PBMs Must Now Show 131,102 Employer Plans What They Keep

If you run a company health plan, you have been buying drugs through a middleman who would not tell you what he keeps. On Thursday the Labor Department finalized a rule that ends that, at least on paper. Pharmacy benefit managers will have to tell large self-insured employer plans, part of a self-insured system the department says covers about 90 million Americans, what drug makers pay them, what spread they pocket between the plan and the pharmacy, and what they claw back from pharmacies after the fact.¹ I usually cheer when rules come off. This one is a rule going on, and I am for it anyway. Here is why, and here is the stock I think the market is overlooking.

Key Highlights

• The action: The Labor Department finalized a rule under ERISA's service provider exemption that requires PBMs and their affiliated brokers and consultants to disclose fees and compensation to large self-insured group health plans, with an annual audit right.¹
• The reach: The department counts 131,102 self-insured plans with 100 or more participants, including 17,876 with 1,000 or more, and assumes all of them are affected.²
• The money: Adults in those plans account for about $81.8 billion of prescription spending a year, and the department projects savings of as much as $22 billion over 10 years, undiscounted.^{3, 4}
• The concentration: Express Scripts, CVS Caremark and Optum Rx jointly handle about 80% of U.S. prescriptions.⁵
• The idea: WTW (WTW), which runs one of the largest employer pharmacy purchasing coalitions, closed Friday at $324.42, about 19.8 times trailing earnings and down 0.6% this year.⁶

What The Rule Actually Does

Start with the plumbing, because the plumbing is the story.

ERISA bars a health plan from paying a service provider unless an exemption applies. The main exemption, section 408(b)(2), requires that the contract be reasonable and that the provider get no more than reasonable compensation. Congress amended that section in the Consolidated Appropriations Act, 2026, signed Feb. 3, so that PBMs and other group health plan vendors must make specified disclosures for the contract to count as reasonable.⁷ The Labor Department's rule, first proposed Jan. 30, fills in what those disclosures must contain.

That legal hook matters. This is not a price control. Nobody in Washington is setting what a PBM may charge. The rule conditions the plan's legal safe harbor on the buyer being told the price. If the PBM won't say, the deal itself is exposed.

What gets disclosed, for the first time, according to the department: rebates and other payments from drug manufacturers; the spread a PBM keeps when the plan pays more for a drug than the PBM reimburses the pharmacy; and money recouped from pharmacies after drugs are dispensed to plan members.⁴ The law firm Sheppard Mullin adds price protection payments and specified formulary incentives to that list, and notes that bundled fees must be allocated by service in good faith.⁸

The timing has teeth too. Disclosure comes before a contract is signed, extended or renewed, with 90 days' notice treated as reasonable for a renewal. Reports follow every six months, or quarterly if the plan asks, within 30 days after each period. A PBM has to explain any category where actual compensation runs at least 5% above its estimate.⁹

Then the audit. Plans can audit the disclosures at least once a year, pick the auditor without PBM-imposed limits, and get an acknowledgment within 10 business days and the records within about 60 days.¹⁰ Read that against what the department says PBMs do today: limit audits to a sample of records, require the auditor to be PBM-approved, or insist the audit happen on-site at a facility the PBM chooses.¹¹

I keep coming back to that line. The referee was being picked by one of the teams.

The Second Clock Nobody Is Talking About

The headline is disclosure. The quieter document is the statute sitting behind it.

Congress already decided that for plan years starting on or after Aug. 3, 2028, PBMs must pass through rebates, fees, alternative discounts and other manufacturer remuneration to the plan.¹² For calendar-year plans, Sheppard Mullin puts the disclosure rule's start at Jan. 1, 2028 and the pass-through threshold at Jan. 1, 2029.¹³

So you get a sequence. First the price tag shows up. Then, about 13 months later, the government starts dictating where part of the money goes.

Those are two very different things, and I don't want to blur them. Disclosure is information. A mandatory pass-through is a business-model rule written by Congress. I like the first one a lot more than the second. But the sequence creates a window, and windows are where investors make money. Every large employer now gets one or two contract cycles to see the numbers, hire someone to read them, and rebid the business before the statute rewrites the economics anyway.

The Numbers The Market Is Watching

Here is the one I can't stop looking at. The department assumes a third of PBM contracts expire every year, which works out to about 39,331 plans entering, extending or renewing a contract annually.¹⁴ That is the demand curve for anyone who helps employers buy pharmacy benefits.

The savings estimate is honest about its own soft spots, which I appreciate. The department takes the Congressional Budget Office's estimate that price disclosure lowers average net drug prices by about 0.1% to 1.0%, uses the 1% end, and applies it to roughly $81.8 billion of annual spending by 52.9 million adults in covered plans. That yields an estimated $818.4 million a year.³ The department also argues that estimate may understate the effect, since CBO modeled price disclosure alone and not audit rights or conflict-of-interest disclosure.

Pressure on the buyers is real. WTW expects employer drug costs to rise 11.5% in 2026, up from 9% the year before.¹⁵ And just under half of large employers told KFF they get sufficient insight into what drug companies pay their plan or PBM.¹⁶

Half of the largest buyers in the country can't see the price. Think about that for a second. You would not buy a used car that way.

The Free-Market Read

Let me make the other side's case first, because it is better than the press releases suggest.

The PBM industry argues the department lacks the authority to force these disclosures, that the reporting is duplicative of the new statute, and that the cost will fall hardest on mid-sized PBMs and push some out of the market.¹⁷ That last point deserves respect. Compliance cost is a fixed cost, and fixed costs favor the biggest player. HR Dive reports the department's compliance estimate at $1 million in the first year and $300,000 a year after that. However the cost splits, a fixed bill like that is a rounding error for Optum Rx. For a small transparent PBM it is a hiring decision.

There is a more interesting economic objection too. The department itself discusses a 2023 paper, commissioned by a PBM trade association, arguing that disclosure can soften price competition among manufacturers, with a potential cost of up to $26.9 billion.¹⁸ The logic is old and sound: when sellers can see each other's secret discounts, they can stop giving them.

I take that seriously. I'm still on the side of the rule, for three reasons.

First, the disclosures go to the buyer, not to a public website. The tacit-collusion worry is strongest when every competitor can read every price. Here the plan fiduciary, the person writing the check, gets the number. That is how ordinary business-to-business markets already work. Your supplier tells you the price. You do not have to sue to find it.

Second, this market was never free in the first place. The intermediaries sit inside an ERISA safe harbor, three of them run about 80% of prescriptions, and the contracts let them restrict who audits them. A market where the seller writes the audit rules is not a free market. It is a toll booth with good lobbyists. Pro-market does not mean pro-incumbent, and I'm not going to pretend the current arrangement came from voluntary exchange between equals.

Third, prices are information. Hayek's whole argument was that dispersed buyers and sellers, reacting to prices, coordinate better than any planner. A price you are not allowed to see coordinates nothing. When I think about the trade-off between the department's paperwork and Congress's mandate coming in 2028, I'd much rather Washington hand employers the facts and let them bargain than tell PBMs how to run their business. Unfortunately, we get both. The disclosure half is the half that respects markets.

The surface is incomplete, though. A disclosure rule is only as good as the people who read the disclosures. Most employers do not have a pharmacist, an actuary and a contracts lawyer on staff. Somebody has to do that reading for them.

Winners And Losers

Losers, at the margin: the three vertically integrated PBMs, whose most opaque income streams now arrive on a semiannual report with an audit right attached. The market does not seem worried. As of Friday's close, UnitedHealth was up 21.0% this year, CVS up 12.6% and Cigna up 6.8%.¹⁹ In the week the rule came out, the three slipped between 2.7% and 3.4%, though I can't separate the rule from everything else that hit managed care that week.

Winners: employer plans and their members, obviously. Independent and retail pharmacies, whose clawbacks become visible to the plan paying for the drug. Pass-through PBMs, which already sell the model the rule is pushing toward, though most of them are private. And the advisers employers hire to run PBM bids and audits. The department itself lists requests for proposals, PBM oversight and PBM audit services as what consultants and brokers do for these plans.²⁰

That last group is where I want to spend your attention.

The Bear Case

Here is what could go wrong with the whole thesis, and then with my idea.

The legal fight is not over. PBM groups have already argued in comments that the department lacks authority.¹⁷ A court could narrow the audit provision, which is the part with the most bite. The department also says commenters claimed the audit provision exceeded its statutory authority, and it adopted the provision with modifications anyway.²¹

The savings may be smaller than advertised. The $818.4 million a year rests on the top of CBO's range. If the real effect is closer to 0.1%, you are talking about tens of millions spread across 131,102 plans.

Disclosure fatigue is real. Plenty of employers will file the semiannual report and never open it. A right you do not exercise is worth nothing.

And there is a bear case aimed squarely at consultants. The department argues that standardized disclosures reduce the need for plans to independently verify price models, rebates and fee structures, which lowers search and negotiation costs.²² Read cynically, that is a regulator saying the consultant's job just got easier. Easier jobs get cheaper.

The Idea: WTW (WTW)

WTW, which still files as Willis Towers Watson Public Limited Company, is a global advisory and broking firm. I am not picking it because I think pharmacy consulting is a big slice of its revenue. It isn't, as far as I can tell, and WTW does not break it out. I am picking it because the rule turns a sleepy compliance chore into a recurring buying decision for every large employer, and WTW sits at the front of that decision.

The causal chain. WTW runs the Rx Collaborative, a group-purchasing coalition for employers with more than 1,000 employees, and says its deal terms plus active management can save up to 25% of current drug costs.²³ The coalition's 2023 report to employers described it as the largest pharmacy coalition in the U.S., with more than 428 employers, about $7 billion of drug spend and 5.3 million members, and PBM partners including Express Scripts, CVS Health, Optum Rx and Capital Rx.²⁴ WTW also says its pharmacy team has more than 100 colleagues, does PBM audits, and helped clients save an average of 16% on drug spending through recent requests for proposals.²⁵ The rule hands the 1,000-plus-employee plans, 17,876 of them by the department's count, a contractual audit right and standardized compensation data. Those are exactly the clients WTW targets.

The data point. WTW's Health, Wealth and Career segment, which houses health and benefits consulting, reported third-quarter revenue of $1.35 billion, operating income of $398 million and 4% organic growth.²⁶ Total third-quarter revenue of $2.46 billion and EPS of $3.63 both came in slightly above consensus.²⁷ At $324.42, the stock trades at about 19.8 times trailing earnings, inside a 52-week range of $240.61 to $351.51.⁶

What the market may be missing. The PBM owners are up double digits this year while WTW is flat (see the lead chart). I think investors are treating this rule as a PBM story. I think it is a buyer's story, and buyers hire help. Every one of those roughly 39,331 annual renewals now comes with more data to analyze, an audit to commission and a 2028 pass-through deadline to plan around.

The risks. Pharmacy is a small, undisclosed piece of a much bigger firm, so the effect could be invisible in the numbers. WTW's coalition partners are the same Big Three PBMs the rule targets, and a souring relationship cuts both ways. The rule also reaches brokers and consultants: the department cites reporting that some consulting firms receive payments from PBMs on a per-prescription or per-employee basis or share in rebates.²⁸ I have no evidence that applies to WTW. But if any adviser's economics depend on PBM-paid fees, those become visible to clients too. Then there is the broader book: Risk and Broking organic growth was 5% in the third quarter, and that segment moves on insurance pricing, not drug policy.

What would prove me wrong: if Health, Wealth and Career organic growth stays at 4% or below through the 2027 renewal season, the rule is not showing up where it has to. The first real check is WTW's fourth-quarter report, which Perplexity Finance lists for Feb. 4, 2027.²⁹ I want management to talk about PBM audit and pharmacy RFP demand by name. If they don't, I'm early or I'm wrong.

I keep score on every idea here, winners and losers (FMR Idea Scorecard).

What To Watch Next

Four dates. Jan. 4, 2027, when the rule takes effect. July 1, 2027, when the first plan years are covered. Feb. 4, 2027, for WTW's fourth-quarter read. And Aug. 3, 2028, when the pass-through statute kicks in. I'm adding the effective date and the first plan year to the Deregulation Investor's Catalyst Calendar.

Also watch for the lawsuit. If the PBM groups sue, the audit provision is the obvious target, and the complaint will tell you which disclosure they fear most.

This is the same administration that cut health IT paperwork when the rules were pure overhead, as I wrote in HHS Cut 14 Health IT Rules, Not 34, and the same Labor Department that withdrew a tip rule that was more burden than signal, covered in A Judge Certified an 80/20 Tip Case. Here it added a rule. You can read that as inconsistency. I read it as a test of whether a rule makes the market see more or see less.

The price tag is coming in 2027. Watch who gets hired to read it.

Related analysis

• HHS Cut 14 Health IT Rules, Not 34. The Retreat Is the Signal.
• Canada's New Drug Reliance Order Echoes a 2019 Oncology Experiment
• A Judge Certified an 80/20 Tip Case. Three Days Later, Labor Buried the Rule.

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