Medicare 2026 Proposed Rules, Major Drug Pricing Updates, and What Stakeholders Need to Know

These rules set forth significant policy and payment changes that impact providers, drug manufacturers, and other stakeholders in the pharmaceutical supply chain. This alert summarizes the most significant drug pricing changes in the 2026 proposed rules and highlights key areas for stakeholder attention.

The PFS proposed rule can be found here, with the companion CMS fact sheet available here. Comments to the PFS proposed rule are due September 12.

The HOPPS proposed rule can be found here, with a high level summary in the CMS fact sheet available here. Comments to the HOPPS proposed rule are due September 15.

Physician Fee Schedule Proposed Rule

The 2026 PFS proposed rule introduces a range of changes to drug pricing methodologies and compliance requirements, particularly for manufacturers that report average sales price (ASP). The proposed rule also includes some changes and clarifications as to the billing and collection of inflation-based rebates on Medicare Part B and D utilization of certain drugs as required under the Inflation Reduction Act of 2022 (IRA).

Changes to Average Sales Price Calculation Methodology and Process

CMS is proposing several changes, including the following.

Including MFP Units in ASP

CMS proposes to clarify and codify the units of drug sold/paid at the maximum fair price (MFP) are included in the calculation of ASP. This is consistent with the treatment in Medicaid best price, as exclusions from ASP mirror those excluded from best price. For Medicare Part B drugs selected for negotiation, the MFP will replace ASP in the quarterly payment files. Consequently, there will be no ASP-based payment limit published for a drug while it is under an MFP.

Introducing a New ASP “Bundled Sale” Definition

The proposed PFS rule introduces a definition for ASP that closely mirrors the “bundled sale” definition related to the calculation of average manufacturer price and best price determination for the Medicaid Drug Rebate Program. See 42 C.F.R. § 447.502. A “bundled sale” would include any arrangement — regardless of packaging — where a rebate, discount, or price concession depends on purchasing certain drugs, products, or meeting performance requirements, or where the discount is greater than if items were bought separately. The proposal also requires that all discounts in a bundled arrangement, whether contingent or not, be proportionally allocated to all products in the bundle. Manufacturers will need to document their assumptions and methodologies for allocating discounts in bundled arrangements to ensure compliance and accuracy in reporting.

Revising Implementation of the BFSF Test and Documentation Requirements for ASP

A bona fide service fee (BFSF) is currently defined in the ASP regulation 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, 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 is proposing several changes to this definition for ASP purposes. CMS provides some context as to the calculation of fair market value. Specifically, CMS would require that the fair market value methodology used to determine the fee correspond to the type of fee arrangement. For fees that do not vary directly with the amount of drug sold or the drug’s price, fair market value must be based either on comparable market transactions that reflect current market conditions, or on the cost of the service plus a “reasonable markup.” For fees that do vary directly with the amount of drug sold or the price (i.e., percentage of list price, wholesale acquisition cost (WAC) or contract price), fair market value must be determined by calculating the cost of the service and adding a “reasonable markup,” unless sufficient cost data is unavailable. In that case, manufacturers should use a market-based approach with verifiable market data until enough cost data is available. Additionally, CMS proposes that an independent third-party valuator must perform assessments for these types of fees. CMS proposes that fair market value reassessments must occur at least as often as agreements are renewed, such as annually for annual renewals. It is unclear what the proposed reassessment time would be for evergreen agreements. Percentage-based fees and fixed fees designed to mimic percentage-based fees would be presumed to be price concessions and not BFSFs, unless they clearly meet the BFSF definition including fair market value based on cost up approach.

CMS also proposes reversing course on the long-standing presumption that, in the assumption of notice or knowledge to the contrary, a manufacturer can presume that a fee is not passed on to the entity’s clients or customers, regardless of whether the entity takes title to the drug. Now, CMS proposes to mandate that manufacturers secure a “certification or warranty” from all entities receiving BFSFs, affirming that these fees will not be passed on to any affiliate, client, or customer of the receiving entity. It is unclear what constitutes compliance with the “certification or warranty” requirement. For instance, would representation and warranty in a product purchase agreement suffice? How often should such “certification or warranty” be renewed?

Lastly, CMS categorically states that certain fees simply could never be deemed bona fide. These include reimbursement for credit card processing fees paid by manufacturers to distributors or other downstream customers, payments for tissue procurement for Chimeric Antigen Receptor T-cell and gene therapies, and data sharing fees required for legal compliance and audit purposes — such as administrative fees paid to pharmacy benefit managers for billing health plan product utilization for rebate collection purposes. CMS also states that distribution service fees above fair market value are excluded. CMS does not provide any additional commentary as what types of distribution service fees might be above fair market value.

Incorporating New Reasonable Assumption and Documentation Submission Requirements

Historically, manufacturers have been permitted but not required to submit reasonable assumptions in their ASP calculation methodologies to CMS. In the Proposed PFS Rule, CMS proposes to mandate the submission of manufacturer reasonable assumptions as part of the quarterly ASP data submission.

In addition to the quarterly submission of their reasonable assumptions supporting their ASP calculations, manufacturers would be required to submit two additional types of documentation. First, they must be required to include documentation of the methodology used to determine fair market value for BFSFs along with records of periodic reviews of fair market value. Second, they must provide “warranty or certification” letters from customers who have or may receive a BFSF to prove that the fee is not passed on, in whole or in part, to any affiliate, client, or customer, regardless of whether the entity takes title to the drug. Again, it is unclear the form such “warranty or certification” letters might take and how often such letters would need to be renewed.

Separate Reimbursement for Skin Substitutes

Starting January 1, 2026, CMS proposes to separately reimburse certain skin substitute products as “incident-to supplies” when used in PFS-covered procedures in non-facility settings or in HOPPS/Ambulatory Surgery Center-covered procedures. The exception to this rule would be skin substitutes licensed under Section 351 of the Public Health Service Act (i.e., biosimilars), which would continue to be reimbursed using the ASP-based methodology.

Importantly, this means manufacturers of skin substitutes not licensed under Section 361 of the Public Health Services Act or a 510(k) pre-market device clearance would no longer need to report ASP data to CMS. However, CMS encourages such manufacturers to continue reporting ASP, which states it will be used to set future reimbursement for skin substitutes.

For 2026, a single payment rate is proposed for skin substitutes sold under Section 361 of the Public Health Services Act or a 510(k) pre-market device clearance — $125.38 per square centimeter irrespective of the product’s type, manufactures, or unique features — with plans to differentiate rates in future years.

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

CMS is proposing several changes and clarifications.

• Part B Inflation Rebates: For new Medicare Part B drugs subject to the IRA inflation-based rebate, the benchmark quarter would 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. Practically speaking, for new single source drugs, (1) this will be after the drug is assigned a Healthcare Common Procedure Coding System (HCPCS) code (i.e., typically a J or Q code) given at the quarterly HCPCS committee review, and (2) a HCPCS code application can only be submitted after the drug is sold in the United States. CMS also clarifies that Drugs Covered as Additional Preventive Services qualify as Part B rebatable drugs for purposes of the IRA inflation-based rebates.
• Part D Inflation Rebates: Starting 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 Proposed PFS Rule, CMS suggests a methodology for estimating 340B units to use to avoid the duplication. CMS proposes using national provider identifiers and the designation of a pharmacy as a contract pharmacy in the Office of Pharmacy Affairs Information System to identify 340B purchases. It will crosswalk these identifiers to Medicare provider numbers. CMS is also proposing a 340B claim repository where covered entities can voluntarily submit claims data. CMS is not proposing to use this repository to scrub for 340B utilization initially.

Hospital Outpatient Prospective Payment System Proposed Rule

For 2026, CMS proposes to increase payment rates by 2.4%. The packaging threshold, used by CMS to determine if a covered outpatient drug will be paid for in an Ambulatory Payment Code or is separately reimbursable, is proposed to be $140 and $655 for diagnostic radiopharmaceuticals. Separately reimbursed drugs and biologics administered in the hospital outpatient setting reimbursement will remain at ASP +6% (4.3% after sequestration) or WAC +3% if there is not an established ASP.

Below are additional key proposals impacting pharmaceutical manufacturers.

Drug Acquisition Cost Survey

CMS proposes conducting a survey of the acquisition costs for each separately payable drug purchased by all hospitals reimbursed under HOPPS. With this survey, CMS aims to gather data that could influence Medicare reimbursement policies to hospitals that are 340B covered entities acquiring covered outpatient drugs at the 340B price. Recall that CMS previously paid reduced Medicare reimbursement for 340B-acquired drugs under HOPPS, but after lengthy litigation, the rule was invalidated, in part, because CMS had not conducted a survey of hospitals’ acquisition costs to support the decreased reimbursement. The proposed rule seems to be aimed at creating the survey to support potentially decreased Medicare reimbursement for 340B-acquired drugs in the future. This is also consistent with the executive order’s (EO) goal of aligning Medicare payments with actual acquisition costs. See the president’s EO from April 15.

According to the HOPPS proposed rule, the survey is expected to take place from late 2025 through early 2026. CMS is seeking comments on whether participation in the survey should be mandatory for all hospitals paid under the HOPPS.

Part B Drugs Without Medicaid NDRAs

Technically, the Medicaid Drug Rebate Program statute does state that for payment to be available under Medicare Part B for covered outpatient drugs of a manufacturer, the manufacturer must have entered into a Medicaid National Drug Rebate Agreement (NDRA). See 42 U.S.C. § 1396r-8(a)(1). However, CMS has never enforced this provision related to Medicare Part B covered and reimbursed drugs sold by manufacturers that did not have NDRAs. In the HOPPS proposed rule, CMS identifies 20 drugs which Medicare Part B will no longer reimburse beginning January 1, 2026, unless the manufacturers of such drugs execute NDRAs. The affected products will be marked with special codes (E1 for OPPS and B5 for ASC) to show that Medicare will not pay for them on outpatient claims without NDRAs. 

Conclusion

The 2026 proposed PFS and HOPPS rules reflect CMS’ continued focus on drug pricing transparency, compliance, and cost containment. Drug manufacturers and other participants in the pharmaceutical supply chain should take every opportunity to comment on these policy proposals and rulemakings during the comment period. Additionally, companies should consider carefully reviewing the proposed rules to identify all issues relevant to your organization. ArentFox Schiff attorneys are available to help you analyze the impact of these changes and ensure compliance with new requirements. Please contact us for assistance in preparing comments, or for further guidance on the implications of the 2026 proposed rules.

Additional research and writing by Jacquelyn Ellis, a 2025 summer associate in ArentFox Schiff’s Washington, DC, office and a law student at University of Maryland’s Francis King Carey School of Law.