Spread Pricing Is Now Banned in California: What it Means for Your Business

For years, pharmacy benefit managers have charged health plans more for drugs than they actually paid pharmacies, pocketing the difference through a practice called spread pricing.

California's Senate Bill 41 (SB 41) puts an end to that, and if your business sponsors a health plan, the ripple effects reach further than you might expect.

What SB 41 Actually Does

SB 41 took effect January 1, 2026 for most provisions, with full licensure requirements kicking in by 2027. Here is what the law requires:

• Bans spread pricing in PBM contracts effective January 1, 2026

• Requires pass-through pricing plus a disclosed admin fee

• Mandates PBM licensure with the Department of Managed Health Care by 2027

• Imposes fiduciary duties — PBMs must act in the payer's best interest

• Requires quarterly financial and rebate transparency reporting

• Prohibits steering members to affiliated pharmacies unless it clearly lowers cost

• Sets civil penalties of $1,000 to $7,500 per violation

  
  

SB 41 replaces spread pricing with a straightforward standard: what you pay should be what the PBM pays.

What This Means for Brokers and Plan Sponsors

PBM partners across the industry are revisiting contracts and rebuilding compliance processes in response to SB 41. The urgency varies depending on how much each PBM relies on spread pricing and how much of their book of business is California-based.

This is a meaningful moment for plan sponsors to audit your current PBM contract. Specifically, look for spread pricing clauses, rebate retention language, and any provisions that limit your visibility into drug spend.

The Standard DisclosedRx Has Always Operated By

DisclosedRx was built on Full Disclosure and fiduciary principles from day one. As The Fiduciary and The Fully Disclosed PBM®, we are contractually obligated to pass through 100% of drug pricing and 100% of rebates. One admin fee. No shell games. No spread. It's in the contract.

Full Disclosure means you see everything, including all rebates and supply chain credits associated with your drug spend. Fiduciary representation means every decision we make is made in your best interest, not ours.

The Practical Takeaway

SB 41 gives plan sponsors real leverage to demand better contracts. Here is where to start:

• Audit your current PBM contract for spread pricing clauses and rebate retention language

• Ask your PBM directly how they are responding to SB 41 and what contract changes are coming

• Request a full accounting of rebates and supply chain credits tied to your drug spend

• Confirm your PBM is contractually obligated to act in your best interest, not just verbally committed to it

• If the answers are unclear, treat that as important information

  
  

DisclosedRx is happy to talk with you about this new shift and how it impacts your plans, employees, and budget.