On April 15, 2025, President Trump signed the executive order (EO) “Lowering Drug Prices by Once Again Putting Americans First,” which includes specific actions to be taken by federal agencies to reduce prescription drug costs, improve transparency and increase competition in the pharmaceutical market. One of the transparency actions affects employer-sponsored group health plans. This blog focuses on Section 12 of the EO aimed at increasing the transparency of Pharmacy Benefit Manager (PBM) fees, which hints at future regulation of plan service provider compensation disclosure obligations to group health plans.
PBM Fee Transparency
Section 12 directs the U.S. Department of Labor (DOL) to propose regulations pursuant to Section 408(b)(2)(B) of the Employee Retirement Income Security Act of 1974 (ERISA) to improve employer health plan fiduciary transparency into the direct and indirect compensation received by PBMs.
ERISA includes standards of conduct for those managing an employee benefit plan and their fiduciaries. Under ERISA’s fiduciary responsibilities, employers have a duty to prudently select and monitor their service providers, including PBMs.
As the PBM industry faces greater scrutiny due to a variety of factors including a lack of transparency, high prescription drug costs and little federal oversight, an increasing number of states are stepping up to pass laws regulating the industry.
The EO’s supplemental fact sheet includes reevaluating the role of a PBM and creates transparency by improving the disclosure of fees that PBMs pay to brokers for steering employers to utilize their services. It seems the intention would be for plan fiduciaries to use the fee disclosures in monitoring whether service provider costs are reasonable.
Proposed Regulation Due Date
DOL must propose regulations requiring PBMs to disclose both direct and indirect compensation within 180 days of the EO (by October 12, 2025).
Implications for Plan Sponsors
According to speculation surrounding the proposed regulations affecting plan sponsors, the regulations would likely be similar to recent bills proposed in Congress (E.g., S. 526 – Pharmacy Benefit Manager Transparency Act of 2025, S. 527 – Prescription Pricing for the People Act of 2025) and may either be very specific, requiring fiduciaries to ensure that PBM contracts disclose specific fees and payments, including confirmation that contracts include that information, or more generally focused on cost control.
The regulations could increase clarity of prescription drug prices and allow employers to better understand PBM terminology, rebate arrangements and hidden fees in order to renegotiate contracts.
Uncertainty Remains
While the EO requires the proposed regulations “improve employer health plan fiduciary transparency into the direct and indirect compensation received by pharmacy benefit managers,” the fact sheet merely addresses improving the disclosure of fees that PBMs “pay to brokers for steering employees to utilize their services.”
Debevoise says this creates uncertainty as to “whether the administration seeks disclosure of certain types of compensation received by PBMs or compensation paid by PBMs to brokers (or both).” The EO and fact sheet reflect the opinion that PBMs act as “middlemen,” playing a role in increasing prescription drug costs. Supporters of PBMs, however, say without them, manufacturer rebates may be reduced, causing the cost of prescription drugs to increase.
Regardless, implementing PBM reform will not happen overnight and may not immediately impact drug costs. Stay tuned to the International Foundation for updates on proposed regulations published on our Regulatory Updates webpage, and visit our Presidential Administration and Employee Benefits Toolkit for future EOs that may impact plans.
Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.
