On November 5, 2026, the Centers for Medicare & Medicaid Services (“CMS”) issued the final rule governing the Inflation Reduction Act’s (“IRA”) Medicare Drug Price Negotiation Program (the “Program”) for Initial Price Applicability Year (“IPAY”) 2029 and subsequent years (“Final Rule”). The Final Rule primarily codifies the agency’s prior IRA policies, with some notable exceptions including finalization of a new exception to its fixed combination drug policy and provisions for the small biotech “temporary floor.” The rule also includes a number of other more targeted Program changes. The Final Rule is available here; CMS also published an accompanying Fact Sheet.
As discussed in our client alert on the Proposed Rule, the IRA grants CMS the authority to set prescription drug prices in Medicare Parts B and D for a specified number of “selected drugs” each year. CMS relied on guidance to implement the Program’s requirements for the first three cycles and must implement those requirements through notice-and-comment rulemaking beginning with IPAY 2029.
The Final Rule establishes the regulations that will govern the IRA selection and “negotiation” processes for IPAY 2029 and subsequent years. For products selected for IPAYs 2026 through 2028, CMS’s prior guidance documents will continue to control until January 1, 2029, at which time they will become subject to the policies in the Final Rule. CMS has announced that it plans to separately issue guidance for maximum fair price (“MFP”) effectuation, and to engage in further rulemaking to codify its effectuation policies for IPAY 2029 and future years. CMS’s IRA policies have overlapping effects in other drug pricing areas, including most-favored nation (“MFN”) drug pricing, the 340B drug pricing program, and efforts by states and Congress to make changes to drug pricing. If you have any questions about how the Final Rule or broader trends in drug pricing policy may affect your company, please reach out to any of the authors of this alert.
In the Final Rule, CMS primarily codifies prior Program guidance and the policies in the Proposed Rule with a few notable changes, as outlined below. CMS has also finalized revisions to (1) the “Negotiation Program Drug Selection” information collection request (“ICR”) and (2) the “Drug Price Negotiation” ICR, and is expected to publish the final ICRs in the near future.
Fixed Combination Drugs
- General Policy for Fixed Combination Drugs: Consistent with prior guidance and the Proposed Rule, CMS generally will treat a fixed combination drug as having a distinct active moiety, active ingredient, or active antigen component for purposes of identifying qualifying single source drugs (“QSSDs”), and thus, such fixed combination products will be considered distinct QSSDs.
- Exception to Aggregate Certain Fixed Combination Drugs With Their Individual Components: The Final Rule includes an exception to the general policy described above, under which CMS will aggregate products with different active ingredients if the product includes an active ingredient that, according to CMS, “creates a new formulation and enables an alternative route of administration for the co-administered” active ingredients. CMS asserts that this exception will result in aggregation of fixed combinations of hyaluronidase and another active ingredient with drugs containing only that second active ingredient.
- Co-Packaged Products: CMS did not finalize any specific requirements with respect to co-packaged products. CMS explained that “at this time co-packaged drugs do not appear to pose substantive program integrity risks to the [Program] because manufacturers are not adopting co-packaging practices that undermine current program policies.” Therefore, co-packaged products will be considered separate QSSDs from their individual components. CMS stated that it may change its approach to co-packaged drugs in the future.
Bona Fide Marketing Standard:
- General Bona Fide Marketing Policy: CMS is finalizing its bona fide marketing standard as a “holistic inquiry based on the totality of the circumstances” at the time CMS evaluates a product. CMS will determine “whether a generic or biosimilar ‘is marketed’” based on “more than solely token or de minimis availability.”
- Factors Used to Establish Bona Fide Marketing: The Final Rule includes certain clarifications regarding the scope of CMS’s review of prescription drug event (“PDE”) data, average manufacturer price (“AMP”) data, and average sales price (“ASP”) for the purposes of determining bona fide marketing. CMS will review the most recent 12 months of PDE and AMP data, and the most recent four quarters of ASP data. Additionally, CMS clarified that it will more broadly consider “the most recent 12 months, 4 quarters, or 52 weeks of any data source, if available,” such as commercially available data sources and other “sales and utilization data” not otherwise captured.
- Bona Fide Marketing Review Timing: CMS is finalizing its proposal to conduct monthly reviews for bona fide marketing during the “negotiation period.” CMS further provides in the Final Rule that these monthly reviews can stop as of the date “CMS determines that a selected drug meets” the deselection criteria. CMS also is finalizing its proposed policy to review bona fide marketing biannually in March and October, starting in October of the calendar year after CMS and the manufacturer reach an agreement on the maximum fair price (“MFP”). As CMS has previously stated, once CMS determines that a selected drug is subject to bona fide generic or biosimilar marketing, CMS will continue to monitor whether the generic or biosimilar marketing continues to meet the “bona fide marketing” test.
Temporary Floor for Small Biotech Drugs:
- Policies Implementing the Temporary Floor for Small Biotech Drugs: CMS is finalizing 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.
- Adjusted Ceiling Methodology: In the Proposed Rule, CMS proposed a methodology to adjust the ceiling for drugs selected for “negotiation” or “renegotiation” where the ceiling is below the temporary floor under which CMS would exclude 2021 non-FAMP data from the ceiling calculation. In the Final Rule, CMS further refines its methodology for calculating an adjusted ceiling. Under the final methodology, if excluding 2021 non-FAMP data results in a ceiling that is still below the temporary floor, then CMS will exclude the average non-FAMP for the year before selection or, as applicable, the most recent year prior for which data is available. If the resulting adjusted ceiling is also below the temporary floor, CMS will raise the ceiling to equal the temporary floor.
Biosimilar Delay
- Eligibility for the Biosimilar Delay: The Final Rule makes minor modifications to the circumstances that may support clear and convincing evidence of a “high likelihood” that a biosimilar will be licensed and marketed within the required timeframe. In proposed 42 C.F.R. § 429.105(d)(2)(B), CMS stated that evidence of a biosimilar delay could be established where “[n]either a court nor [the Patent Trial and Appeal Board (PTAB)] has adversely ruled against the Biosimilar Manufacturer’s patent assertion(s)” and the manufacturer has “publicly announced a precise launch date for the Biosimilar” that falls before CMS’s “High Likelihood Deadline.” The Final Rule retains this approach but adds a requirement that the announced launch date not be “contingent on the outcome of pending litigation.” This requirement was discussed in the preamble to the Proposed Rule but was not included in the proposed regulatory text.
- Timing for Initial Delay Requests: CMS has announced that the deadline for submitting an Initial Delay Request for IPAY 2029 is December 10, 2026. CMS’s Fact Sheet confirms that biosimilar manufacturers that submit timely Initial Delay Requests will be able to provide updated information about the biosimilar’s licensure status in January 2027.
The Medicare Drug Price Negotiation Program directly intersects with broader drug pricing policies at the federal and state levels. In evaluating the Final 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 MFN-based pricing models in Medicare, namely, the Global Benchmark for Efficient (GLOBE) Drug Pricing Model and the proposed Guarding U.S. Medicare Against Rising Drug Costs (GUARD) Model. Thus, products with an MFP under the Program may avoid overlapping MFN price controls in the Medicare program. On September 30, 2026, CMS issued a final rule establishing the GLOBE Model, which requires MFN-based rebates in Medicare Part B (as discussed in our client alert). The GUARD Model has not been finalized.
- 340B Program: The imposition of an MFP triggers statutory non-duplication requirements with 340B discounts. The Health Resources and Services Administration (“HRSA”) has reissued a 340B rebate model (discussed in our client alert) applicable, initially, to products selected for IPAYs 2026 and 2027 that would facilitate deduplication of the 340B ceiling price and MFP.
- Best Price: MFPs are included in the Medicaid Drug Rebate Program calculation of “best price,” which can increase Medicaid rebate obligations and pull through the Medicare MFP to Medicaid drug spending. A new Medicaid Best Price would also spill over into the 340B drug pricing program, setting a new 340B ceiling price for covered entities.
- 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.
- State Drug Pricing Laws: States with Prescription Drug Affordability Boards (“PDABs”) are using or incorporating MFPs as benchmark prices when setting upper payment limits, thereby extending the IRA Program’s pricing influence beyond Medicare. Additionally, in May, 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 one of the latest examples of states attempting to leverage the MFP to lower drug prices. On June 29, 2026, the National Academy for State Health Policy released revised model legislation, which would enable state commercial plans to use MFPs as an upper payment limit. Although Maryland has already implemented legislation allowing its PDAB to rely on CMS’s MFPs in setting upper payment limits, the state is reportedly interested in adopting MFPs directly.
- New Congress: Congressional Democrats have begun to publicly discuss legislation to amend the IRA to expand the scope of Program and application of the policies in the Final Rule. Policies under consideration include shortening the period of time after drug approval in which a drug may be selected for the Program, applying MFPs to the commercial market, or including MFN prices in the statutory factors used in the “negotiation” process.
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 ICR submissions, preparing for and conducting meetings with CMS, as well as 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.
Back
