California Senate Bill 41 Reshapes PBM Rules: What Pharmacies Must Do Now

Contracting and Exclusivity Constraints

SB 41 restricts PBM contracting with manufacturers, pharmacies, and Pharmacy Services Administrative Organizations (PSAOs) effective January 1, 2026, for PBM conduct and for contracts issued, amended, or renewed on or after that date. This applies to contracts that implement explicit or implicit exclusivity, unless the PBM can demonstrate that exclusivity results in the lowest cost to the payer and lowest cost sharing for participants.

PBMs may not enter into or enforce contracts that restrict nonaffiliated pharmacies' ability to contract with employers and payers. HSC § 1385.0032,

Transparency, Disclosure, and Duties

SB 41 codifies a duty of good faith and fair dealing for PBMs and adds an express fiduciary duty from PBMs to their payer clients under HSC § 1385.0022. SB 41 grants purchasers the right to request certain quarterly disclosures under BPC § 4441, rights which are distinct from DMHC’s financial reporting and examination duties for licensed PBMs.

PBMs must provide at least 30 days’ advance notice of material contract changes affecting reimbursement or other key terms to pharmacy network providers unless a shorter period is expressly permitted by statute or regulation. HSC § 1385.0022; BPC § 4441(c)–(e).

Enforcement, Remedies, and Attorney General Authority

SB 41 authorizes DMHC to examine compliance with PBM duties (including good faith and fiduciary obligations) under its licensure authority (§ 1385.0034). This authority includes surveys, examinations, and financial reporting reviews, similar to DMHC’s traditional oversight of health plans under the Knox-Keene Act. Willful violations are crimes under the Knox-Keene Act, amplifying deterrence.

The Attorney General may pursue violations of the PBM provisions. Available remedies include specific performance, injunctive relief, and civil penalties ranging from $1,000 to $7,500 per violation, plus equitable relief and recovery of attorney's fees and costs.

The statute expressly preserves the Attorney General's existing authority and amends the Insurance Code so that a complaint made by an enrollee against a PBM may be considered a complaint against the health plan or insurer itself. HSC § 1385.0033; HSC § 1385.0023(c); Ins. Code § 10125.2(b)–(d).

Implementation Timeline

Changes under SB 41 take effect across the following dates (Cal. Health & Safety Code § 1395.6 et seq.; Ins. Code § 10133 et seq.):

January 1, 2026

• • PBM conduct and contracts issued, amended, or renewed on or after this date are subject to key prohibitions and duties, including the ban on spread pricing in PBM conduct and in affected contracts, point‑of‑sale cost‑sharing limitations (subject to plan contract disclosures), claims integrity and payment protections, anti‑steering and nondiscrimination rules, and ancillary service/delivery rights for nonaffiliated pharmacies (see HSC §§ 1385.0026–1385.0031; HSC § 1367.2075; Ins. Code § 10123.2045).

January 1, 2027

• • PBM licensure obligations and insurer–PBM contract requirements become enforceable on this date or upon DMHC establishing and operationalizing the PBM licensure process, whichever occurs later (see HSC §§ 1385.0011; 1385.0023; Ins. Code § 10125.2(d)).

January 1, 2029

• • Any spread-pricing contract term is void by operation of law as of January 1, 2029, regardless of renewal or amendment status (see HSC § 1385.0031).

Practical Implications and Next Steps for Pharmacies

The shift to a passthrough reimbursement model and elimination of spread pricing should increase pricing transparency and reduce misalignment between payer payments and pharmacy reimbursement.

Pharmacies may experience changes in fee structures and the categorization of PBM compensation. Nonaffiliated pharmacies will have new statutory tools to resist network steering and differential reimbursement practices, and greater freedom to provide delivery services.

Operationally, pharmacies should take the following actions:

• Review and renegotiate PBM network agreements to remove spread pricing and implement passthrough reimbursement methodologies;
• Adjust point-of-sale processes aligned to plan-paid or net-price caps on cost sharing; document and escalate suspected discriminatory terms or steering;
• Implement safeguards against retroactive claim adjustments or “effective-rate” reconciliations except for clerical-error corrections; and
• Align delivery workflows with the ancillary-services protections.

In addition, pharmacies should standardize contract definitions for key terms such as “passthrough pricing model,” “pharmacy benefit-management fee,” “affiliated pharmacy,” “rebate,” and “spread pricing.” This will help ensure they mirror SB 41 definitions to minimize dispute risk and prevent PBM-fee language from being tied directly or indirectly to drug-price metrics or retained rebates.

Pharmacy management should develop a readiness and monitoring plan aligning contract-lifecycle management, reimbursement analytics, and operational controls with SB 41’s phased requirements. Priority actions include:

• Identify 2026–2027 contract events;
• Negotiate removal of spread-pricing terms and insertion of passthrough reimbursement provisions;
• Ensure point-of-sale systems reflect cost-sharing caps;
• Revising delivery policies to reflect ancillary-service rights;
• Train staff on nondiscrimination protections; and
• Establish a recordkeeping and audit framework to support potential enforcement or DMHC referral.

60-Day Action Checklist

1. Contract Inventory and Triage

• • Identify PBM, GPO, specialty‑mail, and PSAO contracts; list renewal/amendment dates; flag spread‑pricing language, rebate retention clauses, exclusivity terms, reconciliation or “effective rate” provisions, reverse‑and‑resubmit rights, and delivery restrictions. Assign contract owner and priority level for each flagged clause

2. System Validation

• • Verify that claims adjudication software computes member cost-sharing from the actual plan-paid or net-price amount. Confirm whether a PBM net-price disclosure exists in the plan contract and condition adjudication logic on that disclosure where applicable.

3. Amendment Templates

• • Draft and/or negotiate PBM-contract amendments implementing passthrough pricing, explicit PBM‑fee disclosure (flat FMV fee), rebate passthrough and quarterly reporting clauses, deletion of spread‑pricing authorizations, reverse/resubmit safeguards, and licensure/good‑standing material‑breach language.

4. Rebate Accounting Map

• • Build a rebate inflow/outflow ledger and controls to verify 100 percent passthrough to payers; require quarterly PBM rebate reconciliation reports and supporting detail to reconcile manufacturer payments, remittances to payers, and any administrative allocations.

5. Network Policy Cleanup

• • Remove or object to affiliate-only restrictions; insert parity language that nonaffiliated pharmacies are eligible for preferred status on the same terms and conditions offered to affiliated pharmacies; add delivery rights and nondiscrimination enforcement clauses.

6. Licensure Monitoring

• • Track DMHC PBM-licensure rulemaking on their website. Insert insurer‑contract language requiring PBM DMHC licensure and good standing by the operative date (January 1, 2027, or when DMHC implements licensure) and specify material‑breach remedies for failure to obtain/maintain licensure.

7. Claims and Reconciliation Review

• • Audit historical and current PBM reconciliation practices for retroactive “effective‑rate” adjustments, claw-backs, and electronic transmission fees.
  • Document instances of reverse‑and‑resubmit conducted without prior written notice or reconciliation attempts; preserve all communications, ERA/835 files, remittance advices, and reconciliation spreadsheets for dispute or enforcement.

8. Exemption Audit

• • Identify ERISA/self‑insured carve‑outs and Taft‑Hartley exempt plans; quantify volumes and contractual scope; evaluate whether the PBM’s mixed servicing of exempt and nonexempt business creates commingling or cross‑subsidization risks and requires segregation or accounting controls where appropriate (see HSC § 1385.0034).

9. Consult Legal Counsel

• • Engage outside/in-house counsel to draft, review, and prioritize amendment templates, to support negotiations, and to advise on enforcement strategy and regulatory referral thresholds.

Ongoing Compliance and Monitoring

• • Pharmacies should implement a continuous compliance framework that includes quarterly reviews of PBM contracts, rebate flows, and adjudication logic to maintain SB 41 alignment.
  • Internal dashboards or compliance logs should document contract amendments, dispute escalations, audit results, and all advance notices of material network changes.
  • Pharmacies and PSAOs should monitor DMHC rulemaking and interpretive guidance, track exclusivity clauses and reimbursement differentials, and collect data on audit frequency or network restrictions that may indicate discriminatory or noncompliant PBM conduct.
  • All contemporaneous records of PBM performance and communications should be preserved to support audits, contractual challenges, or enforcement referrals through the DMHC or the DOI.

Conclusion

Senate Bill 41 represents a foundational shift in California's pharmacy landscape, fundamentally restructuring the PBM-pharmacy relationship. The bill replaces opaque price capture and discretionary PBM practices with a framework centered on transparency, payer-facing accountability, and protections for nonaffiliated pharmacies and patients.

By early 2026, every PBM, pharmacy, and plan doing business in California must ensure that contracts, systems, and compliance frameworks embody these new statutory standards.

SB 41’s combined tools—contractual prohibitions, operational rules for adjudication and delivery, purchaser disclosure rights, DMHC oversight, and Attorney General enforcement—create legal and commercial leverage pharmacies can use to secure fairer reimbursement and network parity. Pharmacies that move quickly to operationalize these changes will reduce compliance risk and convert regulatory reform into a competitive advantage.