CAA 2026 Part 4: PBM Contracts Are Going to Have to Change

CAA 2026 will make that distinction even more important. The first three parts of this series focused on transparency, PBM compensation, rebates and the employer's fiduciary responsibility. All of those issues eventually come back to the contract because that is where the employer's actual rights are defined. It determines what information you can see, what the PBM can keep, what you can audit, who controls your data and what happens when you decide to leave.

CAA 2026 creates new requirements around PBM reporting, rebate pass-through, compensation disclosure and audits. Employers will have access to more information, but I would not wait for the new requirements to become fully effective before looking at current PBM agreements differently. Many of the things Congress is now requiring are things employers should probably have been asking for all along.

Almost every PBM can tell an employer it offers a transparent arrangement.

I am much more interested in what the contract says.

Can the employer see what it paid for a drug and what the pharmacy actually received? Can it identify manufacturer payments associated with its utilization? Can it see compensation retained by the PBM or its affiliates? Can an independent auditor verify those numbers? Does the employer receive usable claims-level data? Can that data be shared with an outside consultant or analytics firm? Can the employer take its historical data with it if it changes PBMs?

Those questions tell me a lot more about transparency than anything in a sales presentation.

CAA 2026 should establish a higher minimum standard for what PBMs have to disclose, but employers should still be careful about assuming regulatory compliance automatically means they have a great contract. There is a big difference between receiving the minimum information required by law and having the contractual rights necessary to really manage a pharmacy benefit.

I covered this extensively in Part 2 because I think rebates have distracted employers from the larger economics of pharmacy for a long time.

A PBM contract may promise 100% of rebates, but the first thing I want to know is how the contract defines a rebate.

That definition matters.

Manufacturer compensation does not always come neatly labeled as a rebate. There can be administrative fees, data fees, price concessions, discounts, service fees and other forms of remuneration tied to prescription drug utilization. CAA 2026 addresses rebates, fees, alternative discounts and other remuneration rather than focusing exclusively on the traditional rebate.

That is the direction I think PBM contracts need to move as well.

Instead of spending all of our time negotiating the rebate guarantee, I would rather understand the total amount of money being generated from the employer's prescription drug utilization, where that money goes and what the PBM and its related companies ultimately keep.

If an employer is told it receives 100% of rebates while significant compensation is sitting outside the contractual definition of "rebate," the percentage is not nearly as meaningful as it sounds.

Define the terms. Follow the money. Understand the total economics.

Spread pricing is not particularly complicated. The PBM charges the plan one amount for a prescription, pays the pharmacy another amount and retains some or all of the difference.

The contract should make it easy to determine whether that is happening.

Does spread exist? Where can it occur? Who keeps it? How is it reported? Can the employer audit it?

If an employer knowingly chooses a spread arrangement after comparing it against other pricing models and determines it provides the best overall value, that is the employer's decision.

What concerns me is when an employer believes it has a pass-through or transparent arrangement and later discovers there was additional margin somewhere it did not understand.

CAA 2026's reporting requirements should give employers much more visibility into what the plan pays compared with what pharmacies receive. That should make spread easier to identify, but I would still put the terms directly into the agreement.

There should not be any surprises.

This may be one of the most important sections of the entire PBM agreement.

A contract can promise all kinds of transparency, but at some point the employer needs the ability to verify that the PBM actually did what the contract says it was going to do.

That is what an audit right is supposed to accomplish.

The problem is that not every audit provision gives the employer a meaningful ability to audit. Some agreements restrict who can perform the audit, where it can take place, what records can be reviewed, how many claims can be examined, how far back the auditor can look or what the auditor can report back to the employer.

Technically, the employer has an audit right. Practically, it may not be worth much.

I would look closely at this language.

Can an independent auditor chosen by the employer perform the review? Can pharmacy reimbursement be validated? Can manufacturer payments be verified? Can specialty pharmacy economics be reviewed? Can the auditor evaluate claims-level information? How often can an audit occur? How far back can it go? What happens if the audit finds a material error?

These are questions to answer before there is a problem, not after one is discovered.

I have a pretty simple view on claims data.

If an employer is funding the claims, the employer should have meaningful access to the data.

The original CAA transparency rules already addressed contractual gag clauses that restrict health plans from accessing certain claims and encounter information. Employers also have the annual Gag Clause Prohibition Compliance Attestation requirement. Even with those protections, data access can still become much more complicated than it needs to be.

That is why I would put the details directly into the PBM agreement.

What data does the employer receive? How often? Is it claims-level or summarized? Is there a charge? Can the employer provide it to its broker, consultant, actuary, pharmacy expert or analytics vendor, subject to appropriate privacy requirements? Can the data be used to evaluate competing PBMs? What happens to historical information when the contract ends?

An employer should not spend millions of dollars funding prescription claims and then have to fight to get the information necessary to understand those claims.

Data is becoming one of the most valuable assets an employer has for managing healthcare. Protect access to it.

For many employers, specialty pharmacy is where a PBM contract can become expensive very quickly.

A relatively small number of specialty prescriptions can account for a huge percentage of total pharmacy spending. Some medications cost tens or hundreds of thousands of dollars annually, and some gene and cell therapies can cost millions.

At those price points, the details matter.

The contract should explain whether members are required to use the PBM's specialty pharmacy, whether other specialty pharmacies are allowed, how specialty pricing works, what manufacturer compensation applies and what options the employer has when a lower-cost sourcing strategy becomes available.

I would also pay close attention to biosimilars and formulary flexibility. The medication producing the largest rebate is not necessarily the medication with the lowest net cost. The employer needs enough information and contractual flexibility to understand the difference.

This becomes even more important when the PBM owns the specialty pharmacy.

The affiliated pharmacy may be the best option. If it is, the data should be able to demonstrate that.

Vertical integration has changed the PBM industry.

Some of the largest PBMs operate inside organizations that also own insurance companies, specialty pharmacies, mail-order pharmacies, healthcare providers and other businesses participating in the healthcare transaction.

There can absolutely be efficiencies in that model, but there are also financial incentives employers need to understand.

If the PBM directs prescriptions to an affiliated pharmacy, how does that company make money? If the affiliate earns additional margin from the employer's prescriptions, where does that show up? If multiple companies involved in the transaction are under common ownership, does the employer have enough information to understand the total economics across those organizations?

I would not reject an arrangement simply because companies are affiliated.

I would want to understand the arrangement because they are affiliated.

There is an important difference.

PBM proposals are full of guarantees because guarantees are easy to compare.

Brand discount. Generic discount. Specialty discount. Rebate guarantee. Dispensing fee. Administrative fee.

Put them into a spreadsheet and one proposal looks better than another.

But those numbers depend heavily on how the contract defines them.

Which claims count toward the guarantee? Which are excluded? How are brand and generic drugs classified? What counts as specialty? Are limited-distribution drugs excluded? What happens when drugs move between categories during the contract? What happens if the PBM changes its formulary?

An employer can technically receive every guarantee in the contract while still having a pharmacy plan that is more expensive than it should be.

That does not necessarily mean the PBM violated the agreement.

It may mean the agreement measured the wrong things.

I would still negotiate strong guarantees, but I would spend just as much time making sure those guarantees can be independently validated and comparing the overall net cost of the arrangement.

One of the least exciting parts of a PBM contract can become one of the most important when the relationship ends.

What happens to rebates earned before termination but paid afterward? When is the final reconciliation completed? Can the employer audit the PBM after termination? Who owns the historical claims data? How quickly does the PBM have to provide files to the new vendor? What happens to open prior authorizations and specialty prescriptions? Are there termination fees?

These issues are easy to overlook when everyone is excited about starting a new relationship.

They become very important three or five years later when the employer decides it is time for a change.

I think a good PBM contract should make it relatively easy for both parties to understand how the relationship begins, how it operates and how it ends.

If leaving the PBM means losing data, forfeiting rebates or creating unnecessary disruption for employees, the employer needs to know that before signing.

Employers sometimes treat a PBM's standard agreement as if it is simply part of the package.

I would not.

The PBM wrote the contract to protect its business. I do not fault them for that. Most companies would do exactly the same thing.

The employer's responsibility is to make sure the contract also protects the health plan.

That means reviewing the areas that actually matter: compensation, rebate definitions, audit rights, claims data, spread pricing, specialty pharmacy, affiliated companies, guarantees, reporting requirements and termination provisions.

For larger employers especially, I think independent PBM contract review is going to become much more important. The benefits consultant can help evaluate the overall arrangement. A pharmacy expert can dig into the economics. ERISA counsel can address legal and fiduciary issues when necessary.

The point is not to turn every PBM negotiation into a fight.

It is to make sure everyone understands the deal before millions of dollars start flowing through it.

The major CAA 2026 commercial PBM requirements give employers time before they are fully effective. I would use that time instead of waiting for the deadline.

Pull out the current PBM agreement.

Look at the definition of rebates and other compensation. Find the audit provision. Review the data language. Determine whether spread is allowed. Understand the specialty pharmacy requirements. Identify affiliated entities. Look at the termination provisions. Compare the contract against what you believe you purchased.

Most importantly, determine whether the agreement gives the employer enough information to actually oversee the PBM.

That connects directly back to the fiduciary discussion in Part 3.

An employer cannot effectively monitor a vendor if the contract prevents the employer from seeing what the vendor is doing.

There will be a lot written about CAA 2026 over the next few years. There will be regulations, reporting requirements, compliance deadlines and plenty of legal analysis.

Employers should pay attention to all of it.

But I would also do something much simpler.

A great proposal can become a mediocre deal once the definitions and exclusions are added. A promise of 100% rebate pass-through means very little if significant compensation sits outside the rebate definition. An audit provision means very little if the employer cannot verify the important numbers. Access to data means very little if the employer cannot give that data to the people hired to analyze it.

The contract is where the promises become real.

CAA 2026 should give employers more information and more leverage to demand transparency. The employers that use that leverage now do not have to wait until the federal government tells them what a transparent PBM relationship should look like.

They can start building one today.

In **Part 5, the final article in this series, I'll pull everything together into a practical CAA 2026 Employer Action Plan**—what employers should be asking their PBMs, TPAs, carriers, brokers and consultants, what should be reviewed during the next renewal, what should be documented and how employers can use CAA 2026 as an opportunity to manage their health plans better rather than treating it as another compliance exercise.

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