ERIC Supports California Bill on Pharmacy Benefit Manager Reform

The ERISA Industry Committee issued a statement Monday supporting the California State Legislature’s effort to amend Senate Bill 41, intended to address rising prescription drug costs in California by regulating the network and reimbursement practices of pharmacy benefit managers.

The bill, introduced by State Senators Aisha Wahab and Scott Wiener, both Democrats, on December 3, 2024, would prohibit a PBM in California from requiring use of only an affiliated pharmacy, as well as from imposing requirements, conditions or exclusions that discriminate against a nonaffiliated pharmacy in connection with dispensing drugs. The proposed legislation would also limit PBMs’ income to fees they earn from the services they provide and require PBMs to use transparent price modeling.

On September 4, S.B. 41 was amended to require that contracts between a health insurer and a PBM issued, amended or renewed on or after January 1, 2027, or the date on which the Department of Managed Health Care has established its PBM licensure process required by California law—whichever is later—require the pharmacy benefit manager to be licensed and in good standing with the state’s Department of Managed Health Care.

The California State Assembly approved the amendment by a 39 to 0 vote on September 10. The bill has been sent to Governor Gavin Newsom, a Democrat, who has until October 13 to sign the bill or issue a veto. If signed into law, S.B. 41 would take effect on January 1, 2026.

Opponents of the bill argue that its restrictions could reduce the affordability of prescription drugs in the state. Proponents say it limits how fees for prescriptions can be charged and adds fee transparency.

According to a September 15 statement from ERIC, the bill was amended to “uphold the uniformity and flexibility that employers have to design and administer multi-state plans under the Employee Retirement Income Security Act.” The group calls the bill an effort to “balance state oversight with ERISA uniformity.”

Dillon Clair, ERIC’s director of state advocacy, issued a statement on behalf of his organization:

“The California Legislature has taken important steps to address a key concern—that the original proposal, though well-intentioned, would overstep state authority to regulate self-funded ERISA plans. Instead, the amended legislation applies accountability and affordability reforms to PBM practices while maintaining the flexibility and independence that ERISA provides to employer plan sponsors. We welcome the application of fiduciary responsibilities to PBMs—employers have been expected to meet these same requirements for 50 years, and ERIC has long supported making this same policy change at the federal level.”

In its September 15 statement, ERIC also asked Congress to “move with greater urgency” to enact PBM transparency and accountability reforms. The group encouraged legislators to ban “spread pricing,” the practice by which PBMs charge clients more for medications than the rate at which they reimburse pharmacies; require 100% pass-through of rebates and payments from drug manufacturers; and apply fiduciary standards to PBMs in the same fashion as they are applied to employers.

In April, President Donald Trump signed an executive order requiring Secretary of Labor Lori Chavez-DeRemer to propose regulations pursuant to Section 408(b)(2)(B) of ERISA to “improve employer health plan fiduciary transparency into the direct and indirect compensation” of PBMs.

That same month, Arkansas Governor Sarah Huckabee Sanders signed legislation prohibiting the largest three PBMs from owning pharmacies in the state. The law has been blocked by a federal judge since July 28.