On October 31, 2025, the Centers for Medicare & Medicaid Services (CMS) issued the Calendar Year (CY) 2026 Physician Fee Schedule (PFS) final rule, which sets forth final policies on proposals outlined in the July 16, 2025 proposed rule. While PFS rulemaking primarily serves to establish Medicare payment for physician services, this year’s rulemaking cycle includes meaningful new policies for drug manufacturers. In particular, the final rule modifies requirements for calculating average sales price (ASP), including significant new documentation and submission requirements related to bona fide service fees (BFSFs) and new policies to govern the treatment of bundled sale arrangements. Notably, however, CMS did not finalize certain policies related to the evaluation of BFSFs, including definitions of “fair market value” and applications specific to cell and gene therapies.
The final rule also includes select policies related to implementation of Inflation Reduction Act programs. For the Medicare Drug Price “Negotiation” Program, CMS restates its “clarification” that MFP units must be included in ASP calculations starting on January 1, 2026. For the Medicare Prescription Drug Inflation Rebate Program, CMS finalizes certain new policies, the most notable of which relate to 340B deduplication for Part D inflation rebates.
This client alert summarizes the key aspects of the final rule for drug manufacturers. If you have any questions about how the final rule will affect your company, please reach out to any of the authors of this alert.
Manufacturers of drugs payable under Medicare Part B are required to report ASP to CMS each quarter. The ASP must reflect sales to all purchasers in the United States, except sales that are: (1) statutorily exempt from best price; or (2) merely nominal in amount. As required under section 1847A(c)(3) of the Social Security Act, when calculating the ASP for a drug, manufacturers must deduct price concessions such as “volume discounts, prompt pay discounts, cash price discounts, free goods that are contingent on any purchase requirement, chargebacks, and rebates” (other than rebates under the Medicaid Drug Rebate Program and the Medicare Prescription Drug Inflation Rebate Program).
While price concessions must be deducted from the manufacturer’s ASP, BFSFs are not considered price concessions and are not deducted when calculating ASP. Under the current regulations, BFSFs are defined as “fees paid by a manufacturer to an entity, that represent fair market value for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement, and that are not passed through in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug.”[1]
In the CY 2026 PFS proposed rule, CMS proposed significant changes to the policies governing the treatment of BFSFs paid to service providers and certain price concessions in the calculation of ASP, stating that these changes were necessary “to avoid inaccurate calculation of the manufacturer’s ASP that is used to determine Part B drug payment limits.” In this final rule, CMS is finalizing only some of these policies, including new data reporting and document submission requirements and a new definition of bundled sale arrangements. Despite comments from a number of stakeholders raising concerns regarding the proposed rule’s compliance timeline, CMS is maintaining the January 1, 2026 deadline for manufacturers to come into compliance with the new submission requirements.
CMS had proposed a number of changes to the definition of BFSFs, including new requirements for the standards and methodology to determine the fair market value (FMV) of BFSFs; a requirement that manufacturers conduct periodic updates of FMV analyses for ongoing service arrangements; and expansion of the existing requirement that BFSFs are not passed in whole or in part to a client or customer of an entity to include “an affiliate of an entity that is receiving the fee [for] providing the service.” CMS is not finalizing any of these proposals, agreeing with commenters that it would be time-intensive to implement a new FMV methodology under the proposed timeline and that more information is needed to determine which independent third parties would be qualified to determine FMV. The agency states, however, that it “would like to further engage with manufacturers regarding determination of FMV that could address these concerns while also achieving the goal of accuracy and transparency when classifying costs for the calculation of ASP.”[2]
Although the proposed rule set forth a non-exhaustive list of fees that would not be considered BFSFs or that may not be in line with FMV, such as credit card processing fees to purchasers and payments for tissue procurement for cell-based therapies, CMS has not finalized this list of exclusions in the final rule. Commenters contended that the list would create uncertainty and compliance risks and could reduce provider reimbursement, and CMS acknowledges the examples could have unintended consequences.
Although commenters cited concerns about the proposed significant new document submission requirements related to BFSFs, including the administrative and financial burden, inconsistency with the Administration’s aim of reducing unnecessary paperwork, and the lack of clear benefit to the healthcare system, CMS is finalizing the document submission requirements as proposed. CMS responds that this additional reporting requirement aligns with the Administration’s priority of lowering drug prices and promotes transparency and program integrity in the healthcare system.
Under the policies adopted in the final rule, manufacturers will be subject to significant new document submission requirements when reporting BFSFs:
- Reasonable Assumption Submission for All ASP Reporting: Manufacturers will now be required to submit reasonable assumptions on a quarterly basis as part of the ASP reporting process. (Currently, submission of reasonable assumptions is optional for manufacturers.) These reasonable assumptions must include the FMV analysis for BFSFs, including documentation of methodology used, and periodic reviews of FMV.
- CMS will provide a template of the reasonable assumptions letter for manufacturers to document their FMV analysis.
- The requirement to submit reasonable assumptions applies to all current, new, and renewed contracts with service providers, and “manufacturers are expected to document and submit the FMV methodology used for any current BFSF arrangements” by the April 30, 2026 due date for ASP data submissions for the first quarter of 2026.
- Certification Submission for New BFSF Arrangements: CMS will no longer presume that a fee paid by a manufacturer for a service is not passed on. Instead, manufacturers must submit a certification or warranty from the recipient in the current ASP reporting portal that the fee will not be passed through in whole or in part to a client or customer of any entity, whether or not the entity takes title to the drug.
- In the final rule, CMS clarifies that this requirement applies only to new contracts that are entered into on or after January 1, 2026.
Notably, CMS states in the final rule that “[r]easonable assumptions will be used to review industry-wise [sic] issues for potential future policy development and, in certain instances, to make referrals to law enforcement partners.”
Manufacturers may offer certain price concessions as part of a “bundled arrangement” in which the price concessions are treated as discounts that are tied to the purchase of the same drug or item or multiple drugs or items. Price concessions offered as part of a bundled sale arrangement must be accounted for in the calculation of ASP. Although CMS adopted a definition of “bundled sale” for Medicaid in 2007, CMS had not established a definition for purposes of the ASP calculation prior to the current rulemaking. In the proposed rule, CMS proposed to adopt a definition of a “bundled arrangement” to provide additional guidance to manufacturers on how to allocate discounts under bundled arrangements for purposes of calculating ASP.
In the final rule, CMS adopts the proposed policies regarding bundled sales arrangements with limited modifications. “Bundled arrangement” is defined as:
[A]n arrangement regardless of physical packaging under which the rebate, discount, or other price concession is conditioned upon the purchase of the same drug or biological or other drugs or biologicals or another product or some other performance requirement (for example, the achievement of market share, inclusion of tier placement on a formulary) or where the resulting discounts or other price concessions are greater than those which would have been available had the bundled drugs or biologicals been purchased separately or outside the bundled arrangement.
This definition excludes the proposed references to “purchasing patterns” and “prior purchases” to ensure consistency with the Medicaid definition. Notably, in contrast to the definition of “bundled arrangement” in Medicaid, CMS does not expressly include value-based purchasing arrangements in the definition of bundled arrangement to “provide[] the agency the opportunity to monitor and assess how such a definition may affect ASP.” The new provisions also address proportionate allocation of discounts among contingent and non-contingent discounts as well as bundled sale arrangements involving Medicare Part B-covered and non-covered products.
In the final rule, CMS restates that for selected drugs payable under Part B, the Part B payment limit will be set at 106 percent of “maximum fair price” (MFP) beginning in initial price applicability year 2028. In such cases, CMS confirms that it will publish only the actual payment limit and no ASP information will be displayed. However, CMS also clarifies that the Part B payment limit for selected drugs with a “negotiated price” for initial price applicability year 2026 or 2027 will not be based on the MFP unless the selected drug is selected for renegotiation and there is an agreed-upon renegotiated MFP.
In the final rule, CMS also reiterates the “clarification” in the proposed rule that because “the statutory language does not expressly or implicitly exempt units of Medicare Part B or Part D MFP sales from the calculation of the manufacturer’s ASP . . . units of selected drugs sold at MFP are included in the calculation of the manufacturer’s ASP . . . effective January 1, 2026.” While CMS acknowledges that it received a range of “thoughtful and robust feedback” on the discussion of MFP and ASP in the proposed rule, CMS does not directly address these comments in the final rule, asserting that the agency “did not make a proposal or solicit comments” on its policy statement in the proposed rule. As applicable, manufacturers will be required to include units of selected drugs sold at MFP on or after January 1, 2026, in the calculation of ASP.
The changes to the ASP calculation adopted in the final rule go into effect for sales occurring on or after January 1, 2026, and must be reflected in ASP reporting for the first quarter of 2026, which must be submitted by April 30, 2026.
Under section 1860D-14B(b)(1)(B) of the Social Security Act, starting for plan year 2026, the Secretary is required to exclude from the calculation of Part D inflation rebates units of a Part D rebatable drug for which the manufacturer provides a discount under section 340B of the Public Health Service Act (“340B units”). In the CY 2025 PFS proposed rule, CMS proposed using an estimation methodology to calculate and exclude 340B units from Part D inflation rebates. Ultimately, however, CMS did not finalize this proposal and instead explained that it would consider alternative proposals for excluding 340B units in future rulemaking.
In the CY 2026 PFS proposed rule, CMS proposed an alternative methodology for estimating 340B units and excluding them from the Part D inflation rebate calculation and proposed to establish a claims data repository for covered entities to voluntarily submit Part D claims. In the final rule, CMS is adopting the proposed Prescriber-Pharmacy Methodology with modification. Under the Prescriber-Pharmacy Methodology, CMS will determine whether a Prescription Drug Event (PDE) record is 340B-eligible by assessing the prescriber’s affiliation with a registered 340B covered entity and the associated dispensing pharmacy’s designation as a 340B contract pharmacy. To address commenters’ concerns about undercounting of 340B units to be removed from the calculation of rebatable units, CMS is modifying its original proposal by establishing a supplemental list of prescriber National Provider Identifiers (NPIs) that are associated with covered entities.
In addition, CMS is finalizing its proposal to establish and test a voluntary 340B claims data repository. Although CMS does not plan to use the repository’s data to exclude 340B units from Part D inflation rebates during the testing period, CMS expects the repository will eventually facilitate the claims-based methodology for excluding 340B units.
If you have any questions concerning the material discussed in this client alert, please contact a member of our Health Care practice.
[2] CMS also acknowledges commenters’ concerns that extending the no pass-through requirement to “affiliates” is overly broad and ambiguous but expresses an intent to further consider this term in future rulemaking.
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