CMS Issues 2026 Physician Fee Schedule Final Rule: Key Takeaways for Pharma

The PFS final rule sets forth significant policy and payment changes that impact “buy and bill” providers, drug manufacturers, and other stakeholders in the pharmaceutical supply chain. Among other changes, the rule revises the interpretation of the Bona Fide Service Fee (BFSF) test for calculating average sales price (ASP), clarifies and modifies the conditions for billing and collecting inflation-based rebates on Medicare Part B and D utilization of certain drugs as required under the Inflation Reduction Act of 2022 (IRA), and changes Medicare Part B reimbursement for skin substitutes in the physician’s office, effective in 2026.

Changes to ASP Calculation Methodology and Process

CMS has now finalized the following changes.

BFSF Pass-Through Certificates, Warranties, and Documentation Requirements for ASP

A BFSF is defined in the ASP regulations as fees paid by a manufacturer to an entity for a bona fide, itemized service that reflects fair market value. The service must be one the manufacturer would otherwise perform, or contract for, in the absence of the arrangement and the fee cannot be passed on to the entity’s clients or customers, regardless of whether the entity takes title to the drug.

CMS has now finalized its clarification of the pass-through prong of the four-part BFSFs test to require that manufacturers provide sufficient evidence in the form of a customer “certification or warranty” that the BFSF is not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug. Manufacturers are required to obtain such “certifications or warranties” from customers for any new customer contracts effective January 1, 2026. This documentation must be submitted to CMS with the manufacturer’s quarterly ASP data. As we noted while addressing the proposed rule, it remains unclear what specific documents may be accepted as a “certification or warranty” and how often such “certification or warranty” should be renewed. CMS is clear that manufacturers can no longer presume that fees are not passed through. Instead, manufacturers must obtain customer certifications or warranties confirming that fees are not passed through and submit them to CMS with their quarterly ASP submissions.

Furthermore, CMS has finalized the requirement that, effective January 1, 2026, reasonable assumptions for the calculation of the manufacturer’s ASP must be included as part of the quarterly ASP data submissions to CMS, including documentation of the methodology used to determine fair market value (FMV) for current, new, and renewed customer contracts with service fees. In the final rule, CMS noted that it will provide a template for manufacturers to use to document all ASP reasonable assumptions including FMV/FMV assumptions and the other BFSF assumptions.

CMS clarified that FMV documentation itself is not due quarterly. Instead, all FMV determinations for current contracts are due by April 30, 2026, with their submission of ASP for first quarter of sales in 2026. CMS noted that, if a service arrangement is newly signed or renewed between January 1, 2026, through March 31, 2026, the FMV determination data is also due by April 30, 2026. CMS additionally stated that it will accept “well-detailed summaries of FMV methodologies that clearly describe the data sources, assumptions, and rationale supporting the determination.”

CMS has elected NOT to finalize the changes discussed in the proposed rule related to: specifying the methodology for FMV analyses; presuming that percentage-based fees and fixed fees designed to mimic percentage-based fees are price concessions and not BFSFs (unless they clearly meet the BFSF definition, including fair market value determined on a cost-up approach); and adding the term “affiliates” to the list of entities to which a BFSF cannot be passed through.

Including MFP Units in ASP

In the final rule, in line with the proposed rule, CMS has clarified that units of drug sold/paid at the maximum fair price (MFP) are included in the calculation of ASP, effective January 1, 2026. As we noted previously, this is consistent with the treatment in Medicaid best price, as exclusions from ASP mirror those excluded from best price. CMS has further finalized that, for Medicare Part B drugs selected for negotiation, the MFP will replace ASP in the quarterly payment files. As previously explained, this means that there will be no ASP-based payment limit published for a drug while it is under an MFP.

Finalizing the New ASP “Bundled Arrangement” Definition

With the exception of excluding the terms “purchasing patterns” and “prior purchases,” CMS has finalized the proposed definition of “bundled arrangement.” The finalized definition is effective for sales occurring on or after January 1, 2026, which is reflected in the Medicare Part B Drug Payment Limit File beginning July 2026.

The new definition of “bundled arrangement” will be included in 42 C.F.R. § 414.802 as follows:

Bundled Arrangement means an 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 or 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.

As noted previously, this definition closely mirrors the “bundled sale” definition in 42 C.F.R. § 447.502, related to the calculation of average manufacturer price and best price determination for the Medicaid Drug Rebate Program.

Notably, CMS has also finalized additions to 42 C.F.R. § 414.804, which provide that all discounts in a bundled arrangement, whether contingent or not, be proportionally allocated to all products in the bundle. As we mentioned previously, manufacturers will need to document their assumptions and methodologies for allocating discounts in bundled arrangements to ensure compliance and accuracy in reporting.

Separate Reimbursement for Skin Substitutes

CMS has finalized that, effective January 1, 2026, it will pay for certain skin substitute products as incident-to supplies when they are used as part of a covered application procedure paid under the PFS in the non-facility setting or in Hospital Outpatient Prospective Payment System /Ambulatory Surgery Center-covered procedures.

This new reimbursement policy will apply to skin substitute products regulated by the US Food and Drug Administration as human cells, tissues, and cellular and tissue-based products (HCT/Ps) under Section 361 of the Public Health Service Act, or as medical devices requiring either 510(k) premarket clearance or a premarket approval application (PMA). In line with the proposed rule, this policy will not apply to skin substitutes licensed under Section 351 of the Public Health Service Act (i.e., biosimilars), which will continue to be reimbursed using the ASP-based methodology. As we explained while addressing the proposed rule, this means that manufacturers of skin substitutes not licensed under Section 361 of the Public Health Services Act or subject to a 510(k) clearance or a PMA will no longer need to report ASP data to CMS.

CMS additionally finalized the policy to calculate initial payment rates for covered skin substitute products using the volume-weighted average ASP for skin substitute products in each group as submitted by manufacturers, when available, and the geometric mean unit cost when ASP is not available. CMS further finalized its proposal to use hospital outpatient utilization patterns to set the payment rates for all three categories of skin substitutes, which it is finalizing to pay at a single rate for 2026. In the final rule, CMS noted that the practice expense and malpractice relative value units will result in an initial payment rate of approximately $127.28/cm² (prior to the application of the geographic adjustments) for PMA approvals, 510(k)s, and registered 361 HCT/Ps.

Changes and Clarifications as to the Billing and Collection of Inflation-Based Rebates on Medicare Utilization Under the IRA

CMS has finalized the following changes.

Part B Inflation Rebates

• For new Medicare Part B drugs subject to the IRA inflation-based rebate, the benchmark quarter will be the third full calendar quarter after a drug is assigned a billing and payment code or the third full calendar quarter after such drug’s first market date, whichever is later. If a published payment limit is not available, and as suggested in the proposed rule, CMS will calculate the benchmark quarter payment amount using positive ASP or positive wholesale acquisition cost data from the ASP Data Collection System.

• CMS additionally reiterated that it will identify Drugs Covered as Additional Preventive Services as Part B rebatable drugs for purposes of the IRA inflation-based rebates.

• Effective January 1, 2026, under the IRA, a manufacturer that has a drug with a negotiated MFP is not required to honor an MFP if the drug was originally sold at the 340B price. In the 2025 PFS final rule, to fulfill the statutory requirement to remove 340B units from rebate calculations beginning on that date, CMS amended 42 C.F.R. § 428.203 to (1) exclude from the total number of units determined under units for which a manufacturer provided a discount under the 340B Program and (2) determine the total number of 340B units by using data reflecting the total number of units of a Part D rebatable drug for which a discount was provided under the 340B Program and that were dispensed during the applicable period.

• Now, CMS has finalized its proposal to utilize a Prescriber-Pharmacy Methodology to determine the total number of units of a Part D rebatable drug which will be considered “340B units” and excluded when calculating a Part D inflation rebate. Under this methodology, 340B units will be removed from the Part D inflation rebate calculations by evaluating whether a Prescription Drug Event (PDE) record is potentially 340B-eligible based on (1) the affiliation of the National Provider Identifier of the prescriber associated with that PDE record with a registered covered entity and (2) the designation of the dispensing pharmacy associated with that PDE record as a 340B contract pharmacy.

• CMS additionally finalized its proposal to establish a Medicare Part D Claims Data 340B Repository where covered entities can voluntarily submit claims data to allow CMS to begin usability testing for the repository. In the final rule, CMS declined to provide a timeline under which it would move to a mandatory repository but reiterated that it was actively considering options for mandatory reporting to the 340B repository.

Part D Inflation Rebates

• Effective January 1, 2026, under the IRA, a manufacturer that has a drug with a negotiated MFP is not required to honor an MFP if the drug was originally sold at the 340B price. In the 2025 PFS final rule, to fulfill the statutory requirement to remove 340B units from rebate calculations beginning on that date, CMS amended 42 C.F.R. § 428.203 to (1) exclude from the total number of units determined under units for which a manufacturer provided a discount under the 340B Program and (2) determine the total number of 340B units by using data reflecting the total number of units of a Part D rebatable drug for which a discount was provided under the 340B Program and that were dispensed during the applicable period.

• Now, CMS has finalized its proposal to utilize a Prescriber-Pharmacy Methodology to determine the total number of units of a Part D rebatable drug which will be considered “340B units” and excluded when calculating a Part D inflation rebate. Under this methodology, 340B units will be removed from the Part D inflation rebate calculations by evaluating whether a Prescription Drug Event (PDE) record is potentially 340B-eligible based on (1) the affiliation of the National Provider Identifier of the prescriber associated with that PDE record with a registered covered entity and (2) the designation of the dispensing pharmacy associated with that PDE record as a 340B contract pharmacy.

• CMS additionally finalized its proposal to establish a Medicare Part D Claims Data 340B Repository where covered entities can voluntarily submit claims data to allow CMS to begin usability testing for the repository. In the final rule, CMS declined to provide a timeline under which it would move to a mandatory repository but reiterated that it was actively considering options for mandatory reporting to the 340B repository.

Conclusion

As noted, when we addressed the proposed rule, the 2026 final PFS rule reflects the continued focus by CMS on drug pricing transparency, compliance, and cost containment. ArentFox Schiff attorneys are available to help you analyze the impact of these changes and ensure compliance with new requirements. Please contact us for further guidance on the implications of the PFS final rule.