SB 116 is the Health omnibus trailer for the 2025 Budget Act. It adds a new regulatory and licensure regime for pharmacy benefit managers (PBMs), raises minimum state rebate thresholds for certain Medi‑Cal contract drugs, restructures several Medi‑Cal eligibility and asset rules, adjusts long‑term care and skilled nursing facility (SNF) compliance timelines tied to state funding, and repurposes and consolidates multiple public health accounts including AIDS Drug Assistance Program (ADAP) allocations.
For policy and compliance professionals this bill matters because it alters how prescription pricing and PBM conduct are regulated in California, changes the fiscal mechanics that fund Medi‑Cal drug and hospital payments, and shifts several large provider mandates onto implementation paths that depend on appropriations or federal approvals. The measure mixes permanent statutory changes with budget‑year appropriations and emergency rule authorizations; its practical effect will depend on departmental rulemaking, federal waivers, and administration of new funds and collections.
At a Glance
What It Does
Creates a comprehensive PBM licensing regime under the Department of Managed Health Care (licensure, financial reporting, assessments, an administrative fines fund, and mandatory data feeds to the Health Care Payments Data System); raises state supplemental drug rebate minimums for contract drugs; restores a limited assets test for certain non‑MAGI Medi‑Cal populations (with explicit dollar disregards) and attaches premiums or benefit limits to some immigration‑related categories; ties SNF generator/battery compliance to a Medi‑Cal rate add‑on funded by the Legislature; and consolidates or reassigns several public health penalty and rebate accounts for cash‑flow and appropriation uses.
Who It Affects
PBMs contracting with California payers and health insurers (new license, fees, audits, data submissions); health plans subject to directed payments and assessment pass‑throughs; drug manufacturers facing higher state rebate floors; SNFs required to meet alternative power rules once funding is appropriated; counties and Medi‑Cal eligibility workers who must administer new resource rules; and community providers and CBOs that receive expanded ADAP/TGI and HIV prevention funding.
Why It Matters
The PBM licensing and mandatory reporting changes create a new regulatory overlay that will increase oversight of pricing flows and enable state data‑driven policy; higher state rebate floors increase nonfederal collections that fund Medi‑Cal services; tying provider compliance to legislative appropriations or federal approvals creates conditional mandates that shift implementation risk onto departments and counties; and the ADAP and TGI funding reallocations represent a significant, one‑time expansion of state HIV prevention and care spending authority.
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What This Bill Actually Does
SB 116 bundles dozens of health‑sector changes into a single budget trailer. Its most visible change is a new, detailed PBM regime under the Department of Managed Health Care: PBMs must obtain licenses once the department’s licensure process opens (fees, audited financials, periodic reporting and audits), submit drug‑pricing and transaction data to the Health Care Payments Data System, and pay assessments to cover the department’s and DHCAI’s costs.
The bill creates two new state funds—a Pharmacy Benefit Manager Fund for operating costs and a separate PBM Administrative Fines and Penalties Fund for enforcement receipts—and authorizes the Controller, in several places, to use specified departmental accounts for short‑term cash‑flow loans to the General Fund.
On pharmaceuticals, the bill increases the state supplemental rebate floors for certain Medi‑Cal contract drugs and rewrites the department’s prior‑authorization and continuing‑care rules: beginning in 2026 beneficiaries may continue previously prescribed drugs subject to prior authorization only if a pharmacy or prescriber submits and secures an approved PA. For manufacturers renewing or entering rebate agreements after Jan 1, 2026, the state rebate minimums rise (tiered percentages based on federal rebate levels), which will increase the Medi‑Cal Drug Rebate Fund receipts and the nonfederal share available for Medi‑Cal.The bill changes several Medi‑Cal eligibility and program mechanics.
It reintroduces a resource‑based standard for non‑MAGI eligibility effective Jan 1, 2026 (a $130,000 disregard for one‑person cases and $65,000 per additional member, subject to federal approval and systems readiness). It also narrows full dental benefits for some noncitizen populations and authorizes a $30 monthly premium (no sooner than July 1, 2027) for certain immigration‑status categories aged 19–59, with specified carve‑outs.
Many of the Medi‑Cal timing and eligibility changes are conditioned on federal approvals and departmental systems readiness, and the bill folds multiple previously separate statutory provisions into the new schedule.For long‑term care, the SNF requirement to have 96 hours of on‑site alternative power remains, but the compliance date is tied to the State Department of Health Care Services publishing a notice that the Legislature appropriated sufficient funds to create a Medi‑Cal per‑diem add‑on to cover projected Medi‑Cal costs of compliance. The bill also authorizes the Controller to use certain penalty account balances for cash‑flow loans and creates a Medi‑Cal Anti‑Fraud Special Deposit Fund to hold intercepted payments during payment suspensions.
Finally, SB 116 reallocates and consolidates several small dedicated accounts (departmental quality improvement, ADAP allocations, State Health Facilities Citation Penalties) and authorizes sizable appropriations from ADAP rebate funds — including up to $75 million for HIV services and related prevention programs.
The Five Things You Need to Know
The bill creates a full PBM licensure program under the Department of Managed Health Care: PBMs must obtain a license (nontransferable), submit audited financials quarterly and annually, and reimburse the director up to $25,000 to cover application processing costs.
PBMs must report detailed drug‑pricing, rebates, fee, claims and pharmacy‑level data to the Department of Health Care Access and Information; those reports feed the Health Care Payments Data System and are enforceable—failure to report is a licensure violation.
The state raises minimum supplemental state rebate floors for certain Medi‑Cal contract drugs: manufacturers renewing or entering state rebate agreements on or after Jan 1, 2026, must provide higher minimum rebates (tiered percentages tied to federal rebate amounts) and noncompliant drugs may be subject to prior authorization rules.
SB 116 restores an asset‑consideration pathway for non‑MAGI Medi‑Cal cases effective Jan 1, 2026: the department will seek federal approval to disregard $130,000 nonexempt property for a one‑person case and $65,000 for each additional household member (up to 10), and counties must apply the new resource test upon implementation.
Skilled nursing facility alternative power requirements remain (96 hours), but the compliance start is delayed: the SNF provisions take effect on the first day of the Medi‑Cal SNF rate year after the department posts that the Legislature has appropriated funds for an explicit Medi‑Cal per‑diem add‑on to cover projected Medi‑Cal compliance costs.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Comprehensive PBM licensure, reporting and enforcement framework
SB 116 replaces the earlier PBM registration approach with a full licensure regime administered by the Department of Managed Health Care. The bill specifies application contents (organizational documents, bylaws, ownership and controlling interests), financial viability certification, quarterly and annual audited financial statements, and continuing reporting duties (annual claim counts used to calculate assessments). The director can set fees to recover the department’s implementation costs, assess and divide annual assessments pro rata based on California claim volume, and may suspend or revoke licenses for enumerated grounds. Enforcement includes administrative fines deposited to a new PBM fines fund and the department’s standard administrative remedies; many disclosure and confidentiality protections are defined for proprietary materials.
Mandatory PBM data feeds to state payments reporting system
The bill requires licensed PBMs to provide comprehensive drug pricing and transaction datasets to the Department of Health Care Access and Information, including codes, acquisition and wholesale prices, fees, rebate amounts, adjudicated claim counts, member counts, and pharmacy ownership breakdowns. The department must promulgate submission formats and timelines (regulatory or emergency rules permitted initially). This data powers transparency and state analytic work on net drug prices and payer net spending; the requirement survives delegation of functions by PBMs and is a licensure condition.
Higher state rebate floors and new notice/PA rules for contract drugs
SB 116 raises the minimum state rebate thresholds for drugs added to the Medi‑Cal List of Contract Drugs. For manufacturers renewing or entering agreements in 2026 and after, rebates are set by a two‑tier rule tied to federal rebate levels (higher minimums when federal rebates are lower). The bill also revises beneficiary protections: when a drug is removed or restricted the department must provide at least 60 calendar days’ individualized beneficiary notice (including fair‑hearing rights) and provider notice before the change takes effect; and beneficiaries may continue on previously prescribed drugs subject to prior authorization if a timely PA is initiated and approved.
Reinstates asset consideration for certain non‑MAGI Medi‑Cal cases and related eligibility shifts
The bill reintroduces the possibility of using resources for non‑MAGI Medi‑Cal eligibility beginning Jan 1, 2026, after systems readiness and federal approvals. It sets a specific resource disregard: $130,000 for a one‑person case and $65,000 per additional member (up to 10). SB 116 also includes a suite of conforming amendments across Medi‑Cal statutes: (1) timing triggers and implementation contingencies tied to department systems and federal waivers; (2) narrowed dental coverage and potential monthly premiums for certain noncitizen adult groups (statutory ceilings and exemptions spelled out); and (3) numerous operational changes counties must adopt, producing a new workload and data reporting burden for eligibility offices.
Staffing penalties, cash‑flow flexibility, and conditional timing for alternative power rules
SB 116 keeps the skilled nursing facility minimum staffing penalty account but authorizes the State Controller to use those balances for General Fund cash‑flow loans. It also conditions the SNF 96‑hour alternative power compliance on the Legislature’s appropriation of a Medi‑Cal per‑diem add‑on to cover projected Medi‑Cal costs; the Department of Health Care Services may implement that compliance requirement via provider bulletins rather than formal rulemaking. Practically, SNFs retain the substantive 96‑hour standard, but the effective compliance date depends on budget action and department notice.
ADAP rebate fund expansions and TGI program tweaks
The bill modifies uses of the ADAP Rebate Fund, consolidates internal quality improvement accounts, and authorizes the department to spend up to $75 million from ADAP funds for HIV services and prevention, including up to $65 million to backfill reduced or eliminated federal funding. It adjusts the TGI Wellness and Equity Fund (administration and allowable grants) and extends certain condom funding windows. These are both budgetary and programmatic: they direct substantial one‑time and multi‑year allocations and permit state flexibility to shore up services if federal support falls.
ETP repeal date, emergency psychiatric regulations, and psychiatric nurse ratio mandate
SB 116 extends the statutory life of Enhanced Treatment Programs (ETPs) at some psychiatric hospitals through Jan 1, 2030, and directs the State Department of Public Health to adopt emergency regulations for nurse‑to‑patient ratios specific to acute psychiatric hospitals (not operated by State Hospitals) by Jan 31, 2026, with permanent rules to follow. The statute expressly deems these regulations an emergency, permits readoptions, and authorizes staffing standards tied to patient acuity for psychiatric units.
New Medi‑Cal Anti‑Fraud Special Deposit Fund for intercepted payments
The bill creates a Medi‑Cal Anti‑Fraud Special Deposit Fund to hold Medi‑Cal payments intercepted under payment suspension orders; these funds are continuously appropriated but remain in the fund while a suspension is in effect. When suspensions lift the department may return intercepted funds to providers or offset them against liabilities or restitution owed to the department. The change formalizes an existing interception process and sets accounting rules for those held amounts.
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Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Department of Managed Health Care and DHCAI — receive new statutory enforcement tools, dedicated fees, and data to regulate PBMs and to fund oversight and the Health Care Payments Data System.
- State Medi‑Cal program and budget planners — higher state drug rebate floors and redirected ADAP authority increase nonfederal revenue or substitute state funds for lost federal HIV funding, giving the state more control over program continuity.
- Patients receiving HIV prevention and TGI services — expanded, time‑limited ADAP and TGI allocations and extended condom funding increase funding availability for prevention, testing, and targeted grants.
- Advocacy and public‑health organizations — the bill provides new grant streams (ADAP allocations, violence prevention, disease intervention specialists) accessible to community providers and CBOs that meet program criteria.
Who Bears the Cost
- Pharmacy benefit managers — new licensing, audit and reporting costs, application fees (up to $25,000), recurring assessments and possible fines; increased compliance and confidentiality obligations.
- Drug manufacturers — higher state supplemental rebate minimums (tiered) reduce manufacturer net revenue and may influence pricing and market decisions for drugs sold to Medi‑Cal.
- Skilled nursing facilities and long‑term care operators — if the Legislature funds the Medi‑Cal add‑on, SNFs face capital and operating costs for alternative power; otherwise compliance is delayed but regulatory uncertainty remains.
- Counties and eligibility workers — restoring an assets/resource framework and new eligibility pathways, plus immigrant‑status premium and benefit changes, increase county workload and systems changes (new verifications, notices, and appeals).
- Health plans — will incur assessment pass‑throughs, directed‑payment follow‑throughs, data reporting burdens, and integration work to implement PBM contract and reporting changes.
Key Issues
The Core Tension
SB 116 tries to increase transparency and fiscal leverage over drug and care costs while avoiding large immediate General Fund outlays by conditioning several provider mandates on appropriations and federal approvals; the central dilemma is this: make pricing and access more accountable (via PBM oversight and higher state rebates) but demand rapid compliance and new reporting from private and public providers — a choice that reduces short‑term state spending but shifts financial, operational, and legal risk to regulated entities, counties, and providers.
SB 116 mixes permanent policy with conditional and budget‑triggered implementation. Many substantial operational changes hinge on three governors of execution: departmental rulemaking, federal approvals/waivers, and specific appropriations in the Budget Act.
That design reduces near‑term fiscal impact on the General Fund but creates legal and operational uncertainty for regulated entities: PBMs face immediate licensing duties once the department establishes the process, while SNFs and many Medi‑Cal eligibility changes only take effect once funding or federal waivers arrive. This creates a risk profile in which regulated entities must plan for multiple future states (immediate PBM standards versus delayed SNF compliance), complicating vendor negotiations and capital budgeting.
The PBM package increases transparency and state enforcement capacity, but also raises implementation and legal friction points. The department’s access to granular PBM financials and proprietary contracting terms will be valuable for policy‑making, yet confidentiality carveouts and the limited public‑access restrictions included in the bill will require careful handling to avoid litigation.
The new data feeds, if poorly specified or nonstandard, could impose heavy IT and data governance costs on PBMs and DHCAI. Separately, higher state rebate floors should boost Medi‑Cal’s nonfederal funding but can accelerate manufacturer market decisions (formulary removals, price increases, or distribution changes) that could prompt access disputes and require rapid Department responses (e.g., PAs or substitute coverage).
Finally, the bill places significant new duties on counties for eligibility determinations and for program administration. Because many provisions require federal waivers or systems changes, counties will face a phased, resource‑intensive implementation path.
That raises state‑local fiscal and operational tensions: the state conditions some mandates on appropriations but also creates local mandates where the funding pathway is less prescriptive, producing potential disputes over mandate reimbursement and readiness timing.
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