PBM litigation and reform: What employers need to know 

May 2026 

Deanna J. Sizemore, Associate Director Benefits Compliance 

Pharmacy Benefit Manager (“PBM”) litigation is rapidly emerging as both a fiduciary issue and a compliance priority for employers that sponsor group health plans, particularly self-funded plans.

PBMs play a central role in prescription drug benefit administration. They process claims, create pharmacy networks, negotiate manufacturer rebates, and influence formulary placement for drugs used by millions of plan members. PBM pricing often involves multiple layers of fees and reimbursement arrangements, and employers historically have had limited visibility into the true cost of pharmacy benefits. However, recent federal enforcement, Employee Retirement Income Security Act (“ERISA”) litigation, Department of Labor (“DOL”) disclosure efforts, the Consolidated Appropriations Act of 2026 (“CAA 2026”) framework and a growing number of state PBM laws all are directly tied to employer health plan cost, fiduciary exposure, and benefit design strategy.

Employers that sponsor ERISA group health plans have a fiduciary duty to prudently select and monitor service providers, including PBMs, and to determine whether fees and contractual arrangements are reasonable. For CFOs, executive teams, and HR leaders, the takeaway is clear: PBM oversight should be treated as a core governance responsibility, not just a vendor management function.

While these developments create more oversight for employers, they also create leverage. Employers now have a stronger basis to demand transparency, negotiate audit rights, compare PBM alternatives, and challenge standard contract terms that restrict access to data or obscure compensation flows.

The employers best positioned for the next phase of PBM reform will be those that treat pharmacy benefit oversight as an executive governance issue now—before the next lawsuit, audit request, or regulatory deadline forces the issue.

State PBM laws are creating a compliance patchwork as they continue to expand.

Between 2017 and 2025, all 50 states have enacted at least one PBM-related law, and in recent years, more than 100 PBM bills were introduced in over 45 states. Common provisions address transparency, rebate disclosure, spread pricing, network access, participant cost-sharing, and steering to preferred pharmacies.

For employers, the challenge is not just the volume of legislation, but its fragmentation. A law may regulate the PBM directly yet still affect plan design, reporting, network structure, or cost-sharing. As a result, multi-state employers may face different compliance obligations depending on plan funding, employee location, and the provision at issue.

ERISA generally preempts state laws that relate to self-insured health plans, while fully insured plans are more subject to state insurance regulation. But preemption is highly provision specific. Courts evaluate whether a law governs a central matter of plan administration or interferes with nationally uniform administration. Employers cannot assume that every state PBM law applies or that every state PBM law is preempted; each provision must be evaluated individually.

Tennessee spotlight 

In McKee Foods Corp. v. BFP Inc., the Sixth Circuit addressed parts of Tennessee’s PBM laws that prohibited PBMs and covered entities from steering participants to certain pharmacies through incentives and effectively imposed an any-willing-provider model on self-funded plans. On April 7, 2026, the court held that those provisions were preempted by ERISA as applied to self-funded employer plans because they had an impermissible connection with ERISA-governed plans. The court drew a distinction between state laws that regulate PBM pricing and those that dictate plan design and administration.

On May 7, 2026, Tennessee also passed the Freedom, Access, and Integrity in Registered Pharmacy (“FAIR Rx”) Act. The Act prohibits PBMs from owning or operating pharmacies located in Tennessee, as well as out-of-state pharmacies that ship prescriptions into the state, including mail-order, specialty, tele-pharmacy, central fill, and automated dispensing operations effective July 1, 2028. We expect the law to face court challenges.

Employer action items

• Review and renegotiate PBM contracts. For self-funded plans, confirm that the contract clearly addresses rebates, fees, spread pricing, pharmacy network arrangements, compensation disclosures, and audit rights.
• Prepare now for federal compliance changes. Do not wait until 2029. Add contract and data-access provisions now so the plan can receive required reporting, review PBM disclosures, and exercise audit rights as CAA 2026 and the proposed DOL rules move toward implementation.
• Note the current disclosure requirement. CAA 2026 clarified that PBMs and TPAs are covered service providers subject to compensation disclosure requirements, effective February 3, 2026.
• Strengthen fiduciary governance. Establish or formalize a process for selecting and monitoring PBMs. This may include a fiduciary committee, regular review meetings, meeting minutes, benchmarking, training, and a documented monitoring record.
• Evaluate state law exposure. Map where covered employees are located, identify state PBM rules affecting network design, reporting, cost-sharing, or pharmacy access, and assess preemption separately for each material provision. Coordinate that analysis with The Baldwin Group’s team, ERISA counsel, and PBM partners.