PBM FAIR Act Mandates Fiduciary Duty for Drug Middlemen, Requires Full Compensation Disclosure

If you’ve ever wondered why your prescription drug costs seem to make no sense, you’ve probably heard of Pharmacy Benefit Managers (PBMs). They are the powerful middlemen who negotiate drug prices, set formularies (the list of covered drugs), and generally manage the pharmacy side of your health plan. The PBM FAIR Act is a major attempt to pull back the curtain on how these companies operate.

This bill fundamentally changes the game by classifying PBMs as fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA) if they manage drug networks, negotiate rebates, process claims, or perform utilization review for a group health plan. What does “fiduciary” mean in real life? It means the PBM must legally act in the best interest of the health plan and its members—not just their own bottom line. Think of it like this: your financial advisor is a fiduciary, legally bound to prioritize your financial health. This bill attempts to hold PBMs to a similar standard when managing your drug benefits.

The Fine Print: What Fiduciary Status Actually Means

Under Section 2 of the bill, PBMs performing specific services—like maintaining your plan’s drug list or negotiating those often-secret rebates—are automatically deemed fiduciaries. This is a huge shift. Currently, many PBM contracts are structured to keep them out of this liability zone. The bill also requires them to provide detailed disclosures about all compensation they receive, both direct and indirect, for their services. This includes not just service fees but also any money they get from manufacturers, wholesalers, or rebate aggregators. For the employer sponsoring your health plan, this means they finally get to see exactly how much money the PBM is making off the drugs you and your coworkers use.

No Safety Net for Missteps

One of the most impactful provisions is the prohibition on indemnification. If a PBM is deemed a fiduciary, Section 410(a) of ERISA is amended to state that they cannot use contracts to shield themselves from liability if they breach their fiduciary duties. Any contract provision trying to provide this protection is void. For the PBMs, this dramatically increases their risk exposure; they can no longer sign away accountability. For your employer, this means if the PBM makes decisions that hurt the plan financially, they can actually be held responsible in court without a contractual escape hatch.

The Real-World Trade-Off

The goal here is clear: transparency and accountability. If successful, this could lead to lower drug costs for plan sponsors and employees because PBMs would be legally obligated to pass on the best available pricing. For instance, if a PBM negotiates a massive rebate from a drug manufacturer, they would have a legal duty to ensure that benefit flows back to the plan, rather than just pocketing the difference.

However, there are potential trade-offs. Increased compliance and liability always come with a cost. PBMs will face higher administrative burdens and significantly increased litigation risk. These costs don't just disappear; they are often passed along to the very health plans and employers the bill seeks to protect, potentially through higher service fees. While the bill aims to reduce drug costs, the increased regulatory friction might raise the price of PBM services themselves. This is a common challenge when imposing sweeping new regulations: the short-term administrative complexity can sometimes outweigh the long-term benefits until the industry fully adapts. These changes are set to take effect for plan years beginning at least 12 months after the law is enacted, giving everyone a year to prepare for the new rules of engagement.