Major U.S. Government Price Reporting Proposals Warrant Industry Comment

Earlier this week, the Centers for Medicare & Medicaid Services (CMS) released the calendar year 2026 Medicare Physician Fee Schedule Proposed Rule (PFS Proposed Rule). The PFS Proposed Rule includes proposals that could have substantial impact on pharmaceutical manufacturer government price reporting for Medicare Part B, including significant proposed revisions to the agency’s historic definition of “bona fide service fees” (BFSFs) for purposes of average sales price (ASP) calculations, new proposed requirements for manufacturers to submit additional documentation to CMS with ASP reports (including fair market value (FMV) analyses in support of BFSF exclusions), new proposals for certification requirements regarding pass-through fees, and additional proposed measures to implement the Medicare Inflation Rebate Program under the Inflation Reduction Act (IRA). There are also proposals of significant importance with respect to the 340B Drug Pricing Program, cell and gene therapy companies, and skin substitute manufacturers.

Some of these proposals, if finalized, could be vulnerable to legal challenge.

A summary of key price reporting provisions from the PFS Proposed Rule follows below. A forthcoming Sidley Update will provide a broader summary of both the PFS Proposed Rule and the calendar year 2026 Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Proposed Rule (OPPS-ASC Proposed Rule), which was released on July 15, 2025. Comments are due by September 12 for the PFS Proposed Rule and by September 15 for the OPPS-ASC Proposed Rule. Industry stakeholders should consider commenting on these material proposals, given potentially significant impact on government price reporting compliance and financial processes and methodologies.

Proposed Revisions to Average Sales Price Methodology

CMS proposes significant changes to the methodology for calculating ASP with respect to BFSFs and bundled price concessions, among other topics.

1. BFSFs

CMS proposes to depart from long-standing guidance and implement significant changes to the definition of the term “bona fide service fee.” BFSFs are excluded from the calculation of ASP, the metric generally used to determine reimbursement for drugs and biologicals reimbursed under Medicare Part B. Currently, manufacturers may exclude fees from the calculation of ASP where such fees meet a four-part test set forth in 42 C.F.R. § 414.802. CMS now proposes the following changes to BFSFs for purposes of calculating ASP:

1. Fair Market Value: CMS proposes to exercise more oversight over FMV as follows:
   1. Methodology: Significantly, CMS proposes to specify the methodology for FMV analyses:
      • For fees paid that do not vary directly with the amount of drug sold or price of a manufacturer’s drug, FMV “must be determined either based on comparable market transactions that generally reflect current market conditions or the cost of the service plus a reasonable markup to the total cost.”
      • For fees that vary directly with the amount of drug sold or price of a manufacturer’s drug, FMV “must be determined by using the cost of the service and adding a reasonable markup to the total cost. If any material portion of cost data is not available, manufacturers should follow a market-based approach based on verifiable market data until such time as sufficient cost data becomes available. The fair market value assessment must be conducted by an independent third-party valuator.”

CMS further proposes that fees that vary directly with the amount or price of a manufacturer’s drugs be “presumed to be price concessions deducted from the calculation of the manufacturer’s ASP unless such manufacturer determines such fees to be FMV using a cost-based approach which may be further validated with market-based data.”

2. Frequency: CMS proposes to require manufacturers to conduct FMV analyses at least as frequently as the renewal frequency of the underlying agreement (e.g., annually for annual renewals).

2. Pass-Through Certification: CMS proposes to require manufacturers to obtain a “certification or warranty” from any entities receiving BFSFs stating that such fees will not be passed on to an affiliate, client, or customer of such entity. CMS also reverses historic guidance by proposing that manufacturers may no longer “presume, in absence of any evidence or notice to the contrary, that a fee paid is not passed on to an affiliate, client, or customer of any entity.”
3. New Submission Requirements: CMS proposes that manufacturers be required by regulation to submit the following documentation to CMS on a quarterly basis: (i) the methodology used to determine FMV and periodic reviews of FMV; (ii) certifications or warranties from entities receiving BFSFs that such fees are not passed through; and (iii) any reasonable assumptions used in calculating ASP (CMS states such assumptions are currently "voluntary" for manufacturers to submit). These data submission proposals, if finalized, would be effective for sales occurring January 1, 2026, with data due to CMS by April 30, 2026 to be used in the July 2026 pricing file.
4. Non-BFSF Examples: CMS also provided a “non-exhaustive” list of fees that it states are not, or may not be, BFSFs:
   1. Payments by drug manufacturers to drug distributors, which lower the price that distributors and purchasing physicians pay, and specifically payments to cover credit card processing fees;
   2. Any payment by the manufacturer of certain cell and gene therapies to an entity for tissue procurement;
   3. Certain data sharing fees where the data is required for legal compliance and audit purposes under the applicable services agreement, as such fees may exceed FMV and not be bona fide; and
   4. Certain fees paid for distribution services that appear to exceed the FMV.

The foregoing proposals contain a number of ambiguities that should be closely evaluated by stakeholders. In addition, many of these proposals are not found in the plain language of the ASP statute and reflect a significant departure from historic BFSF guidance and (within a very limited time frame) would require substantial updates of existing government pricing compliance processes to substantiate FMV and potential updates to financial forecasting and financial processes.

2. Bundled Price Concessions

CMS generally proposes to align the ASP definition of “bundled arrangement” with the definition for such term used in the Medicaid Drug Rebate Program (MDRP), including by making the “unbundling” methodology for contingent and non-contingent discount arrangements consistent with CMS’s existing policies for calculation of average manufacturer price (AMP). There are some key areas of potential departure from the MDRP methodology, however.

Specifically, CMS is soliciting comments on the bundled price concession topics highlighted in a December 2022 OIG report addressing consistency in ASP calculations across manufacturers. The report identified two areas for additional guidance based on feedback from one manufacturer:

1. Outcomes- and Value-Based Arrangements. CMS states it is continuing to evaluate how these arrangements should be considered for drugs payable under Medicare Part B, and specifically seeks comments on how discounts associated with time bundles could be accounted for manufacturers’ ASP calculations. Given its continuing evaluation of this topic, CMS proposes not to adopt the portion of the MDRP definition of “bundled sales” addressing value-based purchasing arrangements
2. Covered and Non-Covered Bundles. CMS also requests feedback on methods for allocating discounts for bundled sales including both covered and non-covered products that would “more accurately represent ASP” than proportional allocation.

CMS also specifically requests comments on allocation methods for discounts that vary depending on the number and types of products in the bundle; multiple product bundles; arrangements involving “the inclusion of one or more products on a formulary”; and bundled arrangements involving variable costs per product (often a form of value-based purchasing agreement).

3. Skin Substitutes

Beginning January 1, 2026, CMS proposes to separately reimburse certain groups of skin substitute products as “incident-to supplies” when such products are used: (i) during a PFS-covered procedure in the non-facility setting; or (ii) during an OPPS- or ASC-covered procedure. The only exceptions to this proposal would be skin substitutes licensed under Section 351 of the Public Health Service Act ([which section addresses] traditional premarket review for biologics), which under the proposal would continue to be reimbursed separately using the ASP-based payment methodology under Section 1847A of the Social Security Act.

Importantly, CMS states that under this proposal, if it is finalized, manufacturers of skin substitutes that are not licensed under Section 351 of the Public Health Service Act “would no longer be required to report ASP data to CMS” for such products. However, CMS states that it does plan to use ASP data, when available, to update payment rates annually for its newly proposed skin substitute reimbursement categories under this proposal. When ASP is not available for a product, CMS proposes to use the hospital outpatient mean unit cost (MUC) data, and, if MUC is not available, CMS proposes to use the product’s Wholesale Acquisition Cost (WAC) or 89.6% of the Average Wholesale Price if WAC is also unavailable. CMS states that ASP data “may serve as a better estimate of resources across the hospital outpatient and non-facility settings than hospital outpatient (MUC) data.” CMS seeks comments on numerous aspects of this proposal, including (among several other topics) whether ASP data from the most recently available four calendar quarters (as opposed to the current proposal of using ASP data from the most recently available calendar quarter) should be used in annually updating the proposed reimbursement rates to discourage purported “gaming.”

These significant proposals for skin substitute payment methodology are part of a larger set of significant proposed changes to CMS’s payment methodology for skin substitutes that are addressed in detail in the PFS and OPPS-ASC Proposed Rules. CMS states that it seeks to create alignment across various settings of care by proposing to base payment for skin substitutes on products’ FDA approval pathway. In both of these proposed rules, CMS proposes to use a single payment rate for all three categories in CY 2026 but states that, in future years, it intends to propose payment rates that differentiate between the three FDA regulatory categories that it proposes.

Our upcoming Sidley Update on the PFS Proposed Rule and OPPS-ASC Proposed Rule will contain additional information regarding CMS’s proposals to make significant changes to the payment methodology for skin substitutes under the PFS, OPPS, and ASC payment systems.

4. Medicare Prescription Drug Inflation Rebate Program Implementation

CMS introduces several new policies in connection with the Medicare Prescription Drug Inflation Rebate Program, including proposals to:

1. Exclude from the total number of units for a Part D rebate-eligible drug those units for which a manufacturer provides a discount under the 340B program using a claims-based methodology, under which CMS expects to remove between 10% and 35% of the total number of units used to calculate rebates;
2. Develop a repository (proposed to be launched in fall 2026) to receive voluntary submissions from 340B-covered entities to help CMS identify 340B units at the claim level that should be excluded from Part D inflation rebate calculations, with the potential for mandatory reporting requirements in future rulemakings; and
3. Use the third full calendar quarter after a Part B inflation rebate-eligible drug is assigned a billing and payment code as the “payment amount benchmark quarter” for purposes of calculating Part B inflation rebates where data is not available from Q3 2021 or the third full calendar quarter after a drug’s first marketed date.