Our Take Newsletter

Our Take: New California laws take aim at PBMs and more

October 20, 2025

New California laws take aim at PBMs, prior authorization, private equity in health care

California’s Gov. Gavin Newsom signed into law multiple health care-related bills passed by the state’s legislature — including Senate Bill 41, which is intended to curb certain pharmacy benefit manager practices; SB 306, which will phase out prior authorization requirements for commonly approved services and prescriptions; and Assembly Bill 1415, which will require private equity firms to notify the Office of Health Care Affordability (OHCA) before completing major transactions in the health care sector.

SB 41, which goes into effect on Jan. 1, 2026, will prohibit PBMs from engaging in a practice known as price spreading, in which they charge payers more for a drug than they what they reimburse to pharmacies. The law also prohibits them from steering patients to affiliated pharmacies.

Additionally, SB 41 will require PBMs to pass rebates through to the payer or patient, prohibit them from entering into exclusivity agreements with drug manufacturers, and require all PBMs that operate in California to be licensed by the state’s insurance department.

State Sen. Scott Wiener, the primary author of the bill, said, “With SB 41, California is standing up for consumers against giant mega corporations trying to rip them off on essential medications. This new law builds on the licensing framework we established earlier this year to begin holding PBMs accountable for abusive behavior.”

SB 306 will eventually allow the Department of Managed Health Care and the insurance department to waive prior authorization requirements for services and treatments that insurers approve at least 90% of the time.

Insurers will be required to report detailed prior authorization data by the end of next year so the state agencies can identify and publish a list of exempted services and treatments by mid-2027. Health plans and insurers will have to stop requiring prior authorization for those services and treatments no later than Jan. 1, 2028.

The California Medical Association (CMA) sponsored the bill, which passed the state legislature “with overwhelming bipartisan support,” according to the organization.

In a press release, Dr. Shannon Udovic-Constant, CMA president, said, “This law is a decisive step toward ending wasteful prior authorization practices that too often delay or deny patients the care they need. By cutting out redundant requirements and increasing accountability, SB 306 puts patients’ health above paperwork.”

State Sen. Josh Becker, author of the bill, said in a separate press release, “This is a smart, data-driven solution. If insurers approve a service almost every time, there’s no reason to slow down patient care with extra red tape.”

When AB 1415 takes effect on Jan. 1, 2026, private equity groups, hedge funds, and management services organizations will be required to notify OHCA when undertaking major transactions — including mergers and acquisitions — involving hospitals, physician organizations, skilled nursing facilities, or other MSOs.

In a press release issued by Assemblymember Mia Bonta, who authored AB 1415, Katie Van Deynze, senior policy and legislative advocate for Health Access CA, said, “Private equity groups often treat our hospitals and doctors’ offices like any other asset, maximizing profits for their investors at the expense of patients’ access and ability to afford care. This new law will ensure that communities have the full picture of these transactions before they happen, what it means for their health care, and hold the new owners accountable to promises made about benefits for the community.”

Earlier this month, Gov. Newsom signed SB 351, which will prevent private equity firms from influencing patient care decisions made by physicians or dentists working for medical practices the PE firms invest in or own. CMA sponsored that bill, too, which also goes into effect on Jan. 1, 2026.

OUR TAKE: California isn’t the first state to pass laws restricting PBM practices or private equity firms’ reach into health care, but, as the nation’s most populous state, these laws may have an outsized effect on the targeted industries.

While Congress has failed to pass legislation on PBM reform, state lawmakers have had more success with their own efforts — though trade associations and other stakeholders have pushed back.

In some cases, the courts have blocked state laws from going into effect, such as the Arkansas law (Act 624) that would have banned PBMs from owning pharmacies in the state starting in 2026. A federal judge granted a preliminary injunction in late July halting the law, agreeing with plaintiffs that the law may violate the Constitution.

With many billions of dollars at stake, the legal battles are to be expected. We anticipate seeing more lawsuits filed in response to California’s new laws.

However, PBMs have put forth proposals to self-regulate that are similar to provisions in SB 41. Insurers, too, have proposed and taken action in response to increasing clamor over the number of prior authorizations they require and the high rates of denials they issue. So, pushing back against SB 306 may not be a fight they choose to take on.

If California is successful in implementing and enforcing its new laws, other states may find them useful as a framework for laws of their own.

What else you need to know

Johnson & Johnson intends to spin off its orthopedics unit as a stand-alone business that will operate as DePuy Synthes “to enhance the strategic and operational focus of each company and drive value for stakeholders,” the company announced Tuesday. Joaquin Duato, J&J’s CEO, said the transaction would enable the company “to further strengthen its focus and investment toward higher-growth areas where we can meaningfully extend and improve patient lives.” Namal Nawana was appointed to serve as worldwide president of DePuy Synthes, effective immediately. The company set a tentative timeline of 18 to 24 months for completing the separation, which is subject to certain conditions, including final approval of J&J’s board of directors and the receipt of regulatory approvals.

The orthopedics unit makes implants for hip, knee, and shoulder replacements, as well as trauma and spinal implants and specialty surgical instruments. The unit generated approximately $9.2 billion in sales during the company’s fiscal year 2024. J&J acquired DePuy in 1998 for $3.5 billion and Synthes in 2012 for $21 billion.

Novo Nordisk agreed to pay up to $2.1 billion for a drug candidate Omeros is developing as a potential treatment for rare blood and kidney disorders. The investigational therapy, zaltenibart, is a monoclonal antibody designed to inhibit a protein called MASP-3, the key activator of the complement system’s alternative pathway, the companies explained in a press release. Omeros, a Seattle-based biopharma, has been preparing for a Phase III clinical trial of zaltenibart in paroxysmal nocturnal hemoglobinuria, a rare blood disorder. Under the definitive agreement, Novo Nordisk will receive exclusive global rights to develop and commercialize zaltenibart in all indications. In return, Omeros is eligible to receive $340 million in upfront and near-term milestone payments, and could receive a total of $2.1 billion if additional development and commercial milestones are attained. The transaction is subject to regulatory approvals and other customary closing conditions and expected to close by the end of the year.

Meanwhile, several news outlets reported last week that Novo Nordisk has decided to end its cell therapy program, which includes work in type 1 diabetes, Parkinson’s disease, and chronic heart failure. Terminating the program will result in approximately 250 employees being laid off. The decision is part of the restructuring initiative the company’s new CEO, Mike Doustdar, has undertaken.

Conversely, Bristol Myers Squibb is augmenting its cell therapy portfolio with the acquisition of Orbital Therapeutics, a biotech based in Cambridge, Mass., for $1.5 billion in cash. Orbital is developing “a new generation” of RNA medicines designed to reprogram cells in vivo, BMS said in the announcement. The company’s lead investigational candidate, OTX-201, targets autoimmune disease through B cell depletion to reset the immune system. “This in vivo approach, in which the patient’s own body serves as the manufacturer of CAR T-cells, has the potential to offer a reduced treatment burden and improved accessibility compared to ex vivo CAR T-cell therapies,” BMS noted. So far this year, Gilead Sciences, AbbVie, and AstraZeneca have also acquired smaller companies developing in vivo cell therapies.

UC San Diego Health and Palomar Health received approval to form a joint powers authority (JPA), which will allow them to coordinate care in San Diego’s North County communities. The two entities signed a letter of intent in July to establish the JPA, after Escondido, Calif.-based Palomar Health borrowed $20 million from UC San Diego Health in March to continue providing patient care. Last week, the Regents of the University of California and the Palomar Health District board approved the creation of the JPA, which would establish “a clear road map for the mutually beneficial management, operation, and expansion of health care services for all Palomar Health facilities.” The entities anticipate finalizing the JPA by the end of this month. After that, the state will still need to approve the deal. Initial plans for the JPA include the development of a comprehensive cancer center and two shelled floors for destination health care services at Palomar Medical Center Escondido.

CVS Pharmacy has finalized its acquisition of 63 former Rite Aid and Bartell Drugs stores in Idaho, Oregon, and Washington, completing the last of the transactions on Sept. 30. In addition, CVS Pharmacy acquired the prescription files of 626 Rite Aid and Bartell Drugs pharmacies in 15 states. Altogether, CVS gained access to more than 9 million customers through the transactions. The company said it hired more than 3,500 former Rite Aid and Bartell Drug employees to ensure patients are served well.

Roche received clearance from the FDA for its Elecsys pTau181 blood test, which is indicated as an aid in the initial assessment for Alzheimer’s disease and other causes of cognitive decline in patients age 55 and older in the primary care setting. The test, developed in collaboration with Eli Lilly, measures phosphorylated tau 181 protein in human plasma, a key biomarker for Alzheimer’s pathology, including amyloid plaque and tau aggregate pathology, Roche said in a news release. It should be interpreted in conjunction with other clinical information, Roche noted. “By bringing Alzheimer’s blood-based biomarker testing into primary care, we can help patients and their clinicians get answers sooner to support them earlier in their journeys,” said Brad Moore, CEO of Roche Diagnostics North America. In May, the FDA cleared the first in vitro blood test to aid in diagnosing Alzheimer’s disease in specialty care settings — Fujirebio Diagnostics’ Lumipulse G pTau217/Beta Amyloid 1-42 Plasma Ratio, which, as the name implies, measures pTau217 and beta amyloid 1-42 in human plasma and calculates the ratio of the levels of the two proteins.

D.C. developments

The Democratic governors of 15 states have formed an alliance to coordinate public health in the wake of staffing cuts, revised recommendations, and other recent changes at and by federal health agencies. The organization, called the Governors Public Health Alliance, is the largest of three such collaborations established among states since early September. The others are the West Coast Health Alliance, formed by California, Oregon, and Washington, and the Northeast Public Health Collaborative, a partnership of 10 states. The groups have similar goals: to share best practices and data, working together on disease surveillance, emergency preparedness, and public health policy. The newest alliance is being promoted as a nonpartisan, nonprofit coalition and is supported by GovAct, a nonprofit, nonpartisan platform for gubernatorial collaborations.