HR7895-119

What This Bill Does

The PBM Kickback Prohibition Act adds a targeted compensation restriction to section 408(b)(2)(B) of the Employee Retirement Income Security Act. In contracts or arrangements between a covered plan and a covered service provider for pharmacy benefit management services, the PBM may not pay compensation, directly or indirectly, to a brokerage firm, broker, consultant, advisor, or other individual for referring the covered plan's or health insurance issuer's business to that PBM. The change applies for plan years beginning after enactment, so existing plan relationships would have to comply at the next applicable plan-year cycle.

Who Benefits and How

Employer health plan sponsors benefit because PBM selection would be less exposed to undisclosed referral payments paid by PBMs to brokers or advisors. Plan fiduciaries benefit from a clearer prohibited-payment rule when evaluating PBM contracts under ERISA. Covered plan participants benefit indirectly if PBM selection decisions are based more on plan value, drug-pricing terms, and service quality rather than referral compensation. Health insurance issuers benefit from a cleaner referral environment when PBM business is placed through brokers or consultants. Competing PBMs that do not rely on referral payments benefit from reduced pay-to-play pressure.

Who Bears the Burden and How

Pharmacy benefit managers bear the direct compliance burden because they must stop direct and indirect referral-compensation payments tied to covered-plan or issuer PBM business. Brokerage firms, brokers, consultants, and advisors lose a revenue stream when payment is tied to steering PBM business. Covered plan administrators must review PBM contracting and broker-consultant arrangements for the new ERISA restriction. ERISA compliance counsel and benefits consultants may need to update plan-year contracting advice and compensation disclosures. The Department of Labor may face oversight pressure to interpret and enforce the new service-provider compensation rule.

Key Provisions

• Prohibits PBMs serving covered ERISA plans from paying referral compensation for covered-plan or issuer PBM business.
• Applies the prohibition to direct and indirect compensation paid to brokerage firms, brokers, consultants, advisors, or other individuals.
• Places the restriction inside ERISA section 408(b)(2)(B), the service-provider compensation exemption framework.
• Applies the amendment to plan years beginning after enactment.