such as prior authorization or step therapy),” “lowest cost per [dose] from any pharmacy [in the plan’s] network,” and “total out-of-pocket [amount spent] by participants.”² For any ERISA, IRC, or PHSA group health plan, regardless of size, PBMs must also offer a “summary document for plans…to provide to participants…upon request” that includes aggregate data related to a plan’s drug spending, rebates and remuneration received, and an explanation of benefits for using encouraged PBM-affiliated pharmacies.² Medicare Part D requires PBMs to provide “fully transparent…cost performance measurements,” including rebates, pharmacy reimbursements, and an extensive list of other requirements.²

Prescription drug plan (and other plan) sponsors are granted expanded annual audit rights, including the ability to review contracts, pricing guarantees, and underlying data; they may use an auditor of their choice.² Additionally, the HHS secretary will establish mechanisms for pharmacies, manufacturers, and other stakeholders to confidentially “report…alleged violations” of PBM requirements.²

These provisions collectively create a robust data infrastructure that extends beyond compliance. Over time, such data standardization may enable benchmarking, comparative performance evaluation, and potentially more direct regulatory intervention. Although transparency is a central policy objective, it may also introduce significant administrative burden.

The expansion of reporting, audit, and compliance requirements is likely to increase administrative costs, particularly for plan sponsors, who may now need to allocate resources to oversight and auditing. These costs may increase premiums or cost sharing for beneficiaries, partially offsetting the intended savings from pricing reforms.

Redistribution of Incentives and Risk

Although the CAA 2026 seeks to reduce incentives tied to rising treatment costs, it does not eliminate economic incentives from the system. Instead, it redistributes them.

Under prior models, PBMs were incentivized to maximize rebate volume and to favor higher–list-price drugs with larger rebates.^3,4 Under the new framework, PBMs are now increasingly incentivized to value measurable net cost savings, administrative efficiency, and clinical management outcomes.

At the same time, financial and operational risk shifts toward plan sponsors. With rebates fully passed through and PBM margins constrained, plans could assume greater responsibility for evaluating pricing performance, managing vendor contracts, and ensuring compliance. This transition effectively moves PBMs from risk-bearing intermediaries to administrative contractors, likely requiring plans to develop more sophisticated internal pharmacy expertise and/or oversight mechanisms.

Implications for Formulary Design and Drug Selection

Theoretically, de-emphasizing rebate-driven incentives will shift formulary design toward prioritizing net cost and clinical value. This could increase the adoption of generics and biosimilars where cost advantages are clear. However, PBMs may also shift emphasis to net-cost predictability and utilization outcomes.Facing a loss of rebate-derived revenue, PBMs may offset this loss by adopting narrower formularies and more aggressive utilization management tools—such as prior authorization and step therapy—with increasingly stringent criteria to control drug spending.^5-7 Although such strategies can reduce spending, they may also introduce barriers to access and increase the administrative burden for providers and patients. Notably, the CAA 2026 excludes certain Medicaid and state-regulated plans, where retained rebates and traditional transparency standards may persist. However, some states are already adopting broader reforms that extend similar requirements, a trend other jurisdictions may eventually follow.⁸

Market Competition and Consolidation Risk

The reforms in CAA 2026 may have unintended consequences for market competition. Large PBMs, which already benefit from scale and integrated business models, may be better positioned to leverage their extensive data infrastructure to demonstrate net savings and comply with complex reporting mandates.

Smaller PBMs, many of which rely on larger competitors for access to rebates, may struggle to adapt to a strictly fee-based model. This dynamic could reinforce existing market concentration and accelerate vertical integration across insurers, PBMs, and specialty pharmacies. Paradoxically, however, de-emphasizing absolute rebate size in favor of net-cost transparency may offer a long-term advantage to smaller PBMs. By shifting the competitive benchmark from raw negotiating volume to clinical management and lower–list-price product placement, the legislation may better enable smaller entities to compete on total plan value rather than rebate maximization.

Pharmacy Access and Network Design

The CAA 2026 also establishes an “any willing pharmacy” (AWP) requirement for Medicare Part D, mandating that plan sponsors admit any pharmacy agreeing to “reasonable and relevant” contract terms. Although these requirements do not eliminate plan authority over contract design and reimbursement structures, they effectively limit PBMs’ ability to steer patients toward affiliated pharmacies. This expansion of independent pharmacy participation may increase patient choice, yet it may simultaneously disrupt the historical use of narrow networks to negotiate lower rates in exchange for concentrated volume.^9,10 Consequently, by requiring broader network inclusion, AWP policies may reduce PBM negotiating leverage, which may force managed care stakeholders to navigate a fundamental trade-off between expanding pharmacy access and maintaining downward pressure on drug spending.

Conclusion

The CAA 2026 restructures PBMs by transitioning to delinked, fee-based compensation in Medicare Part D and mandating rebate pass-through for Medicare and ERISA plans. Although these shifts aim to reduce price-linked incentives, they are reinforced by independent transparency and auditing clauses designed to ensure plan oversight and compliance.

Beyond these mandates, the reforms fundamentally redistribute incentives, shift risk to plan sponsors, and introduce new operational complexities. Although the CAA 2026 may address specific drug inefficiencies, it may simultaneously create new challenges regarding market competition, administrative burden, and patient access.

Consequently, managed care stakeholders may need to adapt to more transparent, data-driven, and plan-centric models. Ongoing evaluation remains essential to determine whether these reforms achieve their intended goals or necessitate further policy refinement.

Acknowledgment

The author thanks Jon Magness, Joey Mattingly, and Dan Malone for their invaluable mentorship and for encouraging the pursuit of this work.

Author Affiliations: Pharmacotherapy Outcomes Research Center, University of Utah, Salt Lake City, UT.

Source of Funding: There are no sources of financial support to disclose related to this research.

Author Disclosures: The author reports no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design; acquisition of data; analysis and interpretation of data; drafting of the manuscript; critical revision of the manuscript for important intellectual content; and administrative, technical, or logistic support.

Address Correspondence to: Kayla Holland, PharmD candidate, University of Utah, L. S. Skaggs Research Institute, 30 S 2000 E, Salt Lake City, UT 84112. Email: kayla.holland@pharm.utah.edu.

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