Pharmacy benefits.

Senators Wiener and Wahab advance a comprehensive reform of pharmacy benefits management that tightly couples licensing, pricing transparency, and network fairness with a clearer accountability framework for the entities that administer prescription drug benefits. The core objective, as described by the authors, is to constrain abusive pricing practices, ensure nonaffiliated pharmacies are treated on a more level playing field, and align PBM incentives with the costs and cost sharing experienced by enrollees and payers.

The measure would require PBMs to operate under a license issued by the state Department of Managed Health Care and to limit their income to a pharmacy benefit management fee defined by contract with the payer. A passthrough pricing model would be used, with payments to pharmacies passed through in full and not offset by reconciliations. In addition, rebates and related manufacturer payments would be directed to payers to offset cost sharing, deductibles, and premiums, with the framework permitting the use of performance bonuses only if they are not tied to drug acquisition costs, rebates, or payer-conceived cost sharing. The bill also imposes stringent reporting and disclosure requirements to payers, including quarterly unaudited financial statements and annual independent audits, with certain records shielded from public disclosure but available to the Attorney General for enforcement and to support investigations.

A suite of provisions addresses competition and network fairness. The measure forbids discrimination against nonaffiliated pharmacies—whether in contracting terms, termination decisions, or reimbursement for pharmacist services—and prohibits steering or pressuring plan participants to use affiliated pharmacies when nonaffiliated options exist. It permits, but regulates, contractual networks and requires contract terms to be open to department inspection. Ancillary delivery services offered by nonaffiliated pharmacies are protected, with limited exceptions on compensation for delivery. The legislation also bans spread pricing in new or renewed PBM contracts and phases out spread pricing in existing contracts over time, ultimately rendering such terms void on a specified future date. It prohibits exclusivity arrangements that would restrain nonaffiliated pharmacies’ ability to contract with employers and payers and requires openness to contract auditing.

Taken together, the proposals place PBMs under heightened state oversight and financial transparency requirements while restructuring incentives away from price concessions and opaque rebates toward direct, payer-offsetting flows. The reforms would require health plans and insurers to incorporate cost-sharing structures that reflect actual prices paid for drugs, including net price disclosures when available, and to ensure that cost sharing is aligned with specified pricing benchmarks. Enforcement would rest primarily with the Attorney General, including civil penalties, injunctions, and specific performance remedies, with the Department of Managed Health Care and the Department of Insurance coordinating oversight where payers and PBMs operate across both health service plans and private insurance markets. The authors emphasize that the act preserves existing antitrust and market integrity authorities and includes severability and clarifications on confidentiality and open records consistent with broader public policy goals. Exemptions are provided for collectively bargained Taft-Hartley self-insured plans and certain other federal or state arrangements, with the overall framework designed to apply to the broader market for PBM services tied to California payers and providers beginning in 2026 and beyond.