Pharmacy benefits.

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Formal chaptered publication formatting removed, including page numbers, headers (Ch. 605), and the 'STATE OF CALIFORNIA AUTHENTICATED ELECTRONIC LEGAL MATERIAL' banner

Header changed from enrolled bill format (Senate/Assembly passage dates, Secretary of Senate, Chief Clerk signatures) to chaptered format (STATE OF CALIFORNIA AUTHENTICATED ELECTRONIC LEGAL MATERIAL, CHAPTER 605, Governor approval date October 11, 2025).

Page headers changed from 'SB 41' to 'Ch. 605' and page numbers shifted (e.g., page 91 became page 90) due to the shorter header block.

Line wrapping and indentation throughout the legislative text was reformatted to match the chaptered document layout, but the substantive language of all sections remains identical.

New Business and Professions Code Section 4441 requires PBMs to exercise good faith and fair dealing, imposes a fiduciary duty on self-insured employer plans, mandates written notice of conflicts of interest, and requires quarterly disclosure upon purchaser request of wholesale acquisition costs, rebates, administrative fees, exclusive dispensing arrangements, utilization data, payments to affiliated and non-affiliated pharmacies, and fees imposed on network pharmacies - all organized by therapeutic category.

New Business and Professions Code Section 4441 requires PBMs to give 30-day advance written notice to pharmacy network providers before material changes to reimbursement terms, benefits verification, dispute resolution, formulary procedures, or contract termination. It also prohibits notifying a patient that their pharmacy was terminated before the pharmacy itself receives notice, and bans contract provisions that prevent pharmacies from informing patients of less costly alternatives.

Two new prohibited bases for PBM fees were added: (4) coverage or formulary placement decisions or the volume or value of referrals or business generated between parties, and (5) any other amounts or methodologies as defined by the director. Additionally, 'wholesale acquisition cost' and 'drug benchmark price, such as average wholesale price' were added to the list of prohibited fee bases in paragraph (1).

New Health and Safety Code Section 1385.0011 requires PBMs to submit annual audited financial statements within 120 days of fiscal year close and quarterly unaudited statements within 45 days of each quarter close. Revenue must include all sources including affiliates and all rebate types; expenses must include payments to pharmacies, claims processing, special programs, and administrative costs.

The definition of 'pharmacy benefit management fee' in Section 1385.001 was tightened from 'does not exceed the value of the service or services actually performed' to 'does not exceed the bona fide value of the itemized service or services actually performed by the pharmacy benefit manager on behalf of the payer, that the payer would otherwise perform or contract for in the absence of the service arrangement, whether or not the payer takes title to the prescription drug.'

The definition of 'rebates' in Section 1385.001 was expanded to explicitly exclude pharmacy benefit management fees, clarifying that PBM fees are not treated as rebates for purposes of the bill's transparency and fee restrictions.

New Business and Professions Code Section 4441 applies to PBM contracts entered into, amended, or renewed on or after January 1, 2019, giving it retroactive reach to existing contracts. It exempts health care service plans and insurers that provide PBM services only to their own enrollees, their affiliates providing services only to those same enrollees, and contracts authorized by Labor Code Section 4600.2.

New Health and Safety Code Section 1385.0011 gives the director authority to reject financial filings with a 30-day correction period (failure to correct is a violation of the chapter), require corrective action if an audit opinion is qualified, make rules specifying form and content of reports, and direct PBM applicants to use existing DMHC forms and processes.

Removed the requirement for health care service plans to report detailed prescription drug data annually (Section 1367.243), including the 25 most frequently prescribed drugs, 25 most costly drugs, wholesale acquisition costs, rebates received by PBMs, administrative fees, and payments to affiliated vs non-affiliated pharmacies.

Removed Section 1367.2431, which would have required the department to aggregate rebate information in public reports so it does not reveal individual plan or manufacturer pricing details.

Changed the Insurance Code provisions from amending Section 10123.205 and adding Sections 10123.2045 and 10123.2051 to amending Section 10125.2 and adding only Section 10123.2045.

Removed the prohibition on a PBM unreasonably obstructing or interfering with a patient's right to timely access a prescription drug or device at a contract pharmacy. The remaining prohibition still covers requiring use of only an affiliated pharmacy and discriminating against non-affiliated pharmacies.

Added a requirement that a contract between a health insurer and a pharmacy benefit manager issued, amended, or renewed on or after January 1, 2027 (or the date DMHC establishes the PBM licensure process, whichever is later) must require the PBM to be licensed and in good standing with the Department of Managed Health Care.

Removed all prior amendment history dates (seven amendments from March through September 2025) and author/coauthor attribution lines, which are standard in enrolled bill formatting.

Added passage dates (Senate September 10, 2025; Assembly September 9, 2025), Secretary of the Senate and Chief Clerk of the Assembly signature blocks, and a Governor receipt line with blank date/time fields.

Removed line-by-line numbering (line 1, line 2, etc.) that was present in the Amended Assembly version to track specific amendments. The enrolled version presents clean text without these markers.

The legislative counsel's digest changed from 'SB 41, as amended, Wiener' to 'SB 41, Wiener', dropping the 'as amended' designation now that no further amendments are expected.

New PBM licensing requirement through the Department of Managed Health Care. PBMs doing business with a health care service plan or health insurer must secure a DMHC license on or after January 1, 2027 (or when the department establishes the licensure process, whichever is later). This is in addition to the existing DOI licensing under Insurance Code Division 6.

Section 1385.004 amended so that health care service plans must require PBMs to obtain a license (not just register) and keep it in good standing. Contracts issued, amended, or renewed on or after January 1, 2026 must also require PBMs to submit information to DHCAI as required by the Health Care Payments Data System.

The cost-sharing prohibition benchmark changed from 'actual rate paid by the plan or insurer for the prescription drug' to 'price paid by the pharmacy benefit manager or group purchasing organization for the prescription drug.' This shifts the reference point from what the plan pays to what the PBM or GPO actually pays, which could be a lower amount.

New data reporting requirement: PBMs must provide specified data to the Department of Health Care Access and Information regarding drug pricing, fees, and other information. DHCAI must include PBM operational and financial drug costs in its annual analysis. The Health Care Payments Data Program advisory committee must now include PBMs.

PBMs must submit financial statements to DMHC at specified intervals, and those statements and other proprietary information must be kept confidential. PBM application fees may not exceed $25,000 (actual cost of processing including overhead).

New annual fee for licensed health care service plans (excluding specialized plans) for fiscal years 2025-26 and 2026-27 to fund DMHC's implementation of PBM licensing and DHCAI's data reporting expenses. Licensed PBMs must also pay amounts twice per year to fund their own licensing implementation and DHCAI data reporting costs.

New Pharmacy Benefit Manager Fund created in the State Treasury for fees, fines, penalties, and reimbursements from PBMs. A separate Pharmacy Benefit Manager Administrative Fines and Penalties Fund is also created for specified fines and administrative penalties.

Comprehensive new definitions section (Section 1385.001) added with terms including 'affiliated entity,' 'group purchasing organization,' 'passthrough pricing model,' 'pharmacy benefit management fee' (which must be a flat fee not contingent on rebates or savings), an expanded 'pharmacy benefit manager' definition that now includes entities acting as price negotiators or group purchasers, and a detailed 'rebates' definition covering incentive rebates, credits, market share incentives, promotional allowances, and more.

The existing PBM registration system under Section 1385.005 is amended to include a sunset: it becomes inoperative on January 1, 2027 or when the department establishes the licensure process, whichever is later, and is then repealed.

DMHC director authorized to suspend or revoke PBM licenses. A PBM whose license is revoked or suspended for more than one year may petition for reinstatement with a fee not to exceed $500. The Attorney General is additionally authorized to recover civil penalties and receive equitable relief for violations.

PBM licensing authority moved from the Department of Insurance to the Department of Managed Health Care. The proposed new Division 6 of the Insurance Code (Section 17000 et seq.) was removed entirely, and all PBM regulatory provisions now sit within the Health and Safety Code under DMHC jurisdiction.

Section 1385.005 is now being amended and repealed rather than merely amended, and Section 1385.0034 is now being repealed and re-added rather than simply added. A new Section 1385.0026 was added to the list of new sections.

Assembly Member Hadwick Bonta was added as a principal coauthor alongside Assembly Members Hadwick and Schiavo.

New prohibitions on PBM conduct: unreasonably obstructing or interfering with a patient's right to timely access a prescription drug or device at a contract pharmacy; requiring use of only an affiliated pharmacy; and imposing requirements, conditions, or exclusions that discriminate against a nonaffiliated pharmacy in connection with dispensing drugs.

PBMs are now limited in income to the pharmacy benefit management fee for services provided and are required to use a passthrough pricing model, meaning they cannot retain spread between what they charge plans and what they pay pharmacies.

The cost-sharing cap in Section 1367.2075 was revised: the old language capped cost sharing at 'the actual rate paid by the plan or insurer' or 'the price paid by the PBM or GPO.' The new language caps it at 'the price paid by the PBM or GPO' or 'the actual rate paid by the plan,' and adds 'except as specified.' A new subdivision (b) provides that if a plan contract includes disclosure of the net price paid by the PBM or GPO, then cost share cannot exceed that disclosed net price.

The requirement for PBMs to report specified information to plans on or before July 1, 2027 (and each July 1 thereafter) to help plans complete their annual reporting was removed from the bill.

New Section 1385.005 requires pharmacy benefit managers to register with the department, submit detailed application information (name, address, beneficially interested persons, management/control persons), pay a fee not exceeding reasonable costs, and notify the department within 30 days of any change in disclosed information.

New Section 1385.005(h) requires each PBM to report to a plan with which it contracts, on or before July 1, 2027 and each July 1 thereafter, the information necessary for the plan to complete its annual reporting under Section 1367.243(a)(2)(D), which includes wholesale acquisition costs, rebates, administrative fees, and payments to affiliated and non-affiliated pharmacies.

New Section 1385.006 makes failure to comply with contractual requirements grounds for disciplinary action, requires the director to investigate and take enforcement action against non-compliant plans or PBMs, and directs the department to periodically evaluate contracts between health care service plans and PBMs to determine if audit, evaluation, or enforcement actions are warranted.

Section 1367.2075(a) changed from 'actual rate paid for the prescription drug' to 'actual rate paid by the plan for the prescription drug,' clarifying that the cost-sharing cap is based on what the plan actually pays rather than an ambiguous reference.

Section 1367.2075(a) now explicitly states that 'Cost sharing shall include deductibles and copayments,' removing ambiguity about which patient costs are subject to the cap.

Section 10123.2045(a) changed from 'actual rate paid for the prescription drug' to 'actual rate paid by the insurer for the prescription drug' and added that 'Cost sharing shall include deductibles and coinsurance.'

Assembly Member Pellerin was added as a coauthor, indicating broader legislative support.

PBMs serving health care service plans must now reimburse pharmacies at no less than the National Average Drug Acquisition Cost (NADAC) for each drug at the time of dispensing, or the pharmacy's wholesale acquisition cost if the drug is not on the NADAC index. This applies under new Section 1367.2075(c).

PBMs serving health care service plans must now pay pharmacies a dispensing fee no less than the rate paid by Medi-Cal. This applies under new Section 1367.2075(d).

The same NADAC reimbursement floor and Medi-Cal dispensing fee floor were added for PBMs serving health insurers under new Section 10123.2045(c) and (d).

A new definition of 'dispensing fee' was added to Section 17000, defined as the fee paid to a pharmacy for the preparation, packaging, and dispensing of a prescription drug.

Section 17000(i) now explicitly states that a health insurer acting as a pharmacy benefit manager providing services in California is subject to the new Division 6 licensing regime. Previously, health insurers were listed as an exclusion from the PBM definition.

Section 17000(i) now explicitly states that services provided by a PBM acting on behalf of a self-insured plan are subject to the new Division 6, unless preempted by federal law. This brings self-insured employer plans within the regulatory net.

The original exclusion of 'a health insurer' from the PBM definition in Section 17000 is effectively overridden by the new language stating that a health insurer acting as a PBM is subject to the division, creating a partial inclusion rather than a blanket exclusion.