California pharmacists should note the changes that SB 41 will make to their relationships with PBMs and payors and prepare for further changes that PBMs might make in response.

On October 11, 2025, California Governor Gavin Newsom approved Senate Bill No. 41, a law that creates extensive restrictions on the business operations, pricing models and other aspects of pharmacy benefits managers (PBMs) in California. The law (roughly 6,500 words in length) covers a wide swath of topics, ranging from discrimination against nonaffiliated providers to duties of ethical conduct—but key provisions of interest for pharmacies include: an “any willing provider” requirement; a prohibition on spread pricing (beginning January 1, 2026); a requirement to use a passthrough business model; and a general prohibition on retroactive payment reductions and payment reductions through a reconciliation process. Effective dates vary, with many of the provisions applying to any contracts from January 1, 2019, or later and other provisions applying to contracts beginning January 1, 2026, or 2027. Penalties consist of fines between $1,000 and $7,500 per violation, and the state attorney general is authorized to seek further equitable relief as necessary to address violations. California pharmacists should note the changes that SB 41 will make to their relationships with PBMs and payors and prepare for further changes that PBMs might make in response.

Though SB 41 is lengthy, its provisions fall largely into the categories of:

• Treatment of nonaffiliated pharmacies;
• Pricing and fees;
• Ethical duties and accountability; and
• Transparency.

A summary of the major provisions in each category follows.

Treatment of Nonaffiliated Pharmacies

The most notable provision from this category is the above-mentioned “any willing provider” requirement. Specifically, PBMs are prohibited from denying a nonaffiliated pharmacy the opportunity to participate in their network if the pharmacy is willing to accept the same terms and conditions established for affiliated pharmacies. Beyond that, the provisions concerning treatment of nonaffiliated pharmacies largely fall into two categories: patient steering and discrimination.

Concerning patient steering, SB 41 prohibits PBMs from doing any of the following:

• Notifying patients that a pharmacy network provider has been terminated before the pharmacy has received a termination notice;
• Requiring plan participants to use affiliated pharmacies;
• Financially inducing participants to transfer prescriptions to affiliated pharmacies;
• Requiring nonaffiliated pharmacies to transfer prescriptions to affiliated pharmacies;
• Unreasonably restricting a participant from using a contracted pharmacy for covered services; and
• Causing a participant to believe that they must have their prescription dispensed at a particular affiliated pharmacy.

Pharmacies should note, however, that although SB 41 prohibits PBMs from requiring nonaffiliated pharmacies to transfer prescriptions to affiliated pharmacies, that prohibition includes the express disclaimer that the law does not prevent a purchaser or PBM from offering plan participants “financial incentives to use a particular pharmacy, such as lower copays, coinsurance, or any other cost sharing.”

Concerning discrimination, PBMs cannot impose any requirements, conditions or exclusions that discriminate against nonaffiliated pharmacies in connection with dispensing drugs. Discrimination includes the following:

• Applying terms or conditions to nonaffiliated pharmacies based on their status as a nonaffiliated pharmacy;
• Refusing to contract with a pharmacy because it is nonaffiliated; and
• Reimbursing a nonaffiliated pharmacy less for a pharmacist service than it would reimburse an affiliated pharmacy for the same pharmacist service

Finally, PBMs cannot prohibit mail-order or personal delivery of drugs in their contracts with nonaffiliated pharmacies.

Pricing and Fees

The most notable provisions from this category are the above-referenced prohibition on spread pricing, the requirement to use a passthrough pricing model and the prohibition on retroactive payment reductions (absent fraud, errors or improper rendering of services by a pharmacy) and payment reductions through a reconciliation process. The other major provisions in this category are as follows:

• Cost-sharing in prescription drug plans cannot exceed the actual rate paid by the plan for the prescription drug or the net price paid by the PBM.
• The only income PBMs may receive from payors for PBM services is a pharmacy benefit management fee for those services.
• 100 percent of prescription drug manufacturer rebates must be directed for the “sole purpose” of offsetting cost sharing for participants (though payors can still pay performance bonuses to PBMs based on savings, depending on what the bonus is based on).
• PBMs can reverse and resubmit claims from a contract pharmacy only (1) with prior written notification to the pharmacy, (2) with just cause or after attempting to reconcile the claim with the pharmacy and (3) within the first 90 days of the claim being adjudicated.
• PBMs cannot charge pharmacies fees to process claims electronically.
• Termination of a contract does not release a PBM from the obligation to pay affirmatively adjudicated claims.

Ethical Duties and Accountability

SB 41 establishes various ethical duties for PBMs toward different parties, including:

• A general duty for all PBMs to exercise good faith and fair dealing.
• A fiduciary duty to self-insured employer plans and payor clients, which includes a duty to be fair and truthful, to act in a client’s best interest, to avoid conflicts of interest and to perform all duties with care, skill, prudence and diligence.

Similarly, the new law prohibits PBMs from retaliating against pharmacies for exercising their legal rights.

Finally, SB 41 expands accountability for violations of these duties (or others) by expanding the group of parties who can be liable: A complaint raised against a PBM by an enrollee can be considered to be a complaint against the relevant plan or insurer.

Transparency

SB 41 requires PBMs to make various financial and other disclosures to payors, the state or pharmacies. One of the key disclosures is that a PBM must notify every “purchaser” (meaning a payor for whom a PBM provider pharmacy benefit management services, except for certain healthcare service plans) of any conflict of interest it has that would interfere with its duty of good faith and fair dealing. PBMs also must submit various financial disclosures to the California Department of Managed Health Care either quarterly or annually. Concerning pharmacies, a PBM must give pharmacy network providers at least 30 days’ notice before making any material change to a contract that affects reimbursement, benefits and eligibility, dispute resolution, drug-formulary verification or contract termination. That requirement includes providing at least 30 days’ notice before terminating the contract itself.

But the largest transparency requirement concerns a list of data PBMs must supply to their purchasers every quarter upon request (and a prohibition on deterring a purchaser from making such requests). Specifically, PBMs must provide the following information for all retail, mail-order, specialty and compounded prescription products:

• Aggregate wholesale acquisition costs from any drug manufacturer or labeler for each category of drug that includes three or more drugs;
• Aggregate rebates received for each drug category (including any utilization discounts);
• Any administrative fees received from any manufacturer or labeler;
• Whether the PBM has any arrangements with a manufacturer to exclusively dispense or provide a drug to a purchaser’s employees, insureds or enrollees, as well as all benefits received pursuant to such arrangement;
• All prescription drug utilization information;
• Aggregate payments (or other benefits) made by the PBM to affiliated pharmacies;
• Aggregate payments (or other benefits) to nonaffiliated pharmacies; and
• Aggregate fees and other assessments imposed on network pharmacies.

SB 41 includes several exceptions: e.g., its rules do not apply to payors providing pharmacy benefits management services exclusively for their own enrollees (or to affiliates that do the same) or to Taft-Hartley plans. Further, the law is lengthy and contains many details beyond the scope of this Alert, which is just a summary of the law’s major rules. Given the breadth and significance of SB 41, California pharmacists should prepare for changes in their relationships with PBMs and payors and expect PBMs to respond to the new law with their own changes.

With the enactment of SB 41, California joins the majority of other states that have passed comprehensive laws to regulate PBMs and creates added protections for pharmacies servicing California residents.

For More Information

If you have any questions about this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, Taylor Hertzler, any of the attorneys in our Pharmacy Litigation Group, any of the attorneys in our Health Law Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.