In six months, the prices for drugs selected for the first round of the Inflation Reduction Act (IRA) Medicare Drug Price “Negotiation” Program are set to go into effect.[1] Manufacturers of these drugs are working rapidly to finalize plans for operationalizing the new prices, called “maximum fair prices” (MFPs), and the Centers for Medicare & Medicaid Services (CMS) has issued numerous guidance and operational documents informing MFP effectuation. Meaningful open questions remain, however, including with respect to certain logistical decisions for manufacturers on how they will calculate and provide refunds to pharmacies to align pharmacy acquisition costs with MFP.
This client alert summarizes recent CMS updates and next steps for MFP effectuation for Initial Price Applicability Year (IPAY) 2026. Manufacturer MFP effectuation plans are due to CMS by September 1, 2025, ahead of the MFP effectuation deadline of January 1, 2026.
Medicare Transaction Facilitator Enrollment, Agreements, and Technical Specifications
Enrollment in the Medicare Transaction Facilitator (MTF) is open. As set forth in section 40.4 of CMS’s October 2, 2024 Final Guidance, and further described in the May 12, 2025 Draft Guidance (collectively, “guidance”), CMS has contracted with the MTF to address supply chain data gaps and enable manufacturers to provide access to MFPs to pharmacies that dispense selected drugs. The MTF consists of two components:
- The MTF Data Module (MTF DM) will receive and process all Part D plan claims for selected drugs, and provide a data feed of anonymized claims to manufacturers who must either confirm the pharmacy was provided with prospective access to the MFP or provide a retroactive refund to the pharmacy to effectuate the MFP. Manufacturers will be required to return “payment elements” for each claim provided by the MTF to identify how the dispensing entity was provided access to the MFP.
- The MTF Payment Module (MTF PM) will allow manufacturers to provide refunds directly through the MTF, which will distribute payments to the identified dispensing entities. Manufacturers who opt to use the MTF PM can also use the MTF’s “ledger system” to adjust future refunds to dispensing entities to reflect adjustments and reversals to refunds previously paid through the MTF.
Participation in the MTF DM is mandatory for both manufacturers and dispensing entities. Participation in the MTF PM is optional.
In order to facilitate MTF enrollment, CMS has released a number of related documents, including:
The MTF agreements and information collections have been significantly revised from draft versions originally issued by CMS. These documents are now final for purposes of IPAY 2026 MFP effectuation.
Effectuation Plan Requirements
While the above MTF-related documents provide significant detail on the role CMS and the MTF will play in MFP effectuation, manufacturers must still develop their own operational plans on how to effectuate the MFP, including with respect to interacting with dispensing entities. Section 90.2.1 of CMS’s guidance lays out requirements for manufacturers to submit an effectuation plan to CMS detailing their choices for how to provide access to the MFP. The ICR for the MTF includes a Primary Manufacturer MFP Effectuation Plan Form with the specific questions to be answered by manufacturers in their effectuation plans. These submissions are due by September 1 for drugs selected for IPAY 2026. The effectuation plan must outline several logistical decisions, including:
- Whether the manufacturer chooses to utilize the MTF PM, and the necessary banking information for doing so;
- The manufacturer’s process for communicating with dispensing entities;
- How the manufacturer intends to address material cash flow concerns that a retrospective payment could create for dispensing entities;
- How the manufacturer intends to calculate retrospective refund amounts;
- How the manufacturer intends to identify any duplicative 340B claims and effectuate nonduplication; and
- How manufacturers who elect not to use the MTF PM plan to transmit refunds to dispensing entities.
CMS will not approve or deny any effectuation plan submitted by a manufacturer but may indicate to a manufacturer if there is any increased enforcement risk based on the plan’s design. Manufacturers must notify CMS in writing of any changes to their effectuation plans as soon as practicable.
14-Day Prompt Payment Window
CMS’s guidance requires manufacturers to make any MFP refund payments within 14 days of receiving data from the MTF DM for a claim dispensed to an eligible patient. Manufacturers choosing to utilize the MTF PM can meet the 14-day requirement by authorizing the MTF to transmit funds to the dispensing entity on the 14th day. Manufacturers who opt to use another method of effectuation must ensure the refund is sent to the dispensing entity by the 14th day. CMS has stated that if the 14-day prompt pay window falls on a weekend or holiday, the due date is not modified.
Refund Calculation Methods
Section 1193(a) of the statute requires manufacturers to provide access to the MFP. CMS has interpreted this statutory mandate to require the manufacturer to provide access to the MFP in one of two ways: (1) prospectively ensuring that the price paid by the dispensing entity when acquiring the selected drug is no greater than the MFP; or (2) retrospectively providing reimbursement for the difference between the dispensing entity’s acquisition cost and the MFP. However, CMS is not providing manufacturers with data on dispensing entities’ actual acquisition cost. The MTF DM will provide a Standard Default Refund Amount (SDRA) equal to the selected drug’s Wholesale Acquisition Cost (WAC) minus the MFP. Manufacturers may choose to use the SDRA or another standardized metric to calculate a standardized refund amount, or may choose to calculate individualized refund amounts for specific dispensing entities. Sections 40.4 and 90.2 of the guidance detail how CMS will evaluate disputes between manufacturers and dispensing entities over the appropriateness of any refund calculations.
340B Nonduplication
Section 1193(d) of the statute provides that manufacturers must provide access to the MFP in a nonduplicated amount to the 340B ceiling price. However, in Section 40.4.5 of the guidance, CMS makes clear that it will not deduplicate 340B and MFP claims through the MTF. Instead, CMS shifts this responsibility to manufacturers and requires them to outline their processes for identifying 340B claims and maintain documentation for those identified claims. Manufacturers may not delay MFP refund payments required by the 14-day prompt payment window due to an unclear 340B status. Manufacturers who opt to use the MTF PM may use the ledger system to account for refunds made for claims that are later identified as 340B.
Some manufacturers have requested the ability to implement “rebate models” for the 340B program that would allow them to also retrospectively pay 340B discounts to facilitate deduplication. The viability of these “rebate models” and requirements for explicit approval from the Health Resources and Services Administration (HRSA) has been the subject of litigation. The Office of Management and Budget is currently reviewing new 340B guidance that has yet to be released but, in theory, could provide some clarity for manufacturers before the September 1 deadline.
Dispensing Fee Changes for Selected Drugs
On May 27, CMS released an HPMS memo outlining opportunities for Part D plans to provide different dispensing fees for selected drugs. The memo allows for two dispensing fees: one for branded drugs broadly and one for all selected drugs. Plans may thus offer a separate dispensing fee amount for all selected drugs but are not currently allowed to alter dispensing fees to reflect individualized MFP refund amounts per selected drugs.
Next Steps for Manufacturers
Manufacturers of IPAY 2026 selected drugs must work toward finalizing MFP effectuation plans for submission to CMS by September 1. Manufacturers of selected drugs for upcoming cycles should closely monitor this process, including with respect to any variance in requirements for future effectuation efforts (for example, the IPAY 2028 Draft Guidance sets forth different timing considerations for IPAY 2027 MFP effectuation plans). This first effectuation effort will likely inform future changes, both for MFP effectuation in Part D and for the agency’s development of policies for MFP effectuation in Part B as the program expands.
If you are interested in discussing MFP effectuation plans for the current cycle or future cycles, please contact the authors of this alert. Covington recently welcomed several former CMS and HHS officials to its Health Care Practice Group and advises extensively on IRA considerations for manufacturers.
[1] Legal challenges to the Medicare Drug Price “Negotiation” Program are ongoing. Although the IRA uses the term “negotiation” to describe this program, several parties have filed constitutional challenges to the IRA’s description of the Program’s price-setting process as a “negotiation,” as well as the IRA’s use of the term “maximum fair price,” among other claims.
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