It took too long, but major reforms are coming to how Pharmacy Benefit Managers (PBMs) are permitted to operate.
The Consolidated Appropriations Act of 2026, signed by President Donald Trump on February 3rd, finally codifies the key reforms that PBMs fiercest free-market critics, myself included, have been seeking for nearly a decade.
This landmark bipartisan law brings transparency to the business practices of PBMs, makes adjustments to the rebate system and restricts “spread pricing,” where PBMs can charge insurers more for a drug than the cost to dispense it at a pharmacy.
The new federal law is superior to the patchwork of state laws that popped up over the last decade, which sought to address the PBM problems. Federal (ERISA) law preempts states from regulating self-funded employer plans, so state laws, no matter how aggressive, could not apply to most employees of large corporations, or nearly 67 percent of covered patients nationally.
In addition, the state laws, as one might expect, range in how they strike a balance between protecting against opaque business practices and permitting PBMs to deliver cost savings through negotiation on behalf of plans.
Consider Arkansas Act 624 of 2025, one of the more radical attempts to regulate PBMs. The law, currently mired in federal litigation, would prohibit PBMs from owning their own pharmacies. In addition, Arkansas’s law would tinker in the market by requiring PBMs to pay pharmacies a minimum state government-mandated profit margin. Legislators touted that the measure protects independent pharmacies, but ignored the fact that an artificial price floor removes PBMs incentive to do what they are meant to do, which is negotiate the best price. If there’s a floor, there’s diminished incentive for PBMs to fight for prices below the floor.
The Arkansas law, which favors structural changes rather than transparency and leveling of the competitive playing field, is currently under a federal preliminary injunction.
PBMs reasonably argue that the law favors in-state companies (even carving out an exemption for Arkansas-based Walmart) and would create pharmacy deserts, at least temporarily. The argument held sway with the federal court which, issued the injunction against the law last July.
Other states, including Tennessee, Oklahoma, Louisiana, West Virginia, and Mississippi are currently considering legislation which, using various heavy-handed mechanisms, reflect the Arkansas model. These pending proposals were all initiated prior to the recently enshrined federal fix. Even if they were to pass constitutional muster, these state-level interventions apply a sledge-hammer where, as the new federal law illustrates, a more focused solution can resolve the inequities the PBMs had heretofore been exploiting.
But don’t be fooled by advocates for the Arkansas approach who will tell you that the federal law will take nearly two years to be implemented and that it doesn’t go far enough.
First, given the inherent constitutional problems with the Arkansas-style approach, the federal law is likely to protect patients sooner than the extreme state laws would, even if they do survive lengthy legal challenges.
Second, because the states are pre-empted by the federal ERISA law, nothing a state could do regarding PBMs could affect that significant portion of the health-care market.
As to the argument that the federal law doesn’t go far enough to achieve the goals, there’s no way to know for sure until we see the impact on the marketplace after implementation. But more pointedly, the question should be: what are the goals we are trying to achieve?
If it is transparency and a level playing field which will protect plan sponsors and their members, the federal law seems likely to achieve that.
That’s why Mark Blum, Managing Director of the PBM Accountability Project hailed the federal law for “advancing meaningful PBM reforms.” He commended Rep. Buddy Carter (R., Ga.), a pharmacist and lead author of the bill, for his efforts “to increase transparency, curb abusive middleman practices, and protect patients and independent pharmacies.”
If, however, the goal is to simply punish PBMs, the Arkansas model fits the bill. But caveat legislatura. Doing so would cause a massive disruption in the retail pharmacy landscape that would restrict access for patients; hitting seniors especially hard.
And in punishing an industry that is imminently (although belatedly) coming under a widely-touted landmark federal regulatory overhaul, strident state laws threaten PBMs ability to actually achieve cost-savings on a newly transparent and level playing field.
Proponents of the state-level attacks on PBMs would serve their constituents well by tabling their outdated proposals. Now that major federal reforms have passed, their approach is an anachronism. They can better tailor any necessary tweaks after evaluating 2028 data when the new federal law is in full effect.
Doing so allows lawmakers to consider additional reforms based on how market-players respond to the new law, rather than risk the unintended consequences of aggressive regulation when the underlying problem may have already been resolved by Congress. Jeff Stier is an advisor to the Heartland Institute.
