On September 30, the Centers for Medicare & Medicaid Services (CMS) released a new final guidance document for the Inflation Reduction Act’s (IRA’s) Medicare Drug Price “Negotiation” Program (the Program), entitled “Medicare Drug Price Negotiation Program: Final Guidance, Implementation of Sections 1191 – 1198 of the Social Security Act for Initial Price Applicability Year 2028 and Manufacturer Effectuation of the Maximum Fair Price in 2026, 2027, and 2028” (Final Guidance). This Final Guidance applies to “implementation of the Program for initial price applicability year [(IPAY)] 2028,” including the “renegotiation” process for “maximum fair prices” (MFPs) taking effect January 1, 2028 and manufacturer effectuation of MFPs in 2026, 2027, and 2028.
The Final Guidance outlines policies governing the Program’s third cycle, which will include up to 15 additional drugs covered under Medicare Part D and/or payable under Medicare Part B. Importantly, the Final Guidance finalizes two areas of expansion contemplated under the IRA and outlined in the Draft Guidance issued on May 12, 2025: (1) expansion of the Program to include, for the first time, drugs payable under Part B, and (2) processes to allow for the “renegotiation” of MFPs for selected drugs. In addition, the Final Guidance implements notable changes to other policies under the Program, including aligning application of the orphan drug exclusion with recent statutory amendments, integrating Medicare Advantage data in drug selection, updating termination provisions, and revising the Program’s timelines. CMS made targeted changes to the policies governing MFP effectuation for drugs covered under Part D, but did not provide any details on MFP effectuation for drugs payable under Part B. The agency stated that it “will provide detailed policy on providing access to the MFP for selected drugs payable under Part B in the future and will consider comments and recommendations related to MFP effectuation for drugs payable under Part B in CMS’ policy development.”
Select new and updated policies are summarized below. If you have any questions about how the Final Guidance will affect your company, please reach out to any of the authors of this alert.
Use of Medicare Advantage Data to Calculate Total Expenditures Under Medicare Part B
- In a change in policy, the Final Guidance states that CMS will include Medicare Advantage (MA) encounter data in its calculation of total expenditures under Part B. In the Draft Guidance, CMS proposed to use Part B claims data for purposes of this calculation. However, in response to comments suggesting that CMS should account for Part B drugs administered to MA enrollees, in the Final Guidance CMS stated that using only expenditure data from Part B fee-for-service (FFS) claims “would not capture the complete or most accurate Total Expenditures for drugs payable under Part B.”
- To capture MA expenditures for drugs payable under Part B, CMS will use MA encounter data—which includes records of items and services provided to beneficiaries enrolled in MA plans—to determine the units of a drug payable under Part B that were administered under MA. MA encounter data typically does not include the price of a particular item. To estimate MA expenditures for a drug payable under Part B, CMS will multiply the units derived from MA encounter data by the payment limit (e.g., average sales price) or payment rate (e.g., Outpatient Prospective Payment System) applicable under Part B FFS.
Fixed Combination Products
- For IPAY 2028, CMS retained the same aggregation approach for fixed combination products used in IPAY 2026 and 2027, but CMS will continue to consider changes to that approach for IPAY 2029.In IPAYs 2026 and 2027, CMS concluded that fixed combination drugs are distinct qualifying single source drugs (QSSDs) from their individual active ingredients. But in the Draft Guidance, CMS solicited comments on whether to disregard certain active ingredients that it described as “not therapeutically active” for aggregation purposes.
- CMS did not adopt this approach. But CMS stated that it “intends to address this program integrity risk and is continuing to consider the appropriate policy to implement in rulemaking beginning in [IPAY] 2029.” CMS stated that aggregating certain fixed combination products with products containing an individual active ingredient may align with the statutory directive “to aggregate across ‘new formulations’ of a potential [QSSD].”
- CMS also stated that it “may address co-packaged drugs at that time.” For purposes of IPAY 2028, co-packaged products will be aggregated in accordance with the aggregation principles for fixed combinations.
Orphan Drug Provisions
- CMS updated its guidance related to the orphan-drug exclusion in accordance with statutory amendments enacted under the 2025 “Working Families Tax Cuts Act” (i.e., the “One Big Beautiful Bill Act” (OBBBA)), stating that these revisions “are required by law to take effect” for IPAY 2028. Specifically, CMS revised language to reflect that a drug designated and approved for more than one rare disease or condition may qualify for the exclusion as long as all approvals are within an orphan designation. Consistent with the OBBBA, CMS also clarified that it will measure the 7- and 11-year selection eligibility clock for a drug or biological product to meet the definition of QSSD “start[ing] from the first day after such earliest date of approval or licensure that such drug or biological product does not, or did not, meet the criteria for the Orphan Drug Exclusion,” rather than the date of initial approval or licensure.
Requirements for a Biosimilar Delay
- CMS stated that patents related to the reference product are unlikely to prevent a biosimilar from being marketed before the “high likelihood” deadline (i.e., two years after a drug otherwise would be selected into the Program) if—as an alternative to the other circumstances described in the Draft Guidance—(1) neither a court nor the Patent Trial and Appeal Board (PTAB) “has adversely ruled against the Biosimilar Manufacturer’s legal patent assertion(s)” regarding the reference product’s unexpired patent(s) “applicable to the Biosimilar” and (2) the biosimilar manufacturer has “clearly specified a launch date for the Biosimilar” that is before the “high likelihood” deadline and not contingent on the outcome of pending litigation.
- CMS also provided the following three examples of “clear and convincing” evidence from a biosimilar manufacturer’s filings with the Securities and Exchange Commission that might demonstrate that a biosimilar has a high likelihood of being marketed before the “high likelihood” deadline:
- Listing of an agreement between the biosimilar manufacturer and reference product manufacturer in a Form 10-K along with a copy of the agreement if required by law to be filed with the Federal Trade Commission or U.S. Department of Justice;
- The lack of any adverse actions from a court or PTAB in a Form 10-K relating to a biosimilar manufacturer’s legal assertion(s) about the reference product’s unexpired patent(s) applicable to the Biosimilar and a clearly specified launch date for the biosimilar prior to the “high likelihood” deadline; or
- Information in a Form 10-K about the biosimilar manufacturer’s “operational preparations and/or other steps to market and/or produce the Biosimilar.”
Publication of Top 50 “Negotiation-Eligible Drugs”
- CMS finalized its plan to publish a list of the “up to 50 top negotiation-eligible drugs (including the up to 15 selected drugs) ranked by combined Total Expenditures under Part B and Part D.” While CMS did not confirm when it will publish this list, the Final Guidance suggests that CMS will publish it concurrently with the IPAY 2028 selected drug list on or before February 1, 2026.
Vaccines
- CMS added language stating that, for vaccines for infectious diseases, it will identify a QSSD “on the basis of such vaccines’ antigen component(s) as reflected on such vaccines’ labeling, as accessed in public sources.” CMS clarified that in determining whether 11 years have elapsed since a vaccine was licensed (as required for the vaccine to be a QSSD), CMS will use the earliest date of licensure for any BLA or supplemental BLA for each unique QSSD that CMS identifies based on its antigen component(s).
Forward-Looking Market Data
- CMS will not require manufacturers to submit “forward-looking market data” for IPAY 2028 selected drugs. In the Draft Guidance, CMS solicited comments regarding including forward-looking market data within the scope of the market data and revenue sales volume data collected under section 1194(e)(1)(E). In the Final Guidance, CMS stated that it will consider the comments received on the collection of forward-looking market data as part of “policy development for this issue in future rulemaking.”
Direct Member Reimbursement (DMR)
- Although commenters recommended that CMS create a process for manufacturers to reimburse Part D plans for DMR claims, CMS declined to leverage the Medicare Transaction Facilitator (MTF) or provide a standardized process for manufacturers to reimburse Part D plan sponsors for any difference between the cash price paid by an enrollee and the MFP plus any dispensing fees. Instead, the Final Guidance instructs plans and manufacturers to negotiate resolution of DMR requests for MFP-eligible claims independently for 2026, 2027, and 2028. CMS reiterated that DMR requests are exceedingly rare, according to its internal analysis, and stated that comments linking this concept to the Administration’s Most Favored Nation Executive Order “are outside the scope of this guidance.”
Termination of Participation in the Program
- If a Primary Manufacturer’s “Request to Terminate” its participation in the Program complies with all requirements outlined in section 40.1 of the Guidance, CMS will determine that the request constitutes good cause for the Agency to terminate the manufacturer’s agreement(s) under the Medicaid Drug Rebate Program (MDRP). Such termination by CMS will not be effective until 60 calendar days after the date of notice to the Primary Manufacturer of such termination. This policy is consistent with CMS’s existing policy of finding good cause to terminate a Medicare Manufacturer Discount Program agreement upon a manufacturer’s request to terminate its participation in the Program.
Compressed Timeline
- To accommodate the updated termination provisions, CMS will compress the timeline of events for IPAY 2028. By statute, the process for setting the MFP must be concluded prior to November 1, 2026. Per the Final Guidance, the first optional meeting between CMS and manufacturers will occur by August 14, 2026, and the second by September 11, 2026. CMS will send final offers to Primary Manufacturers by September 30, 2026, and Primary Manufacturers must accept or reject those final offers by October 31, 2026.
Nonduplication of MFP with the 340B Ceiling Price
- CMS did not make any significant changes to its policy regarding nonduplication of the MFP with the 340B ceiling price. In response to comments about the Health Resources and Services Administration’s (HRSA’s) 340B Rebate Model Pilot Program—which is designed to facilitate nonduplication of the MFP and 340B ceiling price—CMS noted that “[t]he HRSA 340B Rebate Model Pilot Program is outside of the scope of this final guidance.”
“Renegotiation”
- CMS finalized the process by which it will “renegotiate” the prices set for drugs previously selected for the Program with relatively few changes. CMS provided further clarification, including illustrative examples, about how it will determine whether there has been a “material change” in any section 1194(e) factor for purposes of determining “renegotiation” eligibility for drugs previously selected for the Program. CMS also committed to publishing the list of drugs selected for “renegotiation” not later than February 1, 2026, at the same time as CMS publishes the list of selected drugs for IPAY 2028. In addition, CMS clarified that a “renegotiation”-eligible drug for which the Secretary makes a determination of bona fide marketing of a generic or biosimilar before publication of the selected drug list for IPAY 2028 will not be subject to the “renegotiation” process. If, instead, the Secretary makes such a determination of bona fide marketing of a generic or biosimilar after publication of the selected drug list for IPAY 2028, the timeline for removal from the renegotiated selected drug list and the applicability of the renegotiated MFP will follow the general timeline for removal of a selected drug from the Program following a determination of bona fide marketing.
Monitoring of Access to the MFP in 2026, 2027, and 2028
- CMS clarified that, absent information to the contrary, it will consider a manufacturer to have met its obligation to make the MFP available if the manufacturer provides the dispensing entity the standard default refund amount (SDRA), equal to wholesale acquisition cost minus the MFP. If CMS must assess whether a manufacturer properly provided access to the MFP, it will do so on a case-specific basis and will consider contextual information including (1) the invoice amount from the dispensing entity, (2) the documentation maintained by the manufacturer supporting its MFP refund amount, and (3) the MFP refund amount provided by the manufacturer. If, following its assessment, CMS determines that the manufacturer failed to make the MFP available, the Agency will follow the enforcement procedures outlined in section 100.1 of the Final Guidance.
On September 30, CMS also issued a revised Information Collection Request (ICR) regarding the data and information the agency will collect to inform drug selection for IPAY 2028. The ICR provides for a 30-day comment period on these issues. Later this Fall, CMS will issue a revised ICR on the data and information that a manufacturer of a selected drug must submit to the Agency during the “negotiation” process. Under this ICR, CMS will require Primary Manufacturers to report average sales price (ASP) and ASP units for the last two sales quarters in calendar year 2025 to inform CMS’s consideration of market data and revenue and sales volume data as required under section 1194(e)(1)(E).That ICR will also be open for public input for 30 days.
Looking forward, CMS stated in the Final Guidance that it will develop its policies for 2029 and all future years of the Program through notice-and-comment rulemaking “when required by law.”
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Covington will continue to monitor the Trump Administration’s implementation of the Program and other drug pricing policies and is available to advise manufacturers navigating Program selection. Please reach out to any of the Covington attorneys listed below if you would like to discuss the content of this alert or any other drug pricing questions.
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