The Delinking Revenue from Unfair Gouging (DRUG) Act prohibits pharmacy benefit managers (PBMs) from deriving remuneration related to prescription drug benefits except for narrow, contract‑specified "bona fide service fees" that must be flat dollar amounts and cannot be tied to drug prices, benchmarks, rebates, or other price concessions. The bill inserts parallel provisions into the Public Health Service Act, ERISA, and the Internal Revenue Code and directs HHS (in consultation with Labor and Treasury) to implement the law by interim final regulations.
Enforcement is administrative and civil: PBMs must disgorge any wrongful payments to the impacted group health plan or issuer, and violations carry a civil monetary penalty of $10,000 per day. The statute preserves reimbursement for ingredient costs and dispensing fees and explicitly allows rebates or discounts to be fully passed through to plans or issuers — while creating new definition, reporting, and enforcement levers that will reshape PBM compensation models and downstream contracting with plans, employers, and pharmacies.
At a Glance
What It Does
The bill removes most forms of PBM remuneration tied to prescription drug administration and requires allowable fees to be itemized, equal to fair market value, and set out in contract as flat dollar amounts not contingent on price measures or rebates. It adds disgorgement authority and a $10,000/day civil penalty, and mandates interim final regulations by HHS with Labor and Treasury input.
Who It Affects
Large and small PBMs (including third‑party administrators and affiliates), group health plans and health insurance issuers covered by PHSA, ERISA‑governed employer plans, and tax‑reporting under the Internal Revenue Code. Suppliers — manufacturers, retail and mail pharmacies, and vertically integrated insurers that operate PBM businesses — will see commercial and contractual effects.
Why It Matters
The bill attempts to sever PBM payoffs that scale with list prices or rebates and to force greater transparency and direct benefit flow to plans. For compliance and benefits professionals, it means renegotiating PBM contracts, reassessing budgeting for flat service fees, preparing for regulatory guidance, and anticipating litigation and enforcement over what constitutes a "bona fide service fee."
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
The DRUG Act changes the legal framework for PBM compensation by inserting near‑identical provisions into three federal statutes so that the new rules apply to most group health plans and health insurance coverage. Starting January 1, 2027, PBMs may not derive remuneration from entities for services tied to prescription drug benefits unless the payment fits a narrow exception: a bona fide service fee.
That exception requires the fee to be documented in a contract, set as a flat dollar amount, based on fair market value of actually performed, itemized services, and not passed through to customers. The definition of PBM is broad and covers traditional PBMs, third‑party administrators, and intermediaries that negotiate prices, create formularies, adjudicate claims, or manage prior authorizations.
The bill also prescribes enforcement mechanics. The Secretary of Health and Human Services, with the Secretaries of Labor and Treasury, enforces the PHSA and tax code provisions, while ERISA enforcement is channeled through the Department of Labor’s secretarial authority.
When a PBM violates the prohibition, the statute requires disgorgement of amounts improperly received to the affected plan or issuer and levies a civil penalty set at $10,000 per day for each day the violation continues. The statute borrows procedural tools from the Social Security Act’s penalty provisions and directs agencies to use interim final regulations, which will accelerate implementation but concentrate power in agency rulemaking.Practically, the law preserves ordinary pharmacy ingredient reimbursements and pharmacy dispensing fees and does not stop plans or issuers from receiving rebates or discounts — it merely bars PBMs from structuring their own compensation around those price measures.
That combination forces a commercial shift: PBMs must rework contracts to convert percentage or price‑based compensation into flat, itemized fees or otherwise forego revenue sources. Plan sponsors and issuers must revisit contract language to document allowed fees and establish audit and monitoring processes to enforce pass‑throughs and detect prohibited remuneration.Finally, because the DRUG Act adopts parallel changes across PHSA, ERISA, and the Internal Revenue Code, it creates multiple enforcement pathways and potential overlap in remedies.
Compliance teams should expect guidance on the scope of "bona fide service fees," how fair market value will be determined, what counts as indirect remuneration, and how disgorgement calculations will be performed. The requirement for interim final regulations means agencies will likely publish immediate rules that take effect quickly, then accept comments for later revision.
The Five Things You Need to Know
The statute takes effect January 1, 2027, and bars PBMs from deriving any remuneration for prescription drug benefit services unless the payment is a contract‑specified, flat dollar "bona fide service fee.", A bona fide service fee must be equal to the fair market value of an itemized service actually performed, cannot be passed through to customers, and may not be based on drug list prices, benchmark prices, discounts, rebates, or other specified amounts.
The term "pharmacy benefit manager" is defined broadly to capture entities that negotiate drug prices, create formularies, process claims, manage prior authorization or utilization review, contract with pharmacies, or provide related services — including affiliates and intermediaries.
Enforcement requires disgorgement of improper payments to the affected plan or issuer and imposes a civil monetary penalty of $10,000 for each day a violation continues; agency procedures borrow from Social Security Act penalty processes.
The statute preserves reimbursements for ingredient costs and dispensing fees and expressly allows rebates and discounts to be fully passed through to plans or issuers, while directing HHS (with Labor and Treasury) to implement the law via interim final regulations.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Core prohibition and definitions for PBM remuneration
This added PHSA section is the bill’s nucleus: it prohibits PBMs from deriving remuneration for any activities related to prescription drug benefits and then carves out the narrow bona fide service fee exception. The provision supplies two working definitions — one for a bona fide service fee (FMV, itemized, actually performed, not passed through) and one for PBM (broad list of functions). For administrators and counsel, this is where contracting obligations and fee structure changes will originate.
Disgorgement, penalties, and interim final regulations
The PHSA text directs HHS (with Labor and Treasury) to enforce the rule, requires PBMs to disgorge improper payments to the plan or issuer, and sets a civil penalty at $10,000 per day. It specifies that enforcement procedures will utilize aspects of Social Security Act penalty rules and directs agencies to adopt interim final regulations — an important delegation that will shape practical compliance timelines and evidence standards for proving violations.
Parallel rule for ERISA plans plus DOL enforcement authority
The bill inserts essentially the same ban and exception into ERISA-covered group health plans and plugs enforcement gaps by amending ERISA’s civil enforcement section (Sec. 502) to give the Secretary of Labor disgorgement and penalty authority. That creates a federal labor‑law enforcement channel for plan sponsors and the DOL to pursue PBMs, which is salient for self‑insured employers who commonly use ERISA as the governing law for benefit disputes.
Tax-code mirror provision to reach group health plans
By amending the tax code with parallel language, the bill aligns tax reporting and compliance with the substantive prohibition. The IRS guidance and tax audit implications remain open questions, but the amendment ensures tax authorities are invested in enforcement and that plan‑level tax treatment won’t become a backdoor around the statute’s intent.
What the bill does not change (ingredient costs, dispensing fees, pass‑throughs)
Across each statutory insertion, the bill explicitly preserves ordinary reimbursements for ingredient costs and pharmacy dispensing fees and clarifies that rebates or discounts may be fully passed through to plans or issuers. Those clauses limit the bill’s reach and signal legislative intent: the target is PBM compensation tied to prices and rebates, not ordinary pharmacy payment mechanics or the ability of plans to receive discounts.
This bill is one of many.
Codify tracks hundreds of bills on Healthcare across all five countries.
Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Self‑insured employers and group health plans — they gain a clearer statutory route to receive rebates and discounts directly or via pass‑throughs and can demand itemized, flat fees from PBMs, potentially improving net cost visibility.
- Health insurance issuers — particularly fully insured carriers — can renegotiate PBM contracts and use disgorgement and penalty provisions to enforce pass‑through obligations and claw back impermissible remuneration.
- Patients and plan beneficiaries (indirectly) — if plans actually pass rebates and discounts through to lower premiums, cost‑sharing, or broader coverage, beneficiaries may see lower out‑of‑pocket costs over time.
Who Bears the Cost
- PBMs and vertically integrated PBM arms of insurers — the bill removes many traditional revenue streams (percentage‑based fees, spread pricing, rebate‑contingent payments), forcing a transition to flat fees and potential margin compression or price increases elsewhere.
- Plans and employers during transition — sponsors will face negotiation, auditing, and potential short‑term cost volatility as contracts are rewritten and PBMs recalibrate fees; some may initially face higher explicit fees.
- Federal agencies (HHS, Labor, Treasury) — agencies must draft interim final regulations, adjudicate disputes, oversee disgorgement calculations, and handle enforcement, creating administrative workload and funding/priority questions.
Key Issues
The Core Tension
The central dilemma is this: the bill seeks to prevent PBMs from profiting by linking their pay to drug prices and rebates, thereby preserving plan‑level savings, but by eliminating price‑linked compensation it risks weakening PBMs’ commercial leverage to secure manufacturer discounts — or simply shifting costs into higher flat fees. Policymakers can reduce one form of misaligned incentive, but doing so may either reduce negotiated savings or create new, harder‑to‑monitor fee pathways.
The bill tackles a real alignment problem — PBMs receiving payments linked to list prices and rebates — but it creates several implementation challenges. First, the statutory definitions leave key operational terms open: how to measure "fair market value" for bundled services, what counts as an "itemized" service, and when a payment is "passed on".
These concepts will determine whether legacy arrangements survive or require wholesale redesign. Second, disgorgement calculations will be complex: tracing indirect or affiliate flows through PBM architectures and determining which plan suffered the economic harm are fact‑intensive tasks that invite litigation.
A second cluster of trade‑offs concerns negotiating leverage. PBMs claim that their ability to secure manufacturer discounts and rebates is tied to the commercial tools and revenue models the bill would constrain.
Stripping price‑contingent compensation could reduce PBMs’ incentives to extract manufacturer concessions or change how those concessions are negotiated (for example, shifting to larger upfront list prices or exclusive contracting). Finally, the use of interim final regulations accelerates rule effect but concentrates interpretive authority in agencies; stakeholders should expect immediate compliance pressure paired with later rule refinement — a dynamic that favors well‑resourced litigants and plan administrators who can move quickly.
Try it yourself.
Ask a question in plain English, or pick a topic below. Results in seconds.