Inflation Reduction Act: CMS Publishes Final Guidance for Initial Price Applicability Year 2028

On September 30, 2025, the Centers for Medicare & Medicaid Services (CMS) released final guidance for implementing the Medicare Drug Price Negotiation Program (MDPNP) for the Initial Price Applicability Year (IPAY) 2028 (Final Guidance), which will include up to 15 additional drugs, including, for the first time, Medicare Part B drugs. The Final Guidance outlines CMS policies for the third round of the MDPNP and includes certain updates from, and responses to public comments on, the draft guidance that CMS published earlier this year, as discussed here. CMS implements several anticipated changes but leaves certain questions unanswered. Notably, in the Final Guidance, CMS:

• largely defers to future guidance details regarding how to effectuate the Maximum Fair Price (MFP) for Part B drugs;
• declines to adopt its previously proposed policy change for fixed combination drugs;
• provides clarity on its treatment of vaccines under the MDPNP and on its methodology for determining a drug’s eligibility for renegotiation;
• revises its methodology for calculating total expenditures of Part B drugs by incorporating Medicare Advantage (MA) data;
• implements changes to align the orphan drug exclusion with recent statutory amendments under the One Big Beautiful Bill Act (OBBBA) (Pub. L. 119-21).

An overview of these and other aspects of the Final Guidance follows.

Fixed Combination Products

In response to stakeholder feedback, the Final Guidance states that CMS will not finalize its proposal from the Draft Guidance to aggregate “fixed combination drug products with drug products that contain at least one but not all of the active moiety(ies) / ingredient(s) of that fixed combination product.” Stakeholder comments included, for example, concerns that the proposal exceeded the agency’s statutory authority, conflicted with the Food and Drug Administration (FDA) regulatory framework for fixed combination drugs, relied on undefined criteria outside of CMS’s clinical expertise, and could hinder innovation and patient access. Acknowledging the “complexity and scope of this issue,” CMS states that for IPAY 2028 it “will maintain its approach to fixed combination drugs”—“which states that if a drug is a fixed combination drug [as defined in 21 C.F.R. § 300.50] with two or more active moieties / active ingredients, the distinct combination of active moieties / active ingredients will be considered as one active moiety / active ingredient for the purpose of identifying potentially qualifying single source drugs.”

CMS further states that “[a] product containing only one (but not all) of the active moieties / active ingredients that is offered by the same [New Drug Application / Biologics License Application (BLA)] holder will not be aggregated with the formulations of the fixed combination drug and will be considered a separate potential qualifying single source drug.”

Nevertheless, CMS states that “the current fixed combination drug policy could create a gaming opportunity” for manufacturers. CMS describes this issue as a “program integrity risk” that it “intends to address,” adding that it “is continuing to consider the appropriate policy to implement in rulemaking beginning in [IPAY] 2029.”

Additionally, in response to a comment requesting clarification on the distinction between co-formulated drugs and co-packaged drugs, CMS states that for purposes of IPAY 2028, “if a drug (including a co-packaged drug) contains two or more active moieties / active ingredients, the distinct combination of active moieties / active ingredients will be considered as one active moiety / active ingredient for the purpose of identifying potential qualifying single source drugs, whether such drug is co-formulated or co-packaged.” CMS reiterates, though, that it “intends to address fixed combination drugs in rulemaking beginning in initial price applicability year 2029” and states that it also “may address co-packaged drugs at that time.”

Stakeholders with fixed combination and co-packaged drugs should closely monitor future rulemaking and guidance from CMS.

Renegotiation of Selected Drugs

For IPAY 2028, the Final Guidance describes CMS’s approach for renegotiating the MFP of certain previously selected drugs negotiated for IPAY 2026 or 2027. The Final Guidance closely tracks the Draft Guidance but also includes notable updates related to CMS’s data collection and assessment of what constitutes a “material change” for purposes of determining whether a drug is eligible for renegotiation. 

A “renegotiation-eligible drug” is defined by Section 1194(f)(2) of the Inflation Reduction Act (IRA) as a selected drug that has a new FDA indication, a “material change” to a negotiation factor (i.e., Section 1194(e)(1) or (e)(2) factors), or a change in monopoly status. In the Final Guidance, CMS states that it “simplified the description of the criteria for what constitutes a material change(s) to a section 1194(e) factor” in order “to provide additional clarity.” CMS indicates that it is making these updates in response to stakeholder comments requesting greater clarity, predictability, and transparency in how CMS will assess material changes to a Section 1194(e) factor.

Whereas the Draft Guidance described a material change in terms of “impact” on CMS’s holistic consideration of (e)(1) and (e)(2) factors collectively, the Final Guidance indicates that CMS will consider a change to be material if the change “would reasonably be expected to meaningfully alter” CMS’s consideration of that factor in the context of the current renegotiation as compared with its evaluation in the context of the prior negotiation. As compared with the Draft Guidance, the Final Guidance also makes updates to the table providing illustrative example scenarios of changes that potentially could result in a material change determination (e.g., data showing increased clinical value, therapeutic alternatives becoming generic).

The Final Guidance also addresses the reporting period for data collection and assessment to determine whether there has been a “material change” to a Section 1194(e) factor. For (e)(1) factors, CMS will collect information from the last date for which the Primary Manufacturer reported data in the original negotiation through September 30, 2025. For (e)(2) factors, CMS will collect information from the date of the initial agreed-on MFP through November 30, 2025.

Orphan Drug Exclusion

In the Final Guidance, CMS revises the orphan drug exclusion to align with recent statutory amendments enacted earlier this year through the OBBBA. The OBBBA expanded the scope of the orphan drug exclusion (which previously applied only to drugs and biologics with a single orphan indication) to apply more broadly to certain drugs and biologics with multiple rare disease indications. Consistent with the OBBBA’s text, CMS exempts from MDPNP selection products with more than one orphan designation and more than one approved indication, so long as each approved indication is for a rare disease or condition (as discussed here). These changes will apply to IPAY 2028 and subsequent years.

Under these revisions, CMS “will exclude certain orphan drugs when identifying qualifying single source drugs” if the product “is designated as a drug for one or more rare diseases or conditions under section 526 of the FD&C [Federal Food, Drug, and Cosmetic] Act and for which the only approved indication (or indications) is for one or more such rare diseases or conditions.”

In addition, consistent with Section 71203(a)(3) of the OBBBA, CMS clarifies that, for a drug that loses orphan drug exclusion status, the MDPNP eligibility period will begin only when the product is approved for a nonorphan indication. CMS will measure the 7- and 11-year eligibility periods starting from “the earlier of (1) the date on which the FDA approves such drug or biological product for an indication for a disease or condition that is not a rare disease or condition for which the drug or biological product is designated under section 526 of the FD&C Act; or (2) the date on which an orphan drug designation is withdrawn, if that withdrawal results in the drug or biological product no longer qualifying for the Orphan Drug Exclusion.”

Additional Topics

Additional key topics addressed in the Final Guidance include the following:

• MA Data in Part B Drug Expenditures: The Final Guidance expands CMS’s proposal to calculate Part B drug total expenditures by including MA encounter data, in addition to Medicare Fee-for-Service (FFS) Part B claims data. CMS states that “[m]any commenters suggested that CMS should account for expenditures on drugs payable under Part B and administered to MA enrollees when identifying Part B high spend drugs.” CMS states that these commenters noted that “because over half of Medicare enrollees are enrolled in MA plans, and overall use of prescription drugs is similar amongst [FFS] and MA enrollees, CMS would exclude roughly half of total spending on drugs payable under Medicare Part B by only using Part B claims data.” Commenters expressed concerns that this would “skew the negotiation-eligible drug list toward drugs covered under Part D and away from drugs payable under Part B.” 
  
  In response, CMS states it will calculate Part B total expenditures “using a combination of total allowed charges from FFS Part B claims data (inclusive of beneficiary coinsurance and Medicare payment)” and, because MA data do not include the actual amount paid by MA plan sponsors, “a comparable amount calculated using MA encounter data for Part B items and services, which will reflect the amount that would have been applicable under FFS.” To estimate these amounts, CMS states that it will adjust MA encounter unit data using Medically Unlikely Edits to ensure consistency with how these edits are applied to FFS claims, then multiply the adjusted units by the relevant payment rate (e.g., Outpatient Prospective Payment System, Ambulatory Surgical Center) or limit (e.g., Average Sales Price (ASP)). For both FFS and MA data, CMS states that it will exclude claims “typically only payable as part of a bundled payment.”
• Identification and Selection of Negotiation Eligible Part B Drugs: In the Final Guidance, CMS finalizes its proposed methodology for identifying negotiation-eligible Part B drugs. CMS states that it will calculate each Part B qualifying single-source drug’s total Part B expenditures, as described above, and allocate spending among products sharing a Healthcare Common Procedure Coding System (HCPCS) code using ASP volume data. For drugs sharing a HCPCS code, CMS states that it will apply ASP sales-volume ratios. CMS will then exclude products qualifying for the small biotech exception (SBE) or previously selected for negotiation (IPAY 2026 or 2027) and rank the remaining single-source drugs by total Part B expenditures to identify the top 50 high-spend Part B drugs. CMS states that it will then combine and rank all negotiation-eligible Part B and D drugs by total expenditures “under both Part B and Part D in descending order,” ensuring that drugs eligible under both parts appear only once. From this list, CMS will select a combined total of 15, or all if such number is less than 15, highest-spend Part B and Part D drugs for the IPAY 2028 negotiation cycle.
• Vaccines for Infectious Diseases: The Final Guidance states that, for vaccines for infectious diseases, CMS will identify a potential vaccine as a qualifying single-source drug by antigen component(s) (across dosage forms/strengths and even across different BLAs from the same holder). Moreover, to determine the eligibility timeline, CMS states that it will use the earliest licensure date of any BLA or supplemental BLA for that unique potentially qualifying single-source drug.
• Biosimilar Delay Request: The Draft Guidance proposed updates for requesting a biosimilar delay, a process that allows a biosimilar manufacturer to request and receive delayed selection of a reference product for negotiation when certain statutory requirements are met, including that the biosimilar manufacturer must not be the same as the reference manufacturer and that there is a high likelihood that a biosimilar will be licensed and marketed before the applicable deadline (referred to as the “High Likelihood Deadline”). In the Final Guidance, CMS revised the requirements for a high likelihood determination by providing the following additional ways that a biosimilar manufacturer could demonstrate that reference drug patents are unlikely to prevent biosimilar marketing before the High Likelihood Deadline: Neither a court nor the Patent Trial and Appeal Board (PTAB) has ruled adversely against the biosimilar manufacturer’s legal patent assertions, and the manufacturer has specified a noncontingent launch date before the deadline.
  
  The Draft Guidance also stated that, in order to meet the “high likelihood” threshold, the biosimilar manufacturer must demonstrate “clear and convincing evidence” that it has made significant progress toward licensure and marketing since the initial request such that it would be marketed before the High Likelihood Deadline. The Final Guidance adds three examples to illustrate what might constitute “clear and convincing evidence”: (1) the Form 10-K listing of a signed legal agreement between the biosimilar manufacturer and reference drug manufacturer; (2) absence of any adverse actions from a court or PTAB in a Form 10-K pertaining to relevant patents and a specified launch date before the High Likelihood Deadline; and (3) information in the biosimilar manufacturer’s Form 10-K showing the biosimilar manufacturer’s operational readiness (e.g., steps to market or produce the biosimilar).
• Generic/Biosimilar “Bona Fide Marketing”: Consistent with prior IPAY guidance, the Draft Guidance stated that CMS would review prescription drug event (PDE) data and average manufacturer price (AMP) data to determine whether a generic drug or biosimilar is marketed on a bona fide basis and that such evaluation would be “a holistic inquiry based on the totality of the circumstances.” The Draft Guidance solicited comments on additional data sources that may provide timely utilization for these drugs. In the Final Guidance, CMS states that in addition to PDE and AMP data for utilization, it will also review ASP data. As with the Draft Guidance, the Final Guidance reiterates that CMS will also consider additional data sources to review utilization, such as Medicaid State Drug Utilization Data and data from nationally representative and commercially available databases.
• Small Biotech Exception: The SBE excludes certain small biotech drugs from the MDPNP if they meet specific criteria. Beginning in IPAY 2028, the SBE will also apply to Part B drugs. As proposed, CMS will evaluate whether a qualifying single-source drug meets the SBE based on total expenditures under Part B or Part D, making separate determinations for each.

On the same date as its release of the IPAY 2028 Final Guidance, CMS also published an Information Collection Request (ICR) for IPAY 2028 in the Federal Register, seeking feedback on proposed submission forms for manufacturers seeking the small biotech exception, biosimilar delay, or the identification and selection of drugs eligible for renegotiation. Comments on the ICR are due by October 30, 2025.

Questions Unanswered by the Final Guidance

Despite addressing a number of changes and updates under the MDPNP, the Final Guidance is silent on the following key issues:

• Notably, although IPAY 2028 will include Medicare Part B drugs for the first time, the Final Guidance largely defers providing any details regarding how to effectuate the MFP for Part B drugs for future guidance.
• In addition, while the Draft Guidance was published earlier this year on the heels of President Donald Trump’s most-favored-nation drug pricing executive order (discussed here), the Final Guidance does not take a position on how CMS may consider international pricing in establishing MFPs under the MDPNP, with CMS stating that “comments related to the Executive Order on Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients are outside the scope of this guidance.”

Stakeholders should closely monitor future rulemaking from CMS for further guidance on these issues.