CMS Issues First Proposed Rule for the IRA Medicare Drug Price Negotiation Program

On June 12, 2026, the Centers for Medicare & Medicaid Services (“CMS”) issued the first proposed rule to implement the Inflation Reduction Act (“IRA”) Medicare Drug Price Negotiation Program (“the Program”). The proposed rule, entitled “Medicare Drug Price Negotiation Program and Medicare Prescription Drug Benefit Program” (“Proposed Rule”), is available here; CMS also published a Fact Sheet regarding the proposal.

The Proposed Rule is intended primarily to codify policies related to the Program previously included in guidance, while proposing several changes and soliciting comment on additional issues to inform further policy development. CMS’s continued implementation of the Program, including its proposed updates, could have meaningful implications for manufacturers navigating both direct participation in the Program and spillover effects in other sectors.

The IRA grants Medicare the authority to “negotiate” prescription drug prices for a specified number of “selected drugs” each year. The IRA authorizes CMS to implement the requirements of the Program “by program instruction or other forms of program guidance” for Initial Price Applicability Years (“IPAYs”) 2026, 2027, and 2028. Relying on that provision, CMS implemented the first three cycles of the Program through agency guidance, the most recent of which is discussed here. Now, as CMS prepares for IPAY 2029, the agency is undertaking notice-and-comment rulemaking for the first time under the Program. The Proposed Rule is the first step in this process. Once finalized, the Proposed Rule will govern the administration of the Program starting with IPAY 2029; for products selected for IPAYs 2026 through 2028, the prior guidance documents issued by CMS will control and are not superseded by rulemaking until 2029.

In general, the Proposed Rule codifies CMS’s prior Program guidance with a few notable changes, as outlined below, including with respect to certain fixed combination drugs. Public comments on the Proposed Rule are due 60 days after publication in the Federal Register. In parallel, CMS is proposing revisions to (1) the Negotiation Program Drug Selection revised information collection request (“ICR”) and (2) the Drug Price Negotiation revised ICR. Comments on the ICRs are also due within 60 days.

CMS published the Proposed Rule and ICRs in the context of broader changes in the drug pricing policy landscape, including most-favored-nation (“MFN”) drug pricing, price reporting requirements, the 340B drug pricing program, and efforts by states to regulate drug pricing. If you have any questions about how the Proposed Rule or broader trends in drug pricing policy may affect your company, please reach out to any of the authors of this alert.

Summary of Key Policy Developments

Selection of Drugs for Negotiation

• Aggregation Policy: Except for CMS’s proposed treatment of certain fixed combination products (see below), CMS proposes to retain the same aggregation approach for identifying qualifying single source drugs (“QSSDs”). Under this approach, CMS aggregates all dosage forms, strengths, and formulations belonging to the same application holder with the same active moiety (for drugs), active ingredient (for biologics), or antigen component (for biological products that are vaccines for infectious diseases). CMS asserts that “[d]efining a potential qualifying single source drug on the basis of a single [application], and thereby excluding from such potential [QSSD] drug dosage forms and strengths and new formulations of the drug or biological product approved or licensed under other [applications], would be inconsistent with” the statute.
• Publication of Shorter List of Top Negotiation-Eligible Drugs: In addition to the list of up to 20 selected drugs that CMS will publish each year, the agency is also proposing to publish “a list of the up to 30 top negotiation-eligible drugs (including the up to 20 selected drugs) ranked by combined total expenditures under Part B and Part D.” This proposal represents a change from IPAY 2028, where CMS published a list of the 50 top negotiation-eligible drugs. The agency justifies this change by explaining that the reduced list of negotiation-eligible drugs would “harmonize the request from interested parties for greater transparency into the process for selecting drugs with CMS operations.”
• Calculation of Total Expenditures: CMS is proposing to choose the selected drugs from among the negotiation-eligible drugs based on combined total expenditures under Part B and Part D. In prior guidance, CMS explained that, if the final products to be selected had the same total expenditures under Part B and Part D to the dollar, CMS would pick the product with the earliest-approved FDA application for the active moiety(ies), active ingredient(s), or active antigen component(s) belonging to the application holder. Here, CMS has instead proposed to evaluate spend down to the cent prior to using earliest FDA approval date as a selection tie breaker. CMS is proposing to implement the same change to the identification of negotiation-eligible drugs when two or more QSSDs have the same total expenditures under Part B or Part D.

Fixed Combination Drugs

• General Policy: Consistent with prior guidance, CMS generally will treat a fixed combination drug as having a distinct active moiety, active ingredient, or active antigen component for purposes of identifying QSSDs.
• Proposed Modification for Certain Fixed Combination Drugs: CMS is proposing a “narrow modification to the general fixed combination drug policy” that would result in the aggregation of products with different active moieties, active ingredients, or active antigen components if an application holder adds an additional active moiety, active ingredient, or active antigen component that “creates a new formulation and enables an alternative route of administration for the co-administered active moiety(ies), active ingredient(s), or antigen component(s).” CMS asserts the existence of “a program integrity risk” in which, under prior guidance, “a manufacturer may avoid selection” of a QSSD or, alternatively, “avoid application of” the maximum fair price (“MFP”) by marketing such a new formulation. CMS’s proposed approach to fixed combination drugs is distinct from that contemplated in the IPAY 2028 Draft Guidance, where CMS considered evaluating whether an active moiety, active ingredient, or antigen component was “biologically active against the disease state(s) for which the drug is indicated.” CMS contends that its proposal “would effectuate” (1) section 1192(d)(3)(B) of the Social Security Act (“SSA”), which directs CMS to “use data that is aggregated across dosage forms and strengths of the drug, including new formulations of the drug, such as an extended release formulation, and not based on the specific formulation or package size or package type of the drug”; and (2) section 1196(a)(2) of the SSA, which directs CMS to apply the MFP “across different strengths and dosage forms of a selected drug and not based on the specific formulation or package size or package type of such drug.”
• Application to Co-Packaged Products: CMS proposes that “the general fixed combination drug policy” will “continue to apply to co-packaged drugs.” In other words, “the distinct combination” of active moieties, active ingredients, or antigen components would be considered as one active moiety, active ingredient, or antigen component for purposes of identifying QSSDs “whether such drug was co-formulated or co-packaged.”

Orphan Drug Exclusion

• General Orphan Drug Exclusion Policy: Consistent with the One Big Beautiful Bill Act and the IPAY 2028 Final Guidance, to be considered for the orphan drug exclusion, the drug or biological product must: (1) be designated as a drug for one or more rare diseases or conditions; and (2) be approved by the U.S. Food and Drug Administration (“FDA”) only for one or more indications within such designated rare disease(s) or condition(s).
• Selection Clock for Products Formerly Subject to the Orphan Drug Exclusion: CMS confirms that it will begin the 7- or 11-year selection clock “from the first day after such initial date of approval or licensure that such drug or biological product does not, or did not, meet the criteria for the orphan drug exclusion.” This day will be either (1) the date on which FDA approves the product for a non-orphan indication even if that indication is later withdrawn or (2) the date on which an orphan-drug designation is withdrawn if the withdrawal “results in the drug or biological product no longer qualifying for the orphan drug exclusion.” 

Plasma-Derived Products

• Determining Whether a Product is Plasma-Derived: CMS proposes that, when determining whether a product is eligible for the plasma-derived product exclusion, it will “consider only whether the active moiety/active ingredient is derived from human whole blood or plasma.” 

Bona Fide Marketing of Generic and Biosimilar Drugs

• General Bona Fide Marketing Policy: Consistent with prior guidance, CMS proposes to adopt a “bona fide marketing “requirement to determine when a drug or biologic is subject to generic or biosimilar competition. Under this policy, CMS will determine that a generic or biosimilar product “is marketed,” such that the reference product is not a QSSD or should be disqualified or removed from the Program, only if there is “more than solely token or de minimis availability” of the generic or biosimilar product.
• Factors Used to Establish Bona Fide Marketing: CMS outlines specific factors the agency will consider in its “holistic” inquiry to evaluate the “Bona Fide Marketing” determination. Consistent with prior guidance, CMS proposes to consider data sources including prescription drug event (“PDE”) data, average manufacturer price (“AMP”) data, and average sales price (“ASP”) for the most recent 12-month period available. Under the Proposed Rule, CMS confirms the agency would also consider information from “any data source,” including but not limited to commercial databases. CMS further establishes that beyond these data, CMS will consider as a factor in the Bona Fide Marketing determination “[w]hether the generic drug or biosimilar is regularly and consistently available for purchase through the pharmaceutical supply chain” and whether there are volume restrictions in licensing agreements.
• Bona Fide Marketing Timing: CMS also offers additional detail on the timing of its Bona Fide Marketing determinations, including by providing for monthly in-cycle reviews.

Negotiation Process and MFP Calculations

• General Policies: CMS has broadly retained the same policies for the negotiation process as set forth under the IPAY 2028 Final Guidance, including the same patient engagement and negotiation meeting processes.
• Calculation of 30-Day Equivalent Supply for Single-Administration Products: CMS is proposing a new methodology for calculating the 30-day equivalent supply for products that are typically administered once in a patient’s lifetime (e.g., certain gene therapies, oncology products, or vaccines). For these products, CMS is proposing to set a 30-day equivalent supply of “12,” effectively treating the products as if they were administered once per year. CMS describes this policy as facilitating “the necessary calculations in a manner that reasonably and accurately reflects such drugs [sic] usage” but does not engage on potential distortive effects as compared to other Program features such as use of therapeutic alternatives with chronic administration.
• Window to Submit Suggestion of Error for Certain Calculations: CMS is proposing to shorten the length of time that a Primary Manufacturer has to submit a suggestion of error for certain calculations, including the ceiling amount, from 21 days, as outlined in prior guidance, to 10 days.

Compliance and Enforcement

• Requirements for Transferring a Selected Drug to an Acquiring Party: CMS is proposing additional requirements for Primary Manufacturers to transfer a selected drug to a third party. In the IPAY 2028 Final Guidance, CMS advised Primary Manufacturers that they would remain responsible for the requirements of the Negotiation Agreement until (1) all applications for the selected drug are transferred to the acquiring entity and (2) the acquiring entity assumes responsibility as the new Primary Manufacturer as evidenced by a novation to the original Negotiation Agreement. Previously, Primary Manufacturers were required to provide CMS at least 30 calendar days’ written notice before the effective date of any such transfer and novation. Now, CMS is proposing to require that Primary Manufacturers “provide CMS with documentation of the intended transfer of responsibility for all requirements of the Negotiation Program Agreement to the acquiring entity, in the form of a novation, at least 30 calendar days before the intended effective date of any such transfer, for CMS review and approval.” The Proposed Rule does not address what standards CMS would apply in reviewing such transfers.
• Monitoring and Enforcement of Compliance With Manufacturer Data Reporting Requirements: CMS is proposing to revise its approach to monitoring and enforcement of manufacturer data reporting. In prior guidance, CMS stated that it “will provide Primary Manufacturers with an opportunity for corrective action in the event a submission is incomplete or inaccurate.” Now, CMS is proposing to retain an opportunity for corrective action as an option but may also “not issue a request for corrective action and instead send a notice of violation to the Primary Manufacturer and impose a [civil monetary penalty (“CMP”)].”
• Future Rulemaking Regarding Certain CMPs: CMS states that it will codify its policies regarding the imposition of CMPs for manufacturers that fail to provide access to a price equal to or less than the MFP in IPAY 2029 and beyond through future rulemaking.

Renegotiation Process

• Data Submission Requirements for Renegotiation: For drugs selected for renegotiation, CMS is proposing that the Primary Manufacturer “submit the most recent agreed upon MFP as part of the data submission requirement.” CMS explains that “[s]ubmission of the MFP would be a new collection requirement within the existing data submission,” but that the “MFP is an important data point to consider as part of our consideration of ‘market data and revenue and sales volume data for the drug in the United States.’”
• New Indication Trigger for Renegotiation Eligibility: Consistent with the policy first adopted in the IPAY 2028 final guidance, CMS will only consider off-label uses that are voluntarily submitted by the Primary Manufacturer when determining whether the off-label use constitutes a “new indication” that would trigger renegotiation.

Other Noteworthy Provisions

• Policies Implementing the Temporary Floor for Small Biotech Drugs: CMS, for the first time, has proposed policies related to the temporary floor that applies for small biotech drugs for IPAYs 2029 and 2030. By statute, after IPAY 2028, small biotech drugs are no longer exempt from selection but are instead subject to a price floor equal to 66% of the non-federal average manufacturer price (“Non-FAMP”) for 2021 (or the first full year with available data), increased by the Consumer Price Index for All Urban Consumers. CMS proposes that a manufacturer must affirmatively apply for the temporary floor by submitting “information to allow CMS to determine whether its selected drug meets the requirements of a Small Biotech Drug.” The eligibility requirements for Small Biotech Drugs are the same as those outlined in prior guidance for the exception for small biotech drugs that applied for IPAYs 2026, 2027, and 2028. Since, by statute, CMS cannot agree to an offer that is below the temporary floor for small biotech drugs, the agency is also proposing a revised ceiling calculation for products for which the ceiling amount would be below the temporary floor.
• Future Guidance on MFP Effectuation for IPAY 2028 Selected Drugs: CMS does not address MFP effectuation in the Proposed Rule but indicates that it plans to “issue program guidance regarding MFP effectuation for 2028, including with respect to drugs payable under Part B” later this summer. CMS will codify the requirements for MFP effectuation for 2029 and beyond in future rulemaking.
• Corresponding Changes to Part D Regulations: In addition to the proposed regulations codifying the Program, CMS is also proposing to codify two updates to the Medicare Part D regulations to incorporate related requirements, specifically:
  • New provisions that would codify the requirement that Part D plan sponsors include each Part D drug that is a selected drug with an MFP in effect on Part D plan formularies except as permitted under the successor regulation (which permits a plan sponsor to replace the selected drug with certain new generic or interchangeable biological products if the sponsor meets the applicable notice and timing requirements); and
  • Revisions to the definition of “negotiated price” at 42 C.F.R. § 423.100 to codify the requirement in section 1860D-2(d)(1) of the SSA that the negotiated price for a covered Part D drug that is a selected drug during an IPAY must not exceed the MFP for such drug plus any applicable dispensing fee. 

The Proposed Rule in the Context of the Administration’s Drug Pricing Policy Efforts

The Medicare Drug Price Negotiation Program both operates within and directly intersects with broader drug pricing policies at the federal and state levels. In evaluating the Proposed Rule and ongoing implementation of the Program, manufacturers should be mindful of implications for the following drug pricing policies and programs:

• MFN (GLOBE/GUARD Models): Drugs with MFPs are excluded from the government’s proposed MFN-based pricing models in Medicare, namely, the Global Benchmark for Efficient (GLOBE) Drug Pricing Model and the Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model. This means that products with an MFP under the Program may avoid overlapping MFN price controls in the Medicare program.
• 340B Program: The imposition of an MFP triggers statutory non-duplication requirements with 340B discounts. Based on implementation experience to date, this creates operational challenges in preventing duplicate discounts or rebates for the same unit of a drug. In parallel, the Health Resources and Services Administration (“HRSA”) is developing a 340B rebate model applicable, initially, to products selected for IPAYs 2026 and 2027 that would facilitate deduplication of the 340B ceiling price and MFP. In a 30-day notice for a 340B Rebate Model ICR also issued on June 12, HRSA confirmed its plans to roll out a 340B rebate model for IPAY 2026 and 2027 selected drugs in a forthcoming Federal Register notice. In program guidance on MFP effectuation to be issued later this summer, CMS may provide additional details on deduplication of the 340B ceiling price and MFP including, as appropriate, any future 340B rebate model.
• Best Price in Medicaid Drug Rebate Program: MFPs are included in “best price,” which can increase Medicaid rebate obligations and link Medicare negotiation outcomes to Medicaid drug spending.
• ASP: Under the policy adopted in the Calendar Year 2026 Medicare Physician Fee Schedule Final Rule, units of selected drugs sold at the MFP are included in the manufacturer’s ASP. Additionally, for quarters in which Medicare payment is based on MFP, the Medicare Part B Drug Payment Limit File will display the MFP-based payment limit. In other words, there will no longer be a public ASP-based payment limit to inform payment in non-Medicare settings. It is not clear whether ASP data for selected drugs will otherwise be made available during such period; CMS has yet to publish the Calendar Year 2027 Physician Fee Schedule proposed rule, which may provide additional implementation details.
• State Drug Pricing Laws: States with Prescription Drug Affordability Boards (“PDABs”) are using or referencing MFPs as benchmark prices when setting upper payment limits, extending the Program’s pricing influence beyond Medicare. Additionally, this year, the Virginia legislature passed a law that would have pulled the federal MFP through to all drug sales in the state. Although the Governor vetoed the bill, Viriginia’s effort is the latest example of states attempting to leverage the MFP to lower drug prices.

Next Steps

Comments on the Proposed Rule are due by 5:00 p.m. on the date that is 60 days after the date of publication in the Federal Register. We expect CMS to publish the Final Rule this fall. We will continue to monitor CMS’s communications on this issue, as well as the effect of the IRA on broader drug pricing trends at the state and federal levels.

Covington’s IRA team includes advisors with direct experience with the Program, and we routinely advise manufacturers on all stages of the negotiation process, including litigation challenges to CMS’s implementation of the Program. 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.