On January 1, 2026, the “maximum fair prices” (“MFPs”) will take effect for the first 10 drugs selected for Initial Price Applicability Year (“IPAY”) 2026 of the Medicare Drug Price “Negotiation ” Program, and the manufacturers of these selected drugs will be required to provide eligible Medicare patients and dispensing entities access to these MFPs. At that time, the Centers for Medicare & Medicaid Services’ (“CMS’s”) Medicare Transaction Facilitator (“MTF”) will go live and begin facilitating the exchange of data and payments necessary to provide the MFP to dispensing entities. In a prior alert, we outlined the steps required for manufacturers to submit MFP effectuation plans to CMS for the IPAY 2026 cycle. With those plans now submitted, this update looks at what manufacturers might expect when MFP effectuation begins next month.
MFP effectuation is a meaningful milestone for the Program, and it will be closely watched by both manufacturers involved directly in IPAY 2026 effectuation and manufacturers anticipating involvement in future cycles. If you are interested in discussing MFP effectuation considerations, please contact the authors of this alert.
Manufacturers will be required to effectuate MFPs beginning on January 1. At that time, CMS’s MTF will start sending claims data to manufacturers, returning payment information, and, as applicable, making payments to dispensing entities.
The most immediate consideration will be whether manufacturers will face difficulties “provid[ing] access” to the MFP to “maximum fair price eligible individuals” and dispensing entities. 42 U.S.C. § 1320f-2(a)[1]. CMS has established a process for MFP effectuation, facilitated through the MTF, to allow manufacturers to provide dispensing entities with a refund equal to the difference between the dispensing entity’s acquisition cost and the MFP within 14 days of the manufacturer receiving claims data from the MTF.
In the IPAY 2028 Final Guidance (“Final Guidance”) published in October, CMS clarified that, absent information to the contrary, it would consider a manufacturer to have met this statutory obligation if the manufacturer provides the dispensing entity a refund equal to the standard default refund amount (i.e., 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 this 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. In that section, CMS states that it will issue a “Notification of Potential Noncompliance” to the manufacturer and provide an opportunity to respond. CMS further notes that it will consider “any technical failures outside the control of the Primary Manufacturer related to the transmission of payment” prior to taking further enforcement action.
Another important consideration will be the effect of the MFP effectuation process on dispensing entities, including potential cash flow issues associated with MFP effectuation. While CMS and manufacturers have taken steps to mitigate concerns raised about potential cash-flow effects, it will be important to monitor the actual effect of the MFP roll-out. If the roll-out causes significant issues for dispensing entities, CMS could consider changes to its MFP effectuation process.
Finally, CMS’s reaction to the roll-out will be an important indicator of the future direction of MFP effectuation. The agency has taken an active policymaking role in MFP effectuation, making frequent website updates and developing new resources for stakeholders. Its response to any issues in the roll-out of the MFP effectuation process will provide important insights into future updates or modification to the MTF data and payment process. Manufacturers of drugs selected for IPAY 2027 or that may be selected for future years should carefully scrutinize any updates, FAQs, or new policy documents released by CMS in the weeks following January 1, which could affect preparations for MFP effectuation in future years of the program.
In our prior update, we noted the challenges for manufacturers attempting to provide access to the MFP without duplicating discounts associated with the 340B ceiling price. At the time, we noted that “[t]he 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.” On July 31, 2025, the Health Resources and Services Administration (“HRSA”) announced the creation of a voluntary 340B Rebate Model Pilot Program (the “Pilot Program”), which was made available exclusively to IPAY 2026 selected drugs to facilitate deduplication of the MFP and the 340B ceiling price. Under the Pilot Program, covered entities will purchase drugs directly from wholesalers at wholesale acquisition cost (“WAC”) or another agreed upon purchase price, and manufacturers will then provide a rebate on the back end equal to the difference between the acquisition cost and the 340B ceiling price. HRSA requires that manufacturers use WAC minus the 340B ceiling price to calculate rebates. By mid-November, HRSA had approved the Pilot Program plans of all manufacturers of IPAY 2026 selected drugs. If the Pilot Program proves successful, HRSA may extend it to other selected drugs, potentially addressing a key limitation of the MFP effectuation process. Additionally, CMS will be monitoring the implementation of the Pilot Program to ensure that the 340B deduplication process does not interfere with the 14-day payment deadline for MFP refunds.
Once the MFP is effectuated, the MFP sales will have knock-on effects for certain government price reporting calculations. For example, under the provisions of the IRA, the MFP for a selected drug is expressly included in the determination of best price under 42 U.S.C. § 1396r-8(c)(1)(C)(ii)(V), while it is excluded from the calculation of Average Manufacturer Price (“AMP”) under 42 U.S.C. § 1396r-8(k)(1)(B)(i)(VI). The implications of MFP for Average Sales Price (“ASP”) and Non-Federal Average Manufacturer Price (“Non-FAMP”) have also been the subject of recent policymaking:
- ASP Calculation: As summarized in our prior alert, in the Calendar Year 2026 Physician Fee Schedule final rule, CMS stated that manufacturers will be required to include units of selected drugs sold at the MFP on or after January 1, 2026, in the calculation of ASP. In issuing this final rule, CMS reiterated its view from 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.” CMS’s requirement to include MFP units in the ASP calculation goes into effect for sales occurring on or after January 1, 2026, and will be reflected in ASP reporting for the first quarter of 2026, which must be submitted by April 30, 2026. Note, however, that CMS indicates that, because CMS will set the Part B payment limit for selected drugs at 106 percent of MFP starting in IPAY 2028, it will no longer publish ASP-based payment limits for those selected drugs.
- Non-FAMP Calculation: On October 1, 2025, the Public Law Policy Group of the Department of Veterans Affairs (“VA”) issued a supplemental “Dear Manufacturer Letter” (“DML”) clarifying that Part D sales made at the MFP will be included in the calculation of non-federal average manufacturer price (“Non-FAMP”). The VA uses Non-FAMP to calculate the Federal Ceiling Price which, in turn, serves as a cap on Federal Supply Schedule contract prices for sales of innovator products to government purchasers as outlined in the Veterans Health Care Act (VHCA). Non-FAMP excludes prices charged to the government as well as sales to 340B covered entities at the price provided for under the VHCA, but not negotiated prices to commercial buyers. In its supplemental DML, the VA justified its decision to include sales at MFP by referring to a prior DML from 2006, stating “manufacturer’s sales of covered drugs to Medicare Part D plans are commercial sales, which (assuming that the drugs are delivered through wholesalers in the United States) are to be included in non-FAMPs.” As a result of the VA’s decision, the MFP could serve to lower the Non-FAMP and Federal Ceiling Price, resulting in further drug pricing discounts for the VA.
Where included, the MFP will likely lower reported drug pricing metrics, resulting in effects beyond those expressly contemplated by the IRA.
Manufacturers of selected drugs for IPAY 2027 and upcoming cycles should closely monitor the roll-out of the MFP effectuation process, including any variance in requirements for future effectuation efforts. For example, CMS recently announced MFPs for IPAY 2027 selected drugs. Manufacturers of these selected drugs will be required to submit their MFP effectuation plans in two phases under the IPAY 2028 Final Guidance: (1) “sections of the plan related to the Primary Manufacturer’s election whether or not to use the MTF [Payment Module (PM)], the Primary Manufacturer’s communication plan, the Primary Manufacturer’s approach to dispensing entities who indicate they expect to experience cash flow concerns, and information about the Primary Manufacturer’s plan if they do not intend to use the MTF PM” are due by June 1, 2026; and (2) the remaining sections of the plan, including the manufacturer’s plan for calculating the MFP refund amount when using a retrospective reimbursement model and processes to prevent duplication of the MFP and 340B ceiling price, are due by September 1, 2026. Manufacturers should pay special attention to any policy changes or shifts that could affect the submission of manufacturer plans.
In addition, for manufacturers of selected drugs for IPAY 2028, CMS has not yet outlined policies regarding MFP effectuation for drugs payable under Medicare Part B. Rather, CMS stated in the IPAY 2028 Final Guidance that the Agency will “address policies related to” MFP effectuation for Part B drugs “in the future.” Manufacturers of Part B drugs should closely monitor the roll-out of MFP effectuation for Part D drugs to identify any pain points that could extend to or be mitigated in Part B MFP effectuation. Manufacturers could also consider targeted outreach to CMS as it develops policies for effectuating MFP in the Part B provider setting, which will be meaningfully different from the pharmacy and dispensing entity setting.
If you are interested in discussing MFP effectuation for the current cycle or future cycles, please contact the authors of this alert. Covington’s Health Care Practice Group includes several former CMS and HHS officials who advise 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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