SB41 - Pharmacy benefits.

Senate Bill No. 41 CHAPTER 605 An act to amend Section 4441 of the Business and Professions Code, to amend Sections 1385.001, 1385.0011, 1385.0021, 1385.0022, and 1385.0023 of, and to add Sections 1367.2075, 1385.0026, 1385.0027, 1385.0028, 1385.0029, 1385.0031, 1385.0032, 1385.0033, and 1385.0034 to, the Health and Safety Code, and to amend Section 10125.2 of, and to add Section 10123.2045 to, the Insurance Code, relating to pharmacy benefits. [ Approved by Governor October 11, 2025. Filed with Secretary of State October 11, 2025. ] LEGISLATIVE COUNSEL'S DIGEST SB 41, Wiener. Pharmacy benefits. Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care, and makes a willful violation of the act a crime. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law requires a pharmacy benefit manager engaging in business with a health care service plan or health insurer to secure a license from the Department of Managed Health Care on or after January 1, 2027, or the date on which the department has established the licensure process, whichever is later. This bill would prohibit a pharmacy benefit manager from, among other things, requiring use of only an affiliated pharmacy, as specified, and from imposing requirements, conditions, or exclusions that discriminate against a nonaffiliated pharmacy in connection with dispensing drugs. The bill would limit a pharmacy benefit manager’s income to that derived from a pharmacy benefit management fee for pharmacy benefit management services provided, and would require a pharmacy benefit manager to use a passthrough pricing model. The bill would authorize the Attorney General to recover specified civil penalties and receive equitable relief for violations of the pharmacy benefit manager licensing provisions. Because a violation of these provisions would be a crime, the bill would impose a state-mandated local program. The bill would also require a contract between a health insurer and a pharmacy benefit manager issued, amended, or renewed on or after January 1, 2027, or the date on which the Department of Managed Health Care has established the pharmacy benefit manager licensure process, whichever is later, to require the pharmacy benefit manager to be licensed and in good standing with the Department of Managed Health Care. Existing law requires a health care service plan contract or health insurance policy that provides coverage for outpatient prescription drugs to cover medically necessary prescription drugs and subjects those policies to certain limitations on cost sharing and the placement of drugs on formularies. Existing law limits the maximum amount an enrollee or insured may be required to pay at the point of sale for a covered prescription drug to the lesser of the applicable cost-sharing amount or the retail price, and requires that payment apply to the applicable deductible. This bill would prohibit a health care service plan contract or health insurance policy issued, amended, or renewed on or after January 1, 2026, that provides prescription drug coverage from calculating an enrollee’s or insured’s cost sharing at an amount that exceeds the actual rate paid by the plan or insurer for the prescription drug, except as specified, and would require the contract or policy to include specified cost-sharing provisions. The bill would prohibit a contract between a pharmacy benefit manager and a health care service plan or health insurer that is executed, amended, or renewed on or after January 1, 2026, from authorizing spread pricing. Because a willful violation of the bill’s requirements relative to health care service plans would be a crime, the bill would impose a state-mandated local program. This bill would declare that it does not narrow, abrogate, or otherwise alter the authority of the Attorney General to maintain or restore competitive, fair, and honest markets and prosecute violations of law, and would declare that the provisions of this bill are severable. Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest. This bill would make legislative findings to that effect. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: YES Bill Text The people of the State of California do enact as follows: SECTION 1. Section 4441 of the Business and Professions Code is amended to read: 4441. (a) For purposes of this section, the following definitions shall apply: (1) “Labeler” means a person or entity that receives prescription drugs from a manufacturer or wholesaler and repackages those drugs for later retail sale and who has a labeler code from the federal Food and Drug Administration under Part 207 of Title 21 of the Code of Federal Regulations. (2) “Proprietary information” means information on pricing, costs, revenue, taxes, market share, negotiating strategies, customers, and personnel that is held by a pharmacy benefit manager and used for its business purposes. (3) “Purchaser” means a health benefit plan sponsor or other third-party payer with whom a pharmacy benefit manager contracts to provide the administration and management of prescription drug benefits, except for a health care service plan licensed pursuant to Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code. (b) This section shall apply to pharmacy benefit manager contracts that are entered into, amended, or renewed on or after January 1, 2019. (c) (1) A pharmacy benefit manager shall exercise good faith and fair dealing. (2) A pharmacy benefit manager has a fiduciary duty to a self-insured employer plan that includes a duty to be fair and truthful toward the client, to act in the client’s best interests, to avoid conflicts of interest, and to perform its duties with care, skill, prudence, and diligence. (d) A pharmacy benefit manager shall notify a purchaser in writing of any activity, policy, or practice of the pharmacy benefit manager that directly or indirectly presents a conflict of interest that interferes with the discharge of the pharmacy benefit manager’s duty to the purchaser to exercise good faith and fair dealing pursuant to subdivision (c). (e) The pharmacy benefit manager shall, on a quarterly basis, disclose, upon the request of the purchaser, the following information with respect to prescription product benefits specific to the purchaser: (1) The aggregate wholesale acquisition costs from a pharmaceutical manufacturer or labeler for each therapeutic category of drugs containing three or more drugs, as outlined in the state’s essential health benefits benchmark plan pursuant to Section 1367.005 of the Health and Safety Code. (2) The aggregate amount of rebates received by the pharmacy benefit manager by therapeutic category of drugs containing three or more drugs, as outlined in the state’s essential health benefits benchmark plan pursuant to Section 1367.005 of the Health and Safety Code. The aggregate amount of rebates shall include any utilization discounts the pharmacy benefit manager receives from a pharmaceutical manufacturer or labeler. (3) Any administrative fees received from the pharmaceutical manufacturer or labeler. (4) Whether the pharmacy benefit manager has a contract, agreement, or other arrangement with a pharmaceutical manufacturer to exclusively dispense or provide a drug to a purchaser’s employees, insureds, or enrollees, and the application of all consideration or economic benefits collected or received pursuant to that arrangement. (5) Prescription drug utilization information for the purchaser’s enrollees or insureds that is not specific to any individual enrollee or insured. (6) The aggregate of payments, or the equivalent economic benefit, made by the pharmacy benefit manager to pharmacies owned or controlled by the pharmacy benefit manager. (7) The aggregate of payments made by the pharmacy benefit manager to pharmacies not owned or collected by the pharmacy benefit manager. (8) The aggregate amount of the fees imposed on, or collected from, network pharmacies or other assessments against network pharmacies, and the application of those amounts collected pursuant to the contract with the purchaser. (f) The information disclosed pursuant to subdivision (e) shall apply to all retail, mail order, specialty, and compounded prescription products. (g) Except for utilization information specified in paragraph (5) of subdivision (e), a pharmacy benefit manager is not required to make the disclosures required by subdivision (e) unless and until the purchaser agrees, in writing, to maintain as confidential any proprietary information. (h) A pharmacy benefit manager shall not impose a penalty or offer an inducement to a purchaser for the purpose of deterring the purchaser from requesting the information set forth in subdivision (e). (i) A pharmacy benefit manager shall disclose to a pharmacy network provider or its contracting agent any material change to a contract provision that affects the terms of reimbursement, the process for verifying benefits and eligibility, dispute resolution, procedures for verifying drugs included on the formulary, and contract termination at least 30 days before the date of the change to the provision. (j) A pharmacy benefit manager shall not notify an individual receiving benefits through the pharmacy benefit manager that a pharmacy has been terminated from the pharmacy benefit manager’s network until the notification of termination has been provided to that pharmacy pursuant to subdivision (i). (k) A pharmacy benefit manager shall not include in a contract with a pharmacy network provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication. (l) This section shall not apply to the following: (1) A health care service plan or health insurer, if the health care service plan or health insurer offers, provides, or administers pharmacy benefit management services and if those services are offered, provided, or administered only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered, provided, or administered by that health care service plan or health insurer. (2) An affiliate, subsidiary, related entity, or contracted medical group of a health care service plan or health insurer that would otherwise qualify as a pharmacy benefit manager, but offers, provides, or administers services only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered, provided, or administered by the health care service plan or health insurer. (3) A contract authorized by Section 4600.2 of the Labor Code. (m) The provisions of this section are severable. If any provision of this section or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application. SEC. 2. Section 1367.2075 is added to the Health and Safety Code, immediately following Section 1367.207, to read: 1367.2075. (a) A health care service plan contract issued, amended, or renewed on or after January 1, 2026, that provides prescription drug coverage shall not calculate an enrollee’s cost sharing at an amount that exceeds the actual rate paid by the plan for the prescription drug, and shall include cost-sharing provisions consistent with Section 4079 of the Business and Professions Code. Cost sharing shall include deductibles and copayments. (b) To the extent that a health care service plan contract with a pharmacy benefit manager issued, amended, or renewed on or after January 1, 2026, includes disclosure on the net price paid by the pharmacy benefit manager or group purchasing organization, then an enrollee’s cost share shall not be calculated at an amount that exceeds that net price paid. (c) (1) Commencing January 1, 2026, if a preexisting contract between a pharmacy benefit manager licensed pursuant to Article 6.1 (commencing with Section 1385.001) and a health care service plan authorizes spread pricing, as that term is defined by Section 1385.001, any subsequent amendment or renewal of that contract shall not authorize spread pricing. (2) A contract that is executed on or after January 1, 2026, between a pharmacy benefit manager licensed pursuant to Article 6.1 (commencing with Section 1385.001) and a health care service plan shall not authorize spread pricing, as that term is defined by Section 1385.001. SEC. 3. Section 1385.001 of the Health and Safety Code, as added by Section 11 of Chapter 21 of the Statutes of 2025, is amended to read: 1385.001. For the purposes of this article: (a) “Affiliated entity” means any of the following: (1) An applicable group purchasing organization, drug manufacturer, distributor, wholesaler, rebate aggregator or other purchasing entity designed to aggregate rebates, or associated third party. (2) A subsidiary, parent, affiliate, or subcontractor of a health care service plan or health insurer, an entity that provides pharmacy benefit management services on behalf of a health care service plan or health insurer, or an entity described in paragraph (1). (3) Any other entity as designated by the department. (b) “Affiliated pharmacy” means a contract pharmacy that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with a pharmacy benefit manager. (c) “Claim” means a request for payment for administering, filling, or refilling a drug or for providing a pharmacy service or a medical supply or device to an enrollee or insured. (d) “Contract pharmacy” means a pharmacy that contracts directly or through a pharmacy services administration organization with a pharmacy benefit manager. (e) “Department” means the Department of Managed Health Care. (f) “Director” means the Director of the Department of Managed Health Care. (g) “Drug” has the same meaning as defined in Section 4025 of the Business and Professions Code. (h) “Group purchasing organization” means a third party or affiliated person, including an out-of-state or international organization, employed by, contracted with, affiliated with, under common ownership or control by, or otherwise utilized by an entity that prov [Text truncated for display. Full text available on Congress.gov.]