SB1236

SB1236 gives pharmacies new contract-transparency protections and limits certain audit-related payment recoveries by insurers and pharmacy benefit managers. A pharmacy benefit manager, or PBM, administers pharmacy benefits. Signed May 27, 2025, the act took effect September 1, 2025, but its contract changes apply only to contracts entered into or renewed on or after that date. The identification-card change separately applies to plans delivered, issued for delivery or renewed on or after January 1, 2026. Earlier contracts/plans retain the prior law under the transition provisions. Final law, sections 7–8; PBM definition; Official history.

Audit recoveries: After a claim has been adjudicated, an audit generally cannot be used to deny or reduce its payment, subject to specified exceptions. The drug cost and dispensing fee may be recovered for a fraudulent claim, duplicate payment for the pharmacist service, or a substantive—not merely clerical or recordkeeping—error that caused the patient to receive the wrong drug or dosage. For a clerical error causing overpayment, recovery is limited to the dispensing fee. The act repeals the old separate dispensing-fee calculation rule; existing limits on extrapolating audit results remain. Final law, sections 2–3 and 6; Prior audit provisions.

Harmful mid-contract changes: A defined “adverse material change” includes lower compensation, movement to a less-preferred tier, or administrative changes reasonably expected to raise expenses or reduce compensation. Such a change during a contract term requires mutual agreement and cannot take effect until the 120th day after affirmative written agreement. A contract clause allowing unilateral adverse changes is unenforceable. The proposal must conspicuously explain the right to refuse without changing the existing contract’s terms or participation in another network; omitting that notice invalidates even an otherwise agreed change. Final law, section 1369.6022(b)–(f).

Important exceptions: Not every unfavorable change qualifies. The definition excludes specified changes tied to clearly identified government fee schedules, decreases with amount/date already stated in the contract, specified administrative costs already identified, legally required changes, termination for cause, and termination without cause at the contract’s end. The adverse-change and other-change sections also exclude contracts that satisfy all three conditions: unspecified indefinite duration, no stated or automatic renewal period/event, and termination only by one party’s notice. Legally required modifications are also excluded. These limits prevent treating the bill as a permanent guarantee of reimbursement rates or network membership. Final law, sections 1369.6022(a), (g) and 1369.6023(d).

Other contract changes: Subject to those exclusions, proposed non-adverse changes require portal posting and an email notice at least 90 days before they take effect. The email must identify the affected pharmacy, link to the portal and explain the change so it can be compared with the current contract. If the pharmacy does not respond before the 31st day after receiving notice, the issuer/PBM may treat it as approved; that does not shorten the 90-day advance-notice period. The section also requires financial terms in the contract and bars incorporating documents not included in the contract or an attachment. Final law, section 1369.6023.

Access, fees and choice: Network pharmacies must have a secure portal for their contracts/addenda and ready access to the provider manual, with manual updates posted in the specified manner. Contracts must state that Chapter 1369 and its rules apply and include a fee schedule rather than merely refer to one. Issuers/PBMs cannot charge application, participation or other fees before providing the full proposed contract and financial terms. They cannot force network participation, tie participation in one network to another, or penalize refusal to join. This is not a ban on every participation fee. Final law, sections 1369.6021, .6024–.6027 and .605.

Which plans: The card, audit and network-contract provisions have different existing coverage rules. The new card rule reserves a group number assigned to a covered plan’s enrollees for enrollees in plans covered by that subchapter. The audit exclusions remain for Medicaid, Medicare, the specified children’s programs, TRICARE, workers’ compensation and the specified self-funded employee-benefit plans. Network-contract coverage has its own list and workers’ compensation exclusion. The bill must not be treated as applying identically to every insurance or employer plan. Final law, section 1; Card-rule coverage; Card-rule exclusions; Audit exclusions; Network-contract scope.