Article 6.1 - Pharmacy Benefit Managers

California Health and Safety Code — §§ 1385.001-1385.009

Sections (32)

Amended (as added by Stats. 2025, Ch. 21, Sec. 11) by Stats. 2025, Ch. 605, Sec. 3. (SB 41) Effective January 1, 2026.

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 provides pharmacy benefit management services or by a pharmacy benefit manager to negotiate, obtain, or otherwise procure rebates from drug manufacturers or wholesalers.
(i)“Health insurer” means an entity licensed to provide health insurance, as defined in Section 106 of the Insurance Code.
(j)“Manufacturer” has the same meaning as defined in Section 4033 of the Business and Professions Code.
(k)“Nonaffiliated pharmacy” means a contract pharmacy that directly, or indirectly through one or more intermediaries, does not control, is not controlled by, and is not under common control with a pharmacy benefit manager.
(l)“Passthrough pricing model” means a payment model used by a pharmacy benefit manager in which the payments made by the health care service plan or health insurer client to the pharmacy benefit manager for the covered outpatient drugs are both of the following:
(1)Equivalent to the payments the pharmacy benefit manager makes to a pharmacy or provider for those drugs, including any contracted professional dispensing fee between the pharmacy benefit manager and its network of pharmacies. That dispensing fee would be paid if the health care service plan or health insurer was making the payments directly.
(2)Passed through in their entirety by the health care service plan or health insurer client or by the pharmacy benefit manager to the pharmacy or provider that dispenses the drugs, and the payments are made in a manner that is not offset by any reconciliation.
(m)“Payer” means a health care service plan licensed by the department or a health insurer licensed by the

Department of Insurance.

(n)“Person” has the same meaning as defined in Section 4035 of the Business and Professions Code.
(o)“Personal representative” means an individual who has authority to make a health care decision on behalf of another individual pursuant to Division 4.7 (commencing with Section 4600) of the Probate Code.
(p)“Pharmacist” has the same meaning as defined in Section 4036 of the Business and Professions Code.
(q)“Pharmacist services” means products, goods, and services, or any combination of products, goods, and services, provided as a part of the practice of pharmacy.
(r)“Pharmacy” has the same meaning as defined in Section 4037 of the Business and Professions Code.
(s)“Pharmacy benefit management fee” means a flat, defined, dollar-amount fee that covers the cost of providing one or more pharmacy benefit management services and that 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 value of the service or services shall be based on the value to the health insurer or health care service plan. A pharmacy benefit management fee may not directly or indirectly be based on or contingent upon any of the following:
(1)The price of prescription drugs, including direct or indirect rebates, discounts, wholesale acquisition cost, drug benchmark price, such as average wholesale price, or other price concessions.
(2)The amount of savings, rebates, or other fees charged, realized, or collected by, or generated based on the activity of, the pharmacy benefit manager or its affiliated entities, that is retained by the pharmacy benefit manager or its affiliated entities.
(3)The amount of premiums, deductibles, or other cost sharing or fees charged, realized, or collected by the pharmacy benefit manager or its affiliated entities from patients or other persons on behalf of a patient.
(4)Coverage or formulary placement decisions or the volume or value of any referrals or business generated between the parties to the arrangement.
(5)Any other amounts or methodologies as defined by the director.
(t)(1) “Pharmacy benefit manager” means a person, business, or other entity that, either directly or through an intermediary, affiliate, or both, acts as a price negotiator or group purchaser on behalf of a payer, or manages the prescription drug coverage provided by the payer, including, but not limited to, the processing and payment of claims for prescription drugs, the performance of drug utilization review, the processing of drug prior authorization requests, the adjudication of appeals or grievances related to prescription drug

coverage, contracting with network pharmacies, or controlling the cost of covered prescription drugs.

(2)“Pharmacy benefit manager” includes an entity performing the duties specified in paragraph (1) that is under common ownership with, or control by, a payer.
(3)“Pharmacy benefit manager” does not include any of the following:
(A)An entity providing services pursuant to a contract authorized by Section 4600.2 of the Labor Code.
(B)A fully self-insured employee welfare benefit plan under the Employee Retirement Income Security Act of 1974 (Public Law 93-406), as amended (29 U.S.C. Sec. 1001 et seq.).
(C)A health care service plan licensed pursuant to this chapter or an individual employee of a health care service plan.
(D)A health insurer licensed to provide health insurance, as defined in Section 106 of the Insurance Code, or an individual employee of a health insurer.
(E)A city or county that develops or manages drug coverage programs for uninsured patients for which no reimbursement is received.
(F)An entity exclusively providing services to patients covered by Part 418 (commencing with Section 418.1) of Subchapter B of Chapter IV of Title 42 of the Code of Federal Regulations.
(G)The State Department of Health Care Services, including any

contracts between the State Department of Health Care Services and another entity related to the negotiation and collection of drug or medical supply rebates.

(u)“Plan participant” means an individual who is enrolled in health care coverage provided by a payer.
(v)(1) “Rebates” means compensation or remuneration of any kind received or recovered from a pharmaceutical manufacturer by a pharmacy benefit manager, affiliated entity, or subcontractor, including a group purchasing organization, directly or indirectly, regardless of how the compensation or remuneration is categorized, including incentive rebates, credits, market share incentives, promotional allowances, commissions, educational grants, market share of utilization, drug pullthrough programs,

implementation allowances, clinical detailing, rebate submission fees, and administrative or management fees.

(2)“Rebates” also includes fees, including manufacturer administrative fees or corporate fees, that a pharmacy benefit manager, affiliated entity, or subcontractor, including a group purchasing organization, receives from a pharmaceutical manufacturer.
(3)“Rebates” does not include pharmacy purchase discounts and related service fees a pharmacy benefit manager, affiliated entity, or subcontractor receives from pharmaceutical companies that are attributable to or based on the purchase of product to stock, or the dispensing of products from a pharmacy benefit manager’s affiliated mail order and specialty drug pharmacies. “Rebates” does not include a pharmacy

benefit management fee.

(w)“Spread pricing” means the model of prescription drug pricing in which a pharmacy benefit manager charges a health care service plan or health insurer a contracted price for prescription drugs, and the contracted price for the prescription drugs differs from the amount the pharmacy benefit manager directly or indirectly pays the pharmacist or pharmacy.
(x)“Third party” means a person that is not a plan participant or pharmacy benefit manager.

Added by Stats. 2025, Ch. 21, Sec. 18. (AB 116) Effective June 30, 2025.

In addition to the requirements of Section 1385.009, and upon request of the director, an application shall be accompanied by authorization for disclosure to the director of financial records of each pharmacy benefit manager licensed under this chapter, pursuant to Section 7473 of the Government Code. For purposes of this chapter, the authorization for disclosure shall also include the financial records of an association, partnership, or corporation controlling, controlled by, or otherwise affiliated with the pharmacy benefit manager.

Amended by Stats. 2025, Ch. 605, Sec. 4. (SB 41) Effective January 1, 2026.

(a)A pharmacy benefit manager shall submit to the department financial statements prepared as of the close of its fiscal year within 120 days after the close of the fiscal year. These financial statements shall be accompanied by a report, certificate, or opinion of an independent certified public accountant or independent public accountant. An audit shall be conducted in accordance with generally accepted auditing standards and the rules and regulations of the director.
(b)Within 45 days after the close of each quarter of its fiscal year, a pharmacy benefit manager shall submit its quarterly unaudited financial statement, prepared in accordance with generally accepted

accounting principles and consisting of at least a balance sheet, statement of income, statement of cash flows, statement of changes in equity, and notes to financial statements as of the date and for the period specified by the director. The director may require the submission of these reports on a monthly or other periodic basis.

(c)A pharmacy benefit manager shall make special reports to the director as the director may require.
(d)For good cause and upon written request, the director may extend the time for compliance with subdivisions (a) to (c), inclusive.
(e)If the report, certificate, or opinion of the independent accountant required pursuant to subdivision (a) is qualified, the director may require

the pharmacy benefit manager to take action that the director deems appropriate to permit an independent accountant to remove the qualification from the report, certificate, or opinion.

(f)The director may reject a financial statement, report, certificate, or opinion filed pursuant to this section by notifying the pharmacy benefit manager of the rejection and its cause. Within 30 days after the receipt of the notice, the pharmacy benefit manager shall correct the deficiency, and the failure so to do shall be deemed a violation of this chapter. The director shall retain a copy of all rejected filings.
(g)The director may make rules and regulations specifying the form and content of the reports and financial statements required by this section, and may require that these reports and

financial statements be verified by the pharmacy benefit manager in a manner as the director may prescribe. Revenue reported by pharmacy benefit managers shall include revenue from manufacturers, payers, and other sources, including from affiliates. Types of revenue reported shall be inclusive of rebates of any type or form. Expenses reported by pharmacy benefit managers shall include payments to pharmacies, claims processing, special programs, administrative costs, and all other expenses. The director may require the reporting of any additional revenue, expenses, or related information that the department requires to assist in determining the overall impact of pharmacy benefit manager business practices on the cost of drugs in this state.

(h)To the extent applicable, the department may direct licensure applicants to use the forms

and processes available to and required of health care service plans and other entities reporting financial data created pursuant to this chapter and their implementing regulations, including Section 1384 and the forms and exhibits described in regulations, as amended, implementing that section.

(i)Financial and other records produced, disclosed, or otherwise made available by an organization pursuant to this section shall be received and maintained on a confidential basis and protected from public disclosure as provided in Section 1385.0021.

Added by Stats. 2025, Ch. 21, Sec. 20. (AB 116) Effective June 30, 2025.

(a)A pharmacy benefit manager licensed pursuant to this article shall submit to the Department of Health Care Access and Information all information required to be reported pursuant to Chapter 8.5 (commencing with Section 127671) of Part 2 of Division 107.
(b)The obligation of a pharmacy benefit manager to comply with this section shall not be waived if the pharmacy benefit manager delegates any of its services or business operations to another entity via a contractual relationship or otherwise.
(c)Failure by a pharmacy benefit manager to timely or completely submit required reporting to the Department of Health Care Access and Information shall be grounds for enforcement

action by the department pursuant to this chapter.

Added by Stats. 2025, Ch. 21, Sec. 21. (AB 116) Effective June 30, 2025.

(a)(1) A licensed pharmacy benefit manager shall, within 30 days after a change in the information contained in its application, other than financial or statistical information, file an amendment to the application in the manner prescribed by rule by the director.
(2)Notwithstanding paragraph (1), if an association, partnership, or corporation is added in a controlling, controlled, or affiliated status relative to the pharmacy benefit manager, the pharmacy benefit manager shall file within 30 days an authorization for disclosure to the director of financial records of the person pursuant to Section 7473 of the Government Code.
(b)Before a material

modification of its operations, a pharmacy benefit manager shall give notice of the change to the director, who shall approve, disapprove, suspend, or postpone the effectiveness of the change by order, within 20 business days or within additional time specified by the pharmacy benefit manager, subject to Section 1385.0014.

(c)A pharmacy benefit manager shall, within five days, give written notice to the director, in the form prescribed by rule by the director, of a change in the officers, directors, partners, controlling shareholders, principal creditors, or persons occupying similar positions or performing similar functions, of the pharmacy benefit manager, any parent company of the pharmacy benefit manager, or a management company of the pharmacy benefit manager or its parent company. The director may define by rule the positions, duties, and relationships that shall be reported pursuant to this subdivision.
(d)The fee for filing a notice of material modification pursuant to subdivision (b) shall be the actual cost to the director of processing the notice, including overhead, but shall not exceed seven hundred fifty dollars ($750).
(e)Rules and regulations promulgated and amended by the department pursuant to this chapter relating to health care service plan license amendments and material modifications, including those promulgated to implement and make specific Section 1352, shall, to the extent applicable, apply to pharmacy benefit managers licensed pursuant to this article.

Added by Stats. 2025, Ch. 21, Sec. 22. (AB 116) Effective June 30, 2025.

Upon denial of an application for licensure, or the issuance of an order pursuant to Section 1385.0013 disapproving, suspending, or postponing a material modification, the director shall notify the applicant in writing, stating the reason for the denial and that the applicant has the right to a hearing if the applicant makes a written request within 30 days after the date of mailing of the notice of denial. Service of the notice required by this section may be made by certified mail addressed to the applicant at the latest address filed by the applicant in writing with the department.

Added by Stats. 2025, Ch. 21, Sec. 23. (AB 116) Effective June 30, 2025.

A pharmacy benefit manager license issued under this article shall remain in effect until revoked or suspended by the director.

Added by Stats. 2025, Ch. 21, Sec. 24. (AB 116) Effective June 30, 2025.

(a)A pharmacy benefit manager applying for licensure under this article shall reimburse the director for the actual cost of processing the application, including overhead, up to an amount not to exceed twenty-five thousand dollars ($25,000). The cost shall be billed not more frequently than monthly and shall be remitted by the applicant to the director within 30 days of the date of billing. The director shall not issue a license to an applicant before receiving payment in full from that applicant for all amounts charged pursuant to this subdivision.
(b)(1) In addition to other fees, fines, penalties, and reimbursements required to be paid under this article, a licensed pharmacy benefit manager shall pay to the

director an amount estimated by the director, in consultation with the Department of Health Care Access and Information, to be necessary to fund the actual and reasonably necessary expenses of the department to implement this article and the actual and reasonably necessary expenses of the Department of Health Care Access and Information pertaining to data reporting by pharmacy benefit managers, including for any portion of the Health Care Payments Data Program established by Section 127671.1 that is necessary to implement the provisions of this article, for the ensuing fiscal year. The amount may be paid in two equal installments. The first installment shall be paid on or before August 1 of each year, and the second installment shall be paid on or before December 15 of each year.

(2)The total assessment cost for all licensed pharmacy benefit managers determined by the director pursuant to paragraph (1) shall be divided pro rata among licensees

based upon each licensee’s share of the aggregate number of claims adjudicated in this state by licensed pharmacy benefit managers. The aggregate number of claims adjudicated in this state and each licensee’s share of that number shall be calculated based on the report that licensees are required to submit pursuant to paragraph (3).

(3)A licensed pharmacy benefit manager shall, by January 31 of each year, file with the director a report stating the total number of claims it adjudicated for drugs in this state for the preceding calendar year. For purposes of this paragraph, adjudicated claims are claims for reimbursement for drugs dispensed by a provider to a beneficiary under the drug benefit administered by the pharmacy benefit manager for which payment was authorized and made by the pharmacy benefit manager. Reports submitted shall be in the form and manner directed by the department. Notwithstanding Chapter 3.5 (commencing with Section

11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may issue instructions on reporting without taking regulatory action.

(4)The amount paid by each pharmacy benefit manager shall be fixed by the director by notice to all licensed pharmacy benefit managers on or before June 15 of each year. A pharmacy benefit manager that is unable to report the number of adjudicated claims shall provide the director with an estimate of the number and the method used for determining the estimate. The director may, upon giving written notice to the pharmacy benefit manager, revise the estimate if the director determines that the method used for determining the estimate was not reasonable.
(5)In determining the amount assessed, the director shall consider all appropriations from the Pharmacy Benefit Manager Fund for the support of the administration of this article and

other relevant reimbursements provided for in this chapter.

(6)A refund or reduction of the amount assessed shall not be provided if a miscalculated assessment is based on a pharmacy benefit manager’s overestimate of adjudicated claims.

Added by Stats. 2025, Ch. 21, Sec. 25. (AB 116) Effective June 30, 2025.

(a)To support the department in the administration of this article and the effective regulation of pharmacy benefit managers under this chapter, and to support the Department of Health Care Access and Information as it pertains to data regarding pharmacy benefit managers and the cost of drugs in this state, the Pharmacy Benefit Manager Fund, administered by the Department of Managed Health Care, is hereby established in the State Treasury.
(b)All revenues of the department received pursuant to this article, including fees, fines, penalties, and reimbursements, except those collected pursuant to Section 1385.0018, shall be deposited in the Pharmacy Benefit Manager Fund and subject to an appropriation by the Legislature.
(c)The department may transfer any revenues deposited into the Pharmacy Benefit Manager Fund to the Health Care Payments Data Fund, established pursuant to Section 127674, for use by the Department of Health Care Access and Information, upon appropriation by the Legislature, for the administration of the Health Care Payments Data System.
(d)In any fiscal year, the Pharmacy Benefit Manager Fund shall maintain not more than a prudent 5-percent reserve unless otherwise determined by the Department of Finance.

Added by Stats. 2025, Ch. 21, Sec. 26. (AB 116) Effective June 30, 2025.

(a)The director may, after appropriate notice and opportunity for a hearing, by order suspend or revoke a license issued under this article to a pharmacy benefit manager or assess administrative penalties if the director determines that the licensee has committed an act or omission constituting grounds for disciplinary action.
(b)All of the following acts or omissions constitute grounds for disciplinary action by the director:
(1)The pharmacy benefit manager is operating at variance with basic organizational documents as filed pursuant to Section 1385.009, or with its published plan, or in a manner contrary to that described in, and reasonably inferred from, the plan as

contained in its application for licensure and annual report, or any modification thereof, unless amendments allowing the variation have been submitted to, and approved by, the director.

(2)The continued operation of the pharmacy benefit manager shall constitute a substantial risk to its subscribers and enrollees.
(3)The pharmacy benefit manager has violated, attempted to violate, or conspired to violate, directly or indirectly, or assisted in or abetted a violation or conspiracy to violate a provision of this chapter, a rule or regulation adopted by the director pursuant to this chapter, or an order issued by the director pursuant to this chapter.
(4)The pharmacy benefit manager has engaged in conduct that constitutes fraud, dishonest dealing, or unfair competition, as defined by Section 17200 of the Business and

Professions Code.

(5)The pharmacy benefit manager has permitted, aided, or abetted a violation by an employee or contractor who is a holder of a certificate, license, permit, registration, or exemption issued pursuant to the Business and Professions Code or this code that would constitute grounds for discipline against the certificate, license, permit, registration, or exemption.
(6)The pharmacy benefit manager has permitted, aided, or abetted the commission of an illegal act.
(7)The pharmacy benefit manager, its management company, another affiliate of the pharmacy benefit manager, or a controlling person, officer, director, or other person occupying a principal management or supervisory position in the pharmacy benefit manager, management company, or affiliate, has been convicted of or pleaded nolo contendere to

a crime, or committed an act involving dishonesty, fraud, or deceit, which crime or act is substantially related to the qualifications, functions, or duties of a person engaged in business in accordance with this chapter. The director may revoke or deny a license hereunder irrespective of a subsequent order under Section 1203.4 of the Penal Code.

(8)The pharmacy benefit manager has been subject to a final disciplinary action taken by this state, another state, an agency of the federal government, or another country for an act or omission that would constitute a violation of this chapter.
(9)The pharmacy benefit manager violated the Confidentiality of Medical Information Act (Part 2.6 (commencing with Section 56) of Division 1 of the Civil Code).
(10)The pharmacy benefit manager violated Chapter 8.5 (commencing

with Section 127671) of Part 2 of Division 107, including the data submission requirements of that chapter.

(c)The assessment of administrative penalties against a pharmacy benefit manager shall use the same factors described in subdivision (d) of Section 1386 for health care service plans.
(d)A pharmacy benefit manager shall be subject, if applicable, to all enforcement authority of the department set forth in Article 8 (commencing with Section 1390), and civil penalties for violation of the licensure requirement of Section 1385.009.
(e)Fines and administrative penalties collected pursuant to this section shall be deposited into the Pharmacy Benefit Manager Administrative Fines and Penalties Fund established pursuant to Section 1385.0024. These fines and administrative penalties shall not be used to reduce the

assessments imposed on pharmacy benefit managers pursuant to Section 1385.0016.

Added by Stats. 2025, Ch. 21, Sec. 27. (AB 116) Effective June 30, 2025.

(a)A pharmacy benefit manager whose license has been revoked, or suspended for more than one year, may petition the director to reinstate the license as provided by Section 11522 of the Government Code. A petition shall not be considered if the petitioner is under criminal sentence for a violation of this chapter, or an offense that would constitute grounds for discipline or denial of licensure under this chapter, including any period of probation or parole.
(b)The petition for restoration shall be in the form prescribed by the director. The director may condition the granting of the petition upon additional information and undertakings as the director requires to determine if the person, if restored, would engage in business in full

compliance with this chapter and the rules and regulations adopted by the director pursuant to this chapter.

(c)The director may prescribe a fee not to exceed five hundred dollars ($500) for the filing of a petition for restoration pursuant to this section, which shall be the actual cost to the director of processing the petition. In addition, the director may condition the granting of a petition to a pharmacy benefit manager upon payment of the assessment due and unpaid pursuant to subdivision (b) of Section 1385.0016 as of December 15 in the preceding 12 calendar months and, if the pharmacy benefit manager’s suspension or revocation was in effect for more than 12 months, upon the filing of a new pharmacy benefit manager licensure application and the payment of the fee prescribed by subdivision (a) of Section 1385.0016.

Amended by Stats. 2025, Ch. 21, Sec. 12. (AB 116) Effective June 30, 2025.

(a)The department has the authority to enforce the provisions of this article, including the authority to adopt, amend, or repeal any rules and regulations, not inconsistent with the laws of this state, as may be necessary for the protection of the public and to implement this article, including, but not limited to, the director’s enforcement authority under this chapter.
(b)Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may implement, interpret, or make specific this article by means of all-plan letters or similar instructions to plans and pharmacy benefit managers, without taking regulatory action, until such time as regulations are adopted.
(c)Until June 30, 2028, for purposes of implementing this article, the

department may contract with a consultant or

consultants, including information technology consultants and vendors, with relevant expertise to assist the department with implementing this article. The department’s contract with a consultant shall include conflict-of-interest provisions to prohibit a person from participating in any report in which the person knows or has reason to know the person has a material financial interest, including, but not limited to, a person who has a consulting or other agreement with a person or organization that would be affected by the results of the report.

(d)Contracts entered into pursuant to the authority in this section shall be exempt from Chapter 6 (commencing with Section 14825) of Part 5.5 of Division 3 of Title 2 of the Government Code, Section 19130 of the Government Code, and Part 2 (commencing with Section 10100) of Division 2 of the Public Contract Code, and shall be exempt from the review or approval of any division of the Department of General Services.

Added by Stats. 2025, Ch. 21, Sec. 28. (AB 116) Effective June 30, 2025.

(a)Surrender of a pharmacy benefit manager license shall become effective 30 days after receipt of an application to surrender the license or within a shorter period of time as the director may determine to be in the public interest and not detrimental to the protection of subscribers, enrollees, or persons regulated under this chapter, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the surrender is instituted within 30 days after the application is filed. If this proceeding is pending or instituted, surrender becomes effective at the time and upon the conditions as the director determines by order.
(b)If the director finds that a

pharmacy benefit manager is no longer in existence, has ceased to do business, has failed to initiate business activity as a licensee within six months after licensure, or cannot be located after reasonable search, the director may, by order, summarily revoke the license of the pharmacy benefit manager.

(c)The director may summarily suspend or revoke the license of a pharmacy benefit manager upon failure to pay a fee required by this chapter within 15 days after notice by the director that the fee is due and unpaid or failure to file an amendment or report required under this article within 15 days after notice by the director that the report is due.

Amended by Stats. 2025, Ch. 605, Sec. 5. (SB 41) Effective January 1, 2026.

(a)Notwithstanding the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), the director is not required to disclose any of the following records, or any portion thereof, that are filed by a pharmacy benefit manager with the director in compliance with the requirements of this article, that have not previously been made public:
(1)Corporate financial records, including trade secrets, the information has been confidentially maintained by the business entity, and the release of the information would be damaging or prejudicial to the business concern.
(2)Any application, including an application for an interpretive opinion, including all records that are submitted with the application that are necessary for purposes of the application.
(3)Any record the disclosure of which is exempt under express

provisions of the California Public Records Act, the disclosure of which is exempt or prohibited pursuant to federal or state law, including, but not limited to, provisions of the Evidence Code relating to privilege, or that, on the facts of the particular case, the public interest served by not disclosing the record clearly outweighs the public interest served by disclosure of the record.

(b)Notwithstanding any request for confidentiality of information submitted to and processed by the department consistent with regulations adopted and amended pursuant to this chapter relating to the request for confidentiality of information, the disclosure of records, or any portion thereof, is governed by this section.
(c)Notwithstanding any other provision of this

article, the director shall disclose information or records submitted to the director in compliance with this article to the Attorney General, upon request, in order to investigate, prosecute, or defend any legal claim or cause or action related to this article, or to use the reports in any court or proceeding related to this article.

Amended by Stats. 2025, Ch. 605, Sec. 6. (SB 41) Effective January 1, 2026.

A pharmacy benefit manager has a fiduciary duty to its payer client that includes a duty to be fair and truthful toward the payer, to act in the payer’s best interests, to avoid conflicts of interest, and to perform its duties with care, skill, prudence, and diligence. This section does not limit a payer’s obligations under applicable law with respect to the administration of health care coverage for plan participants.

Amended by Stats. 2025, Ch. 605, Sec. 7. (SB 41) Effective January 1, 2026.

(a)The department may conduct periodic routine and nonroutine surveys of a pharmacy benefit manager. These surveys shall be conducted in accordance with Section 1380, as applicable.
(b)The department may conduct periodic routine and nonroutine examinations of the fiscal and administrative affairs of a pharmacy benefit manager. These examinations shall be conducted in accordance with Section 1382, as applicable.
(c)A complaint made by an enrollee that includes potential violations by a pharmacy benefit manager of the terms of this article shall be considered by the department to be a complaint

against the health care service plan. A complaint made by an insured that includes potential violations by a pharmacy benefit manager of the terms of this article may be considered by the Department of Insurance to be a complaint against the insurer.

Added by Stats. 2025, Ch. 21, Sec. 32. (AB 116) Effective June 30, 2025.

(a)The Pharmacy Benefit Manager Administrative Fines and Penalties Fund is hereby created in the State Treasury.
(b)On and after July 1, 2025, the fines and administrative penalties collected pursuant to Section 1385.0018 shall be deposited into the Pharmacy Benefit Manager Administrative Fines and Penalties Fund.
(c)Fines and administrative penalties deposited into the Pharmacy Benefit Manager Administrative Fines and Penalties Fund may be transferred into the Health Care Payments Data Fund, established pursuant to Section 127674, for use by the Department of Health Care Access and Information, upon appropriation by the Legislature, for the administration of the Health

Care Payments Data System.

(d)Fines and administrative penalties deposited into the Pharmacy Benefit Manager Administrative Fines and Penalties Fund may be transferred, subject to the annual budget process, to the Health Care Services Plan Fines and Penalties Fund, established pursuant to Section 15893 of the Welfare and Institutions Code.
(e)Fines and administrative penalties deposited into the Pharmacy Benefit Manager Administrative Fines and Penalties Fund shall not be used to reduce the assessments imposed on pharmacy benefit managers pursuant to Section 1385.0016.

Added by Stats. 2025, Ch. 21, Sec. 33. (AB 116) Effective June 30, 2025.

The provisions of this article are severable. If any provision of this article 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.

Added by Stats. 2025, Ch. 605, Sec. 8. (SB 41) Effective January 1, 2026.

(a)A pharmacy benefit manager shall not impose any requirements, conditions, or exclusions that discriminate against a nonaffiliated pharmacy in connection with dispensing drugs.
(b)Discrimination prohibited pursuant to subdivision (a) includes all of the following:
(1)Terms or conditions applied to nonaffiliated pharmacies based on their status as a nonaffiliated pharmacy.
(2)Refusing to contract with or terminating a contract with a nonaffiliated pharmacy on the basis that the pharmacy is a nonaffiliated pharmacy or for reasons other

than those that apply equally to affiliated pharmacies.

(3)Retaliation against a nonaffiliated pharmacy based on its exercise of any right or remedy under this article.
(4)Engaging in an unlawful action against a covered entity, including a violation of Section 127471.
(5)Reimbursing a nonaffiliated pharmacy less for a pharmacist service than the pharmacy benefit manager would reimburse an affiliated pharmacy for the same pharmacist service.
(c)This article does not preclude a pharmacy benefit manager or a purchaser of pharmacy benefit manager services from establishing a network of contracting pharmacies.

Added by Stats. 2025, Ch. 605, Sec. 9. (SB 41) Effective January 1, 2026.

A pharmacy benefit manager shall not do any of the following:

(a)Require a plan participant to use only an affiliated pharmacy if there are nonaffiliated pharmacies in the network.
(b)Financially induce a plan participant to transfer a prescription only to an affiliated pharmacy if there are nonaffiliated pharmacies in the network.
(c)Require a nonaffiliated pharmacy to transfer a prescription to an affiliated pharmacy if there are nonaffiliated pharmacies in the network. This section does not prevent a purchaser or pharmacy benefit manager from

offering to plan participants financial incentives to use a particular pharmacy, such as lower copays, coinsurance, or any other cost sharing for a prescription when the prescription is dispensed.

(d)Unreasonably restrict a plan participant from using a particular contracted pharmacy for the purpose of receiving pharmacist services covered by the plan participant’s contract or policy.
(e)Communicate to or mislead a plan participant, in any manner, that the plan participant is required to have a prescription dispensed at, or pharmacy services provided by, a particular affiliated pharmacy or pharmacies if there are other nonaffiliated pharmacies that have the ability to dispense the medication or provide the services and are also in network.
(f)Deny a nonaffiliated contract pharmacy the opportunity to participate in a pharmacy benefit manager network as preferred participation status if the pharmacy is willing to accept the same terms and conditions that the pharmacy benefit manager has established for affiliated pharmacies as a condition of preferred network participation status.

Added by Stats. 2025, Ch. 605, Sec. 10. (SB 41) Effective January 1, 2026.

(a)A contract issued, amended, or renewed on or after January 1, 2026, between a nonaffiliated pharmacy and a pharmacy benefit manager shall not prohibit the pharmacy from offering either of the following as an ancillary service of the pharmacy:
(1)The delivery of a prescription drug by mail or common carrier to a patient or personal representative on request of the patient or personal representative if the request is made before the drug is delivered.
(2)The delivery of a prescription to a patient or personal representative by an employee or contractor of the pharmacy.
(b)Except as otherwise provided in a contract described in subdivision (a), the pharmacy shall not charge a pharmacy benefit manager for the delivery service described in subdivision (a). This section does not prohibit the use of remote pharmacies, secure locker systems, or other types of pickup stations if those services are otherwise permitted by law.
(c)Contracts entered into pursuant to this section shall be open for inspection by the department.

Added by Stats. 2025, Ch. 605, Sec. 11. (SB 41) Effective January 1, 2026.

(a)A pharmacy benefit manager shall not derive income from pharmacy benefit management services provided to a payer in this state except for income derived from a pharmacy benefit management fee for pharmacy benefit management services provided. The amount of any pharmacy benefit management fee shall be set forth in the agreement between the pharmacy benefit manager and the payer. The pharmacy benefit manager shall disclose the amount and types of the pharmacy benefit management fees to the payer.
(b)A pharmacy benefit manager shall use a passthrough pricing model.
(c)A pharmacy benefit

manager, group purchasing organization, and affiliated entity shall direct 100 percent of all prescription drug manufacturer rebates received to the payer or program, if the contractual arrangement delegates the negotiation of rebates to the pharmacy benefit manager, group purchasing organization, or affiliated entity, for the sole purpose of offsetting defined cost sharing, deductibles, and coinsurance contributions and reducing premiums of plan participants.

(d)(1) This section does not preclude a payer from paying performance bonuses to a pharmacy benefit manager based on savings to the payer that decrease premiums paid by the plan participant or that result in plan participants paying the lowest level of cost sharing, deductibles, and coinsurance for a drug, as long as the performance bonus is not based or

contingent on any of the following:

(A) The acquisition or ingredient cost of a drug.

(B) The amount of savings, rebates, or other fees charged, realized, or collected by, or generated based on the activity of, the pharmacy benefit manager or its affiliated entities that is retained by the pharmacy benefit manager.

(C) The amount of premiums, deductibles, or other cost sharing or fees charged, realized, or collected by the pharmacy benefit manager or its affiliated entities from patients or other persons on behalf of a patient, except for performance bonuses that are based or contingent on a decrease in premiums, deductibles, or other cost sharing.

(2)Compensation arrangements governed by this section shall be open for inspection by the department.
(e)A pharmacy benefit manager shall not make or permit any reduction of payment for pharmacist services by a pharmacy benefit manager or a payer directly or indirectly to a pharmacy under a reconciliation process to an effective rate of reimbursement, including without limitation generic effective rates, brand effective rates, direct and indirect remuneration fees, or any other reduction or aggregate reduction of payment.
(f)A claim or aggregate of claims for pharmacist services shall not be directly or indirectly retroactively denied or reduced after adjudication of the claim or aggregate of claims unless any of the following have occurred:
(1)The original claim was submitted fraudulently.
(2)The original claim payment was incorrect because the pharmacy or pharmacist had already been paid for the pharmacist services.
(3)The pharmacist services were not properly rendered by the pharmacy or pharmacist.
(g)A pharmacy benefit manager shall not reverse and resubmit the claim of a contract pharmacy under any of the following circumstances:
(1)Without prior written notification to the contract pharmacy.
(2)Without just cause or attempt to first reconcile the claim with

the pharmacy.

(3)More than 90 days after the claim was first affirmatively adjudicated.
(h)A pharmacy benefit manager shall not charge a pharmacy or pharmacist a fee to process a claim electronically.
(i)The termination of a contract with a nonaffiliated pharmacy by a pharmacy benefit manager shall not release the pharmacy benefit manager from the obligation to make a payment due to the pharmacy for an affirmatively adjudicated claim unless payments are withheld because of an investigation relating to insurance fraud.
(j)A pharmacy benefit manager shall not retaliate against a pharmacist or pharmacy based on the pharmacist’s or pharmacy’s exercise of

a right or remedy under this chapter. Prohibited retaliation includes any of the following:

(1)Terminating or refusing to renew a contract with the pharmacist or pharmacy.
(2)Subjecting the pharmacist or pharmacy to increased audits without cause.
(3)Failing to promptly pay the pharmacist or pharmacy money owed by the pharmacy benefit manager to the pharmacist or pharmacy.

Added by Stats. 2018, Ch. 905, Sec. 4. (AB 315) Effective January 1, 2019. Operative on January 1, 2020, pursuant to Section 1385.002.

(a)A health care service plan shall disclose to a contracted pharmacy provider or its contracting agent the prescription drug information contained in subdivision (a) of Section 1363.03, including, but not limited to, the telephone number pharmacy providers may call for assistance and information necessary to process a pharmacy claim.
(b)A health care service plan shall not include in a contract with a pharmacy provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication.

Added by Stats. 2025, Ch. 605, Sec. 12. (SB 41) Effective January 1, 2026.

Commencing January 1, 2026, a pharmacy benefit manager shall not conduct spread pricing in this state. If a preexisting contract between a pharmacy benefit manager and a payer authorizes spread pricing, a subsequent amendment or renewal of that contract shall not contain that authorization. Spread pricing contract terms shall be void on and after January 1, 2029.

Added by Stats. 2025, Ch. 605, Sec. 13. (SB 41) Effective January 1, 2026.

(a)Notwithstanding any other law, a pharmacy benefit manager shall not enter into, amend, enforce, or renew a contract on or after January 1, 2026, with manufacturers that do business in California that implement implicit or express exclusivity for those manufacturers’ drugs, unless the pharmacy benefit manager can demonstrate the extent to which exclusivity results in the lowest cost to the payer, and the lowest cost sharing for the plan participant.
(b)Notwithstanding any other law, a pharmacy benefit manager shall not enter into, amend, enforce, or renew a contract on or after January 1, 2026, with pharmacies or pharmacy services administration

organizations that do business in California that expressly or implicitly restrict, or impose implicit or express exclusivity on, nonaffiliated pharmacies’ ability to contract with employers and payers.

(c)Contracts entered into pursuant to this section shall be open for inspection and audit by the department.

Added by Stats. 2025, Ch. 605, Sec. 14. (SB 41) Effective January 1, 2026.

(a)A person that violates this article shall be subject to an injunction and liable for a civil penalty of not less than one thousand dollars ($1,000) or more than seven thousand five hundred dollars ($7,500) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General.
(b)Notwithstanding any other law, the Attorney General shall be entitled to specific performance, injunctive relief, and other

equitable remedies a court deems appropriate for enforcement of this article and shall be entitled to recover attorney’s fees and costs incurred in remedying each violation.

Added by Stats. 2025, Ch. 605, Sec. 15. (SB 41) Effective January 1, 2026.

This article does not apply to a collectively bargained Taft-Hartley self-insured prescription drug plan offered pursuant to the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1001 et seq.) or to a pharmacy benefit manager’s provision of pharmacy benefit management services pursuant to that Taft-Hartley plan. To the extent a pharmacy benefit manager is providing services for other payers in addition to a collectively bargained self-insured plan that provides prescription drug plans governed by federal law, this article shall apply to the pharmacy benefit manager in its performance of pharmacy benefit management services pursuant to those other payers.

Amended by Stats. 2025, Ch. 21, Sec. 13. (AB 116) Effective June 30, 2025.

(a)A health care service plan that contracts with a pharmacy benefit manager for management of any or all of its prescription drug coverage shall require the pharmacy benefit manager to do all of the following:
(1)Comply with the provisions of Section 1385.003.
(2)Register with the department pursuant to the requirements of this article, or, if licensure of the pharmacy benefit manager is required pursuant to this article, obtain a license and keep it in good standing with the department.
(3)Exercise good faith and fair dealing in the performance of its contractual duties to a health care service plan.
(4)Comply with the requirements of Chapter 9.5 (commencing with Section 4430) of Division 2 of the Business and Professions Code, as applicable.
(5)Inform all pharmacists under contract with or subject to contracts with the pharmacy benefit manager of the pharmacist’s rights to submit complaints to the department under Section 1371.39 and of the pharmacist’s rights as a provider under Section 1375.7.
(b)Contracts issued, amended, or renewed on or after January 1, 2026, between a health care service plan and a pharmacy benefit manager shall require the

pharmacy benefit manager to submit to the Department of Health Care Access and Information all information required to be reported pursuant to Chapter 8.5 (commencing with Section 127671) of Part 2 of Division 107.

(c)A pharmacy benefit manager shall notify a health care service plan 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 health care service plan to exercise good faith and fair dealing in the performance of its contractual duties pursuant to subdivision

(a).

Amended by Stats. 2025, Ch. 21, Sec. 14. (AB 116) Effective June 30, 2025. Conditionally inoperative on or after January 1, 2027, by its own provisions. Repealed conditionally by its own provisions.

(a)A pharmacy benefit manager required to register with the department pursuant to Section 1385.004 shall complete an application for registration with the department that shall include, but not be limited to, all of the information required by subdivision (c).
(b)A pharmacy benefit manager registration obtained pursuant to this section is not transferable.
(c)The department shall develop an application form for pharmacy benefit manager registration. The application form for a pharmacy benefit manager registration shall require the pharmacy benefit manager to submit the following information to the department:
(1)The name of

the pharmacy benefit manager.

(2)The address and contact telephone number for the pharmacy benefit manager.
(3)The name and address of the pharmacy benefit manager’s agent for service of process in the state.
(4)The name and address of each person beneficially interested in the pharmacy benefit manager.
(5)The name and address of each person with management or control over the pharmacy benefit manager.
(d)If the applicant is a partnership or other unincorporated association, a limited liability company, or a corporation, and the number of partners, members, or stockholders, as the case may be, exceeds five, the application shall so state, and shall further state the name, address,

usual occupation, and professional qualifications of each of the five partners, members, or stockholders who own the five largest interests in the applicant entity. Upon request by the department, the applicant shall furnish the department with the name, address, usual occupation, and professional qualifications of partners, members, or stockholders not named in the application, or shall refer the department to an appropriate source for that information.

(e)The application shall contain a statement to the effect that the applicant has not been convicted of a felony and has not violated any of the provisions of this article. If the applicant cannot make this statement, the application shall contain a statement of the violation, if any, or shall describe the reasons that prevent the applicant from being able to comply with the requirements with respect to the statement.
(f)The

department may set a fee for a registration required by this article. The application fee shall not exceed the reasonable costs of the department in carrying out its duties under this article.

(g)Within 30 days of a change in any of the information disclosed to the department on an application for a registration, the pharmacy benefit manager shall notify the department of that change in writing.
(h)For purposes of this section, “person beneficially interested” with respect to a pharmacy benefit manager means and includes the following:
(1)If the applicant is a partnership or other unincorporated association, each partner or member.
(2)If the applicant is a corporation, each of its officers, directors, and stockholders, provided that a natural person

shall not be deemed to be beneficially interested in a nonprofit corporation.

(3)If the applicant is a limited liability company, each officer, manager, or member.
(i)This section shall become inoperative on January 1, 2027, or the date on which the department has established the licensure process pursuant to Section 1385.009, whichever is later and, as of the following January 1 is repealed.

Amended by Stats. 2025, Ch. 21, Sec. 15. (AB 116) Effective June 30, 2025.

The failure by a health care service plan to comply with the contractual requirements and to maintain appropriate oversight of a contracted pharmacy benefit manager to ensure the pharmacy benefit manager’s compliance pursuant to this article shall constitute grounds for disciplinary action. The director shall, as appropriate, investigate and take enforcement action against a health care service plan that fails to comply with these requirements and shall periodically evaluate contracts between health care service plans and pharmacy benefit managers to determine if any audit, evaluation, or enforcement actions should be undertaken by the department.

Added by Stats. 2025, Ch. 21, Sec. 16. (AB 116) Effective June 30, 2025.

On or after January 1, 2027, or the date on which the department has established the licensure process pursuant to Section 1385.009, whichever is later, a person shall not engage in business as a pharmacy benefit manager for a payer in this state unless that person has first secured a license from the director. A license issued pursuant to this article is not transferable without the express and specific permission of the director.

Added by Stats. 2025, Ch. 21, Sec. 17. (AB 116) Effective June 30, 2025.

An application for licensure as a pharmacy benefit manager under this article shall be verified by an authorized representative of the applicant and shall be in a form prescribed by the department. To the extent applicable, the department may direct licensure applicants to use the forms and processes available to and required of health care service plan licensure applicants and licensees created pursuant to this chapter and its implementing regulations, including Section 1351 and the forms and exhibits described in regulations, as amended, implementing that section. The application for licensure as a pharmacy benefit manager shall be accompanied by the fee prescribed by Section 1385.0016 and shall set forth or be accompanied by all of the following:

(a)The

basic organizational documents of the applicant, such as the articles of incorporation, articles of association, partnership agreement, trust agreement, or other applicable documents, and all amendments to those documents.

(b)A copy of the bylaws, rules and regulations, or similar documents regulating the conduct of the internal affairs of the applicant.
(c)A list of the names, addresses, and official positions of the persons who are to be responsible for the conduct of the affairs of the applicant, including all members of the board of directors, board of trustees, executive committee, or other governing board or committee, the principal officers, each shareholder with more than 5 percent interest in the case of a corporation, all partners or members in the case of a partnership or association, and each person who has loaned funds to the applicant for the operation of its

business.

(d)A statement of whether, within the preceding 10 years, the applicant, its management company, an affiliate of the applicant, a controlling person, officer, director, or other person occupying a principal management or supervisory position in the pharmacy benefit manager, management company, or affiliate, or a person intended to hold that relationship or position, has been convicted of or pleaded nolo contendere to a felony, been held to have committed an act involving dishonesty, fraud, or deceit in a judicial or administrative proceeding to which the person was a party, or has had a license or certificate to operate as a pharmacy benefit manager denied or revoked in another jurisdiction.
(e)For an applicant not domiciled in this state, a power of attorney duly executed appointing the director the true and lawful attorney in fact of the applicant for the purposes of

service of all lawful process in a legal action or proceeding against the pharmacy benefit manager on a cause of action arising in this state.

(f)Financial statements accompanied by a report, certificate, or opinion of an independent certified public accountant that demonstrates the financial viability of the applicant. Submission of financial statements may, at the direction of the department, be completed using the same forms and processes as required for health care service plans licensed pursuant to this chapter.
(g)An affirmation that the applicant’s business practices and contracts comply with the applicable provisions of this chapter, including the requirements of pharmacy benefit manager contracts and business practices set forth in this article.
(h)An affirmation that the applicant shall comply with all

requirements for reporting data to the Department of Health Care Access and Information in accordance with this article and Chapter 8.5 (commencing with Section 127671) of Part 2 of Division 107.

(i)A description of the business operations of the applicant, including descriptions of its services, facilities, and personnel.
(j)A list of all jurisdictions in which the applicant operates as a pharmacy benefit manager, including those in which the applicant holds a license, registration, or certification as a pharmacy benefit manager.
(k)The applicant’s organization chart or charts that show the lines of responsibility and authority in the administration of the applicant’s business as a pharmacy benefit manager. The applicant shall include a narrative explanation of the organization chart, including the responsibility

and authority of each entity, board, committee, and position, and identify the persons who serve on the boards and committees and in those positions.

(l)A list of all pharmaceutical supply chain entities, including drug manufacturers, wholesalers, and distributors, that are contracted or affiliated with the applicant.
(m)A list of all health care providers, including pharmacies and pharmacists, that are contracted or affiliated with the applicant.
(n)A list of each payer with which the applicant is affiliated or has a contract for the provision of pharmacy benefit manager services, including a description of all services provided and the number of individual enrollees covered under the contract or contracts with each payer.
(o)A statement describing

how the applicant shall provide for separation of medical and clinical decisionmaking from fiscal and administrative management to ensure that medical and clinical decisions shall not be unduly influenced by fiscal and administrative management, including a description of what controls will be put into place to assure compliance with this requirement.