California's Governor Signs New Pharmacy Benefit Manager Law Into Effect

On October 11, 2025, California Governor Gavin Newsom signed Senate Bill 41 (SB-41) into law, setting a new gold standard for pharmacy benefit manager (PBM) regulation in the United States. This landmark legislation is poised to transform how PBMs operate in California, aiming to make prescription drugs more affordable, transparent, and accessible for everyone.

What Does SB-41 Mean for California?

SB-41 is part of California's ambitious Prescription Drug Affordability legislative package. It directly targets the high cost of prescription drugs by introducing sweeping reforms that impact PBMs, health plans, pharmacies and ultimately, patients. With this new law, California is cracking down on PBM business practices within the state.

Key Highlights of SB-41

1. Setting a New Standard for PBM Accountability

• Fiduciary Duty: SB-41 imposes a fiduciary duty onto PBMs meaning PBMs must now act in the best interests of their clients—employers and health plans—avoiding conflicts of interest and always operating with care and diligence.
• Licensing & Oversight: All PBMs must be licensed and in good standing with the Department of Managed Health Care (DMHC), which will conduct regular audits and enforce compliance.

2. Unprecedented Transparency and Fair Pricing

• Quarterly Reporting: PBMs must provide detailed reports on drug pricing, rebates, and pharmacy arrangements, ensuring health plans and employers know exactly where their dollars are going. PBMs will be required to submit annual reports to DMHC; however, these reports are considered confidential and will not be publicly disclosed. In addition, PBMs will be required to submit quarterly reports to health plans upon request.
• Ban on Spread Pricing: PBMs can no longer profit from the difference between what they charge health plans and what they pay pharmacies—a practice that has long obscured true drug costs. PBM contracts signed in 2026 are prohibited from including spread pricing and any existing contracts must be revised at the next renewal or amendment period.
• 100% Rebate Pass-Through: All PBMs and their GPOs and affiliates must direct 100% of rebates directly to health plans and payers, eliminating hidden profits and ensuring savings are shared.

3. Protecting Pharmacies and Patient Choice

• No Steering: PBMs are prohibited from favoring their own affiliated pharmacies or restricting non-affiliated pharmacies from offering mail-order or courier services.
• Fair Reimbursements: Pharmacies can expect equal treatment and reimbursement, with new protections against retroactive claim reductions and unfair payment practices.
• No Transmission Fees: Pharmacies can process claims without being burdened by extra fees. In addition, PBMs are prohibited from retaining rebates in any manner other than a flat, defined dollar-amount service fee.

4. Safeguarding Patients and Lowering Out-of-Pocket Costs

• No Overcharging: Health plans cannot charge patients more than what was actually paid for their prescriptions, ensuring fair, transparent cost-sharing.
• Limits on Exclusive Deals: PBMs can only enter exclusive arrangements with drug manufacturers if it leads to the lowest cost for both health plans and patients.

5. Strong Enforcement and Clear Exemptions

• Stiff Penalties: Noncompliance can cost PBMs up to $7,500 per violation, underscoring California's commitment to enforcement.

What Does This Mean for Your Business?

For Health Plans & Employers:
SB-41 offers unprecedented visibility into PBM operations and guarantees that every dollar of manufacturer rebate will be passed through to plan members. This means greater control over drug spending, the ability to make informed benefit decisions, and improved value for your employees.

For Pharmacies:
The law levels the playing field, ensuring fair access to networks and equitable reimbursement. Pharmacies can focus on patient care without fear of unfair steering or retroactive payment clawbacks.

Why This Matters

SB-41 represents a pivotal shift in how pharmacy benefits are managed and delivered in California. By prioritizing transparency, accountability, and fairness, this law empowers health plans, employers, pharmacies and—most importantly—patients. With stricter oversight and new protections in place, stakeholders can expect more predictable costs, improved trust in PBM operations and a healthcare environment that puts patient interests first. As California sets a new benchmark for PBM regulation, organizations operating in the state have a unique opportunity to lead the way in delivering affordable, accessible and transparent prescription drug benefits.

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