Gavin Newsom signs CA bill to lower medication costs, rein in insurance middlemen
California Gov. Gavin Newsom on Saturday signed Senate Bill 41, a bill that would impose regulations on insurance-industry middlemen who are accused of driving up prices for prescription drugs, and driving small pharmacies to close.
The middlemen, known as pharmacy benefit managers, or PBMs, have been around since the late 1960s and serve as intermediaries between drug manufacturers and health insurance providers. However, secretive and unregulated practices by PBMs, which are heavily consolidated, have led to a chorus of drug manufacturers, pharmacists, and government regulators calling for more oversight.
The new law will, beginning in 2026, limit the amount of money that PBMs can squeeze out of a transaction by prohibiting “spread pricing,” whereby they hold onto the difference between what they charge an insurer and what they pay a pharmacy for the drug. It also bans certain noncompetitive practices, and only allows PBMs to charge an administrative fee for services provided.
“PBMs have developed a compensation scheme that creates perverse incentives to raise drug prices in some circumstances, and the complete lack of oversight has also allowed some PBMs to steer patients toward pharmacies they own, pocket large portions of the rebates they negotiate with drug manufacturers, and make misleading statements to customers,” said the bill’s author, state Sen. Scott Wiener, D-San Francisco.
According to a 2024 report from the U.S. House Committee on Oversight and Accountability, the three biggest PBMs are affiliated with CVS, Cigna and United Health, respectively, and together they control the lion’s share of the market and are vertically integrated with other elements of the healthcare delivery system.
“I am pleased to sign SB 41, a bill that will lower health care costs for all Californians,” Newsom said in a signing message emailed Saturday. “This bill, together with related efforts in the 2025 budget and CalRx, represents the most aggressive effort in the country to lower prescription drug costs. California continues to lead the way in lowering costs, increasing transparency, and ensuring that the savings are passed on to payers and consumers.”
Newsom’s CalRx drug label was signed into law in 2020 and works to make low-cost versions of insulin, naloxone and other prescription drugs available to Californians.
In their argument filed in opposition, the Pharmaceutical Care Management Association wrote: “PCMA believes this bill will benefit drug manufactures and some pharmacies but it does nothing to help consumers and believes it would result in premium increases of at least $150 per member per month.”
The group argues that PBMs “are projected to save Californians more than $108 billion over the next 10 years, including more than $11 billion in Medi-Cal.”
This story was originally published October 11, 2025 at 3:16 PM.
