A Regulatory Avalanche Hits the Pharmacy Benefit Management Business

Arkansas Law Prevents PBMs From Owning or Operating Pharmacies

Arkansas Act 624 was passed in April 2025 and was the shot heard ’round the PBM world. Operating mail-order pharmacies, including those that dispense specialty medications, is one of the 2 principal sources of margin for PBMs, and by disallowing the comingling of the 2 businesses, Arkansas hoped to restore market forces and prevent self-channeling, accounting maneuvers, and pricing opacity.¹ 

Advocates argue that vertical integration of the PBM business with the pharmacy business leads to rising prices for employers, consumers, and taxpayers, as well as the use of unfair, anticompetitive business practices against community-based pharmacies. Ultimately, lack of transparency was the straw that broke the camel’s back, as many prior legislative attempts to force transparency failed to mitigate the ill effects of vertical integration.

Many other states gained steam in passing laws in 2025 that increased transparency, including states that carved out integrated PBM-health plans from Medicaid programs so that the managed care organizations would no longer administer pharmacy benefits for their own plans, or channel them to their in-house mail order specialty pharmacies.² Again, lack of transparency was a large motivator in each state.

Launch of the Medicare Drug Price Negotiation Program Brings Transparency

The Inflation Reduction Act of 2022 established the Medicare Drug Price Negotiation Program (MDPNP), and the first medications with prices negotiated by the federal government began to be dispensed on January 1, 2026. The program is already having a major effect, with falling list prices prior to the first of the year and more predictable expenditures for Medicare Part D.³ The legislation was a result of more than 2 decades of frustration with PBMs in the private sector (Part D Plans) not passing along all rebate savings to patients and taxpayers.

Ultimately, the MDPNP lets the government work directly with manufacturers to establish the net price while continuing to use the private sector to administer the benefit (but not set prices). Next year, the effect on community pharmacy will grow substantially with the introduction of glucagon-like peptide-1 medications,⁴ leading to even more transparency and likely cross-payer mix pressures for transparency outside of Medicare.

Proposed Rule Requires Transparency to Help Employers Meet Fiduciary Duty Requirements

Did you know that your employer’s Employee Retirement Income Security Act of 1974 (ERISA) plan (benefits that include 401(k) and health insurance and other benefits) is required to have a fiduciary duty to you as an employee? Fiduciary means that somebody else (your employer) has a responsibility to make decisions in your best interests, not theirs, and certainly not the PBM’s, with respect to operating the plan. There are some lawsuits emerging with claims that employers did not operate with a fiduciary duty when hiring an insurance company or PBM to administer their ERISA plan’s benefits. The claim is that the employer should have protected patients from out-of-pocket costs that were either excessive or unnecessary through PBM drug selection, channeling, or other behavior. It isn’t so much that the employees are saying the employer directly caused or made the decision to knowingly hurt their employees, but rather the employer failed to scrutinize, review, or otherwise audit the PBM.

Employers responded by saying, “Hey, that’s not fair. The PBM won’t tell me what they are up to, and I can’t get the data from them in a detailed and timely manner to act within my fiduciary duty.” So, on January 30, 2026, the US Department of Labor proposed a rule to help employers do just that: hold the PBMs accountable through new regulations that would require PBMs and their affiliates to disclose manufacturer rebates and fees, spread pricing between what the pharmacy was paid and what the PBM charged the ERISA plan, and pharmacy claw-backs or take-backs. It would also require the PBM to provide these data to employers no less frequently than once each year.⁵ Yes, another transparency effort and one that might go into effect within the next year.

Congress Passes Continuing Resolution and Requires Reporting and Transparency

As if to say, “I see your proposed administration rule, and I raise you legislation,” the US Congress included some major transparency rules in the Consolidated Appropriations Act (to keep the government open) only 4 days later, on February 3, 2026. Included in that law are provisions that go beyond transparency and speak to business practices such as “reasonable and relevant contracts,” a somewhat vague but potentially potent requirement pharmacies have been asking for that is aimed at preventing “take it or leave it” contracting practices.⁶

Additionally, the legislation bans Medicaid spread pricing to pharmacies, Medicare spread pricing to the federal government alongside 100% rebate pass-through (which was more or less coming as the MDPNP drug list expanded over time), and a host of expanded data and reporting requirements—in other words, more transparency. Notably, and unlike the proposed Department of Labor rule, these provisions would not go into effect until 2028 for some plans, and 2029 for the remainder of the marketplace.⁶

Are You Seeing a Theme?

For the better part of 3 decades, pharmacy and consumer advocacy groups have been lobbying to pass legislation and enact regulations to curb business practices that contort the pharmacy marketplace and bend “economic rents” (ill-gotten gains) back to the PBM. Few have made it out of legislation, administrations, courthouses, or rulemaking in a timely and effective manner. So, it’s all landing on the altar of transparency. The entire system is saying, “We’ve tried to ask for better behavior, then we’ve tried to incentivize better behavior, then we tried to prevent or banish unethical, wasteful, abusive, or anticompetitive practices, and now we have arrived at the ultimate force of democracy: allowing sunlight to be the best disinfectant.”

What Will the Effects Be on the Pharmacy Business Model and Subsequent Practice?

It’s time to imagine a world with complete transparency and market forces where taxpayers, government administrators, legislators, employers, and consumers are making decisions based on value and competition. It’s coming. For real this time.

But what if consumers don’t find value in services? Is a box of cereal the same no matter where you purchase it from? Yes. So consumers make decisions based on proximity, convenience, and—often most importantly—price point as a motivator to patronize grocers, or convenience stores, or online delivery, or (for some) pharmacies that also stock cereal. What about medications? They are literally the most regulated commodity in existence to be exactly that: the same no matter where you buy it.

Community pharmacy advocates have complained for years that nonpharmacy entities have been taking money out of the middle. Is it the consumers’ and taxpayers’ turn? And what is left for the pharmacy to make sure that dispensing is safe and sustainable?

Now, another question: What if loss-lead business models remain? One of the motivations of the Arkansas legislation preventing the comingling of PBM and pharmacy business models is that self-channeling allows moving profits from the “left pocket to the right pocket,” so underwater reimbursement can contort the marketplace. But even if vertical integration is no longer allowed, pharmacies remain unencumbered to elect to lose money dispensing drugs to make more money selling tires or ribeye steaks. So, what is left for pharmacy to make sure that dispensing is safe and sustainable?

What if (at least some) consumers and taxpayers believe community pharmacies are essential sites of care, delivering value-producing services? Value-producing services, recognized and appreciated by taxpayers and consumers, are far more immune to commodity-like market forces. They often require relationships, longitudinal care delivery, individualized attention, and nonmachine human capital (you, the reader) to provide. It isn’t a retail business model: it’s a labor model.

We are all rightly applauding transparency, but it’s coming for you in the pharmacy too, unless you go beyond the fill of a commodity and we all work together on a new practice and business model that taxpayers, employees, and consumer-patients alike appreciate and are willing to pay for.

REFERENCES

1. An Act to Prohibit a Pharmacy Benefits Manager From Obtaining Certain Pharmacy Permits; and for Other Purposes, HB 1150 (2025). Accessed February 23, 2026. https://arkleg.state.ar.us/Home/FTPDocument?path=%2FACTS%2F2025R%2FPublic%2FACT624.pdf

2. 2025 state legislation to lower prescription drug costs. National Academy for State Health Policy. Updated August 8, 2025. Accessed February 23, 2026. https://nashp.org/state-tracker/2025-state-legislation-to-lower-prescription-drug-costs/

3. Purvis L. Enrollees taking the first Medicare-negotiated prescription drugs will have lower out-of-pocket costs in 2026. AARP. December 18, 2025. Accessed February 23, 2026. https://www.aarp.org/pri/topics/health/prescription-drugs/out-of-pocket-costs-medicare-negotiated-drugs/?utm_source=chatgpt.com

4. CMS announces selection of drugs for third cycle of Medicare Drug Price Negotiation Program, including first-ever Part B drugs. News release. Centers for Medicare & Medicaid Services. January 27, 2026. Accessed February 23, 2026. https://www.cms.gov/newsroom/press-releases/cms-announces-selection-drugs-third-cycle-medicare-drug-price-negotiation-program-including-first

5. Fact sheet: proposed pharmacy benefit manager fee disclosure rule. US Department of Labor. January 2026. Accessed February 23, 2026. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/proposed-pharmacy-benefit-manager-fee-disclosure-rule

6. Congress passes significant federal pharmacy benefit manager reform impacting pharmaceutical market access. Sidley Austin LLP. February 18, 2026. Accessed February 23, 2026. https://www.sidley.com/en/insights/newsupdates/2026/02/congress-passes-significant-federal-pharmacy-benefit-manager-reform-impacting-pharmaceutical-market