By: HUB’s EB Compliance Team

The passage of H.R. 7148 represents the most significant federal intervention into pharmacy benefit management practices in decades. Title VII of this legislation—"Lowering Prescription Drug Costs"—establishes comprehensive transparency requirements and mandates fundamental changes to how pharmacy benefit managers (“PBMs”) handle rebates and other manufacturer compensation. Congress was not alone in addressing such concerns though. The Department of Labor (“DOL”) also recently issued proposed rules that add similar transparency obligations.

For employers sponsoring group health plans, these changes carry substantial compliance obligations, fiduciary considerations and operational implications that will require proactive planning. Employers should also be on alert that the changes will likely result in PBM contract renegotiations.

Key Effective Dates:

  • H.R. 7148: Effective for plan years beginning on or after 30 months from the date of enactment (February 3, 2026). For calendar year plans, this means January 1, 2029.
  • DOL Proposed Rules: Effective for plan years beginning on or after July 1, 2026 (if finalized as proposed).

A Review of H.R. 7148

At its core, the legislation aims to accomplish three primary objectives:

  1. Enhanced transparency through mandatory PBM reporting to group health plans
  2. Rebate accountability through a 100% pass-through requirement
  3. Expanded fiduciary oversight of pharmacy benefit arrangements

Mandatory Semiannual Reports

The legislation requires entities providing pharmacy benefit management services to submit detailed reports to group health plans at least every six months. Plans may request quarterly reporting at no additional cost beyond the semiannual report.

The scope of required reporting varies based on plan size and funding arrangement. All plans regardless of size and funding are entitled to basic reporting, which includes the following:

  • Summary documents useful for PBM selection (estimated net price, cost per claim, fee structure, cost per participant)
  • Summary documents for participants/beneficiaries (available upon request)
  • Total net drug spending and rebates/remuneration received or expected
  • Manufacturer copay assistance information (to extent feasible)
  • Broker/consultant compensation disclosure (amounts paid for referral, consideration or retention of the PBM, including recipient identity)
  • Benefit design parameters steering to affiliated pharmacies
  • Total gross drug spending

Specified Large Employers (those who employed an average of at least 100 employees on business days during the preceding calendar year or plan year) and Specified Large Plans (that averaged at least 100 participants on business days during the preceding calendar year or plan year) with self-insured health plans automatically receive additional reporting. Such fully-insured plans can opt-into the additional reporting. The additional reporting includes the following:

  • Drug-level data: contracted compensation paid by the plan to the PBM, compensation paid by the PBM to pharmacy and the spread for each claim by National Drug Code
  • Dispensing channel information (retail, mail, specialty pharmacy, etc.)
  • Wholesale Acquisition Cost (“WAC”) for brand drugs and Average Wholesale Price (“AWP”) for generic drugs as pricing benchmarks
  • Net price after rebates per 30/90-day supply
  • Participant out-of-pocket spending
  • All rebates, fees and remuneration received by the PBM from applicable entities
  • Therapeutic class-level spending and rebate data
  • High-cost drug ($10,000+ or top 50) formulary rationale and year-over-year changes
  • Affiliated pharmacy pricing comparisons (median, interquartile range, lowest network cost)

100% Pass Through of Rebates

In perhaps the most consequential provision for plan economics, the legislation mandates that PBMs remit 100% of rebates, fees, alternative discounts and other remuneration received from applicable entities—to the extent related to drug utilization or spending under the plan—to the group health plan. Rebates must be provided within 90 days after the end of each calendar quarter.

To appreciate the significance of this requirement, it helps to understand how PBM compensation has traditionally operated. Historically, PBMs have generated revenue through multiple channels beyond their stated administrative fees, including:

  • Manufacturer Rebates Drug manufacturers pay rebates to PBMs in exchange for favorable formulary placement — positioning their drugs on preferred tiers with lower cost-sharing or avoiding utilization management restrictions like prior authorization or step therapy.
  • Administrative and Service Fees Beyond rebates tied to specific drugs, PBMs may receive various fees from manufacturers for data services, formulary management, clinical programs and other administrative functions.
  • Spread Pricing In traditional "spread" arrangements, the PBM charges the plan one amount for a drug while reimbursing the pharmacy a lesser amount, retaining the difference.
  • Pharmacy Network Arrangements PBMs operating affiliated pharmacies — particularly mail-order and specialty pharmacies — may generate additional margin through preferential pricing or steering mechanisms.

Under many existing PBM contracts, particularly older arrangements, plans receive only a portion of manufacturer rebates, with the PBM retaining the balance. Some contracts guarantee a minimum rebate amount per prescription or per member per month, allowing the PBM to retain any amounts negotiated above that floor. Other arrangements lack transparency altogether regarding the total rebates received versus amounts passed through.

Plan Audit Rights

The legislation also establishes robust audit rights:

  • Plans may audit PBM rebate records at least once per plan year
  • Rebate contracts with aggregators and manufacturers must be made available for audit, subject to reasonable confidentiality restrictions
  • The auditor must be selected by the plan fiduciary
  • The PBM cannot pay for the auditor — directly or indirectly

The audit rights embedded in the legislation address longstanding frustrations employers have faced when attempting to verify PBM performance and rebate compliance. Historically, many PBM contracts either prohibited rebate audits entirely, limited audit scope to exclude manufacturer contracts or imposed procedural barriers — such as requiring use of PBM-approved auditors — that compromised audit independence and effectiveness. Even when audits were contractually permitted, PBMs often resisted disclosure of underlying manufacturer agreements, claiming proprietary confidentiality concerns that left employers unable to verify whether guaranteed rebate amounts reflected actual market rates or whether pass-through commitments were being honored.

New Notice Requirement

This legislation also brings another notice requirement to employer-sponsored plans. Each plan year, group health plans (regardless of size) must provide written notice to participants and beneficiaries informing them of the PBM reporting requirements. This notice may either be incorporated into plan documents provided to participants or provided as a separate standalone notice.

While separate from the notice, plans must provide participants with the ability to request certain additional information related to the plan generally as well as their specific claims. This information includes a summary document, which contains aggregate plan information. On an individual level, participants have the ability to request spread information — the difference between what the plan paid the PBM and what the PBM paid the pharmacy—for claims made by or on behalf of that participant.

This individual spread disclosure represents a significant new transparency obligation that will require coordination between plans and their PBM partners.

Fiduciary Duties

The legislation also expands fiduciary obligations related to pharmacy benefit arrangements, building upon existing ERISA requirements while creating new compliance touchpoints that demand careful attention from plan sponsors and fiduciaries.

ERISA Section 406 prohibits certain transactions between plans and "parties in interest" (including service providers) unless a specific exemption applies. Section 408(b)(2) provides one such exemption which permits reasonable arrangements for necessary services with reasonable compensation—but only if specific disclosure requirements are satisfied.

The new legislation explicitly ties PBM contract reasonableness under ERISA Section 408(b)(2) to compliance with the rebate pass-through requirements. This is a critical development: a contract for pharmacy benefit management services is not "reasonable"—and therefore does not qualify for the prohibited transaction exemption—unless the PBM commits to remitting 100% of rebates and related remuneration to the plan. This means fiduciaries who enter into or maintain non-compliant PBM contracts face potential prohibited transaction liability.

The Proposed DOL Regulations

The proposed regulations are very similar to H.R. 7148, however in many ways they are not nearly as detailed. Additionally, the proposed rules are just that — proposed, while H.R. 7148 has been signed into law. If and when they are finalized, as agency rules, they also won’t have the same authority as H.R. 7148, which is an act of Congress that was signed by the President.

Below are some key differences between the proposed rules and H.R. 7148:

  • The proposed rules only apply to self-insured plans, while H.R. 7148 applies to all plans
  • The proposed rules do not require 100% pass-through of rebates, which is required by H.R. 7148
  • R. 7148 includes a quarterly reporting option from PBMs to health plans, while the proposed rules do not
  • The proposed rules do not specify applicable penalty amounts for non-compliance, while H.R. 7148 does
  • The proposed rules’ current effective date is for plan years starting on or after July 1, 2026, which is much sooner than the effective date of H.R. 7148, but the proposed nature means they may be changed before going into effect

Conclusion

The PBM transparency and rebate pass-through requirements represent a fundamental shift in the regulatory framework governing pharmacy benefits, creating both substantial compliance obligations and unprecedented opportunities for employers to gain visibility into pharmacy benefit economics and capture value previously retained within the PBM supply chain. Success in adjusting to the new guidance overall will require proactive engagement with PBM partners, careful attention to fiduciary process and ongoing monitoring of regulations. Employers who begin planning now will be best positioned to navigate the transition and realize the benefits of enhanced transparency and accountability.

In addition to ongoing monitoring of legislative updates by HUB’s EB Compliance Team, HUB's Pharmacy Team will also be providing a strategic document to further assist plan sponsors with guidance in adjusting to this legislation.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on HUB International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect, and HUB International does not have an obligation to update this information. You should consult an attorney, accountant or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.