What you need to know

On Oct. 11, 2025, California Gov. Gavin Newsom signed Senate Bill (SB) 41 into law, establishing new regulatory requirements for pharmacy benefit managers (PBMs) operating in the state. The law mandates PBM licensure in California, restricts spread pricing and prohibits patient steering practices, among other changes. 

Most provisions of the law begin Jan. 1, 2026, with some phased in through Jan. 1, 2029.

Prime Therapeutics (Prime) is reviewing the legislation to determine implications for our clients, operations and networks.

Overview

SB 41 will require all PBMs operating in California to be licensed by the state’s Department of Managed Health Care (DMHC), comply with new cost-sharing, reporting, network and revenue-generating requirements.  

Key provisions include: 

• Licensure requirements: PBMs operating in California must obtain a license from DMHC by Jan. 1, 2027.
• Spread pricing arrangements: Requires PBMs to align reimbursement to pharmacies with the same amount charged to health plans. This applies to all contracts executed, renewed or amended on or after Jan. 1, 2026. Any conflicting contract terms will be void on and after Jan. 1, 2029.
• Rebate structures: PBMs must disclose rebate flows and will be required to pass through 100% of manufacturer rebates to health plans.  
• Pharmacy reimbursement terms: Contracts must reflect payment methods and remove incentives tied to affiliated pharmacy networks. The bill also limits effective rate contracting and quality-based reimbursement methods.
• Cost-sharing limits: Member cost-sharing may not exceed the actual amount (drug price net of rebates) paid for the drug.
• Pharmacy contracting: PBMs must accept any willing pharmacy into their networks, provided the pharmacy accepts relevant terms and conditions for participation.
• Payer contracts: In some instances, PBM contracts with plans will need to provide for compensation based solely on a “pharmacy benefit management fee,” and will require fiduciary duties and disclosures of conflicts of interest.

Next steps

We are currently reviewing SB 41 to determine which requirements are applicable to individual lines of business, clients and transactions. This will allow Prime to gain a comprehensive understanding of its impact and to evaluate operational, network and contractual requirements. We will provide additional information as it becomes available.

Questions

Reach out to your Prime account team representative.