2026 Physician Fee Schedule Final Rule Changes to ASP Calculation and Reporting Policies and Other Drug Payment Policies

On October 31, 2025, the Centers for Medicare & Medicaid Services (CMS) issued the Calendar Year (CY) 2026 Medicare Physician Fee Schedule (PFS) final rule.  The final rule,¹90 Fed. Reg. 49266 (Nov. 5, 2025). which was published in the Federal Register on November 5, 2025, adopts several policies related to calculating and reporting to CMS average sales prices (ASP) for drugs covered under Medicare Part B.  It also finalizes other policies on payment and inflation rebates for drugs and biologicals.  We discuss the final policies, which are effective January 1, 2026, as well as those polices CMS chose not to finalize.   

1. Changes to ASP Calculation and Reporting Requirements

Manufacturers are required to calculate and report to CMS on a quarterly basis the ASP for its drugs that are covered under Medicare Part B. Manufacturers must deduct from their calculation of ASP any price concessions, such as volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirement, chargebacks, and rebates (other than rebates under the Medicaid Drug Rebate Program and the Medicare Prescription Drug Inflation Rebate Program) that are extended to ASP-eligible entities.  The proposals and final changes described below apply, by their terms, to ASP only.  They do not apply directly to Medicaid.  However, industry and CMS have historically valued calculation consistency across the ASP/AMP/BP calculations.  Readers should therefore be aware when their ASP and AMP/BP approaches differ, and be prepared to articulate in reasonable assumptions why that might be so.

1. Bona Fide Service Fees

Bona fide service fees (BFSFs) are not considered price concessions, and therefore, manufacturers are not required to deduct them when calculating ASP.

CMS defines BFSFs at 42 C.F.R. § 414.802 as fees paid by a manufacturer to an entity, that represent fair market value (FMV) for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement, and that are 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. 

1. Bona Fide Service Fees: Fair Market Value

Historically, CMS has not articulated a standard for determining or memorializing the FMV of BFSFs. 

1. Proposed rule: two methodologies for determining FMV of BFSFs, depending on the fee arrangement

In the CY 2026 PFS proposed rule, CMS proposed for the first time the methodology manufacturers would use to determine whether a BFSF “represents FMV:”

1. For fees that do not vary with the price or amount of drug sold, CMS proposed that FMV be determined using either comparable market conditions that generally reflect the current market conditions or the cost of the service plus a reasonable markup.²CMS, CY 2026 PFS proposed rule, 90 Fed Reg. 32352, 32543 (July 16, 2025).
2. For fees that do vary with the price of the drug or the amount of drug sold, CMS proposed that FMV be determined using the cost of the service and a reasonable markup, and not the market approach. For these fees, CMS proposed that the FMV assessment be conducted by an independent third-party valuator.³Id. at 32543-32544.

CMS also proposed that FMV analysis must be ongoing and updated no less frequently than whenever the service agreement is renewed, with documentation of the update included in the reasonable assumption documentation for the quarter in which the update occurred.⁴Id. at 32544.

b. Final rule: proposed FMV methodology not finalized

The agency was persuaded by commenters that “more information is needed to determine which parties may determine FMV and if there are circumstances in which an internal determination may be appropriate.”⁵90 Fed. Reg. 49538. The agency indicated it will engage with interested parties “to better understand current practices and challenges related to FMV methodologies, reassessments, and the use of third-party valuators.”⁶Id.

While CMS did not adopt its proposed methodology for determining the FMV of BFSFs, it did “encourage manufacturers to document in their reasonable assumptions which service fees are tied to costs that do not depend on the drug’s price or volume and which services do.  As we plan to engage with manufacturers, this information will aid in informing future policy development.”⁷Id.

ii. Bona Fide Service Fees: Pass-Through Prong

Service fees that are “passed on in whole or in part to a client or customer” of the service-providing entity are not BFSFs and must be deducted as price concessions when calculating ASP.  If a fee meets the other elements of the definition of a BFSF, CMS has allowed manufacturers to presume, in the absence of evidence or notice to the contrary, that the fee paid was not passed on to the client or customer of any entity. 

a. Proposed rule: manufacturers can no longer presume a fee is not passed on; fees must not be passed on to affiliates; and manufacturers must get certification from the fee-receiving entity that the fee was not passed on

CMS proposed that manufacturers could no longer presume, in the absence of evidence or notice to the contrary, that fees are not passed on to a client or customer of the fee recipient.⁸90 Fed. Reg. 32545.Manufacturers would be required to obtain from entities that receive BFSFs a certification that the fee is not passed on in whole or in part to a client or customer of the entity.⁹Id.  These certification letters would be submitted to CMS along with other documentation that CMS is now requiring manufacturers to submit.¹⁰Id.  CMS also proposed that, in addition to a client or customer, fees passed on to an affiliate of the service provider are not BFSFs.¹¹Id. at 32544.

b. Final rule: finalized as proposed, except affiliates are not added as fee-receiving entity types

CMS adopted all of its proposals except its proposal to include “affiliates” as types of entities to which the pass-through prohibition applies, noting commenters’ concerns that adding affiliates would be “overly broad, ambiguous, and unauthorized” and would “conflict with MDRP treatment of affiliates.”¹²90 Fed. Reg. 49537.  Additionally, the preamble to the Final Rule makes clear that the certification requirement only applies to “new” or “prospective” fee contracts.  The Final Rule does not define what distinguishes a “new” agreement from a “current” agreement (e.g., a renewal may be a “new” agreement, but what about an amendment?).  Manufacturers will have to adopt reasonable assumptions to tell one from the other to determine when certifications are necessary.

Manufacturers should begin to request from entities to which it pays BFSFs certifications that those fees are not passed on in whole or in part to the entities’ clients or customers.  We need not seek, obtain, or submit certifications from service providers whose fees we otherwise treat as price concessions.  The refusal of a service provider to provide a certification may have material Part B reimbursement implications, so we should try to gain clarity about this promptly.  Another consideration: if a service provider refuses to provide the certification for ASP, that refusal may constitute evidence or notice of pass-through, creating immediate AMP and Best Price impact. 

iii. Bona Fide Service Fees: Fees Presumed to Fail the Test

CMS has not established a list of fees that do not qualify as BFSFs in the past, indicating that the agency “wanted to avoid inadvertently limiting the scope of what could constitute a bona fide service.”

a. Proposed rule: non-exhaustive list of fees that are not BFSFs or that raise FMV concerns

CMS proposed that the following fees would automatically fail the BFSF test:

• drug distribution fees that are not FMV;
• credit card fees;
• data sharing fees that exceed FMV or where the data is required for legal compliance or audit purposes; and
• payments for tissue procurement for cell and gene therapies.¹³90 Fed. Reg. 32545.

b. Final rule: list of examples not finalized

CMS did not finalize the list of examples of fees presumed not to be BFSFs, explaining that they were “persuaded by some of the commenters’ concerns that providing examples of fees could have unintended implications.”¹⁴90 Fed. Reg. 49541.  Nevertheless, the proposed list of fees presumed not to be BFSFs gives manufacturers a glimpse into CMS’s thinking and could be instructive as manufacturers prepare their required reasonable assumption submissions.

b. Submission of Reasonable Assumptions and Pass-through Certification

CMS permits manufacturers to make “reasonable assumptions” in their calculations of ASP, which manufacturers could choose, but were not required, to submit to CMS along with their ASP data. 

i. Proposed rule: reasonable assumption submission, including FMV documentation, is mandatory; manufacturers required to submit a certification that fees were not passed through

CMS proposed that reasonable assumption submission would now be mandatory and would be required to include documentation of manufacturers’ FMV methodology.¹⁵90 Fed. Reg. 32541.  CMS also proposed that the reasonable assumptions should include a certification or warranty from the entity receiving the service fee that the fee was not passed on to “an affiliate,¹⁶While the preamble of the final rule suggests that a fee passed on to an “affiliate” would not pass the BFSF test, elsewhere in the final rule CMS stated that it was not finalizing its proposal to add affiliates to the types of entities to which fees cannot be passed through and qualify as BFSFs.  client, or customer of the recipient of the fee, whether or not the entity takes title to the drug.”¹⁷Id.

ii. Final rule: finalized as proposed

CMS finalized its policies as proposed.

• The preamble states that “FMV documentation is not due quarterly,”¹⁸90 Fed. Reg. 49540. which suggests this documentation would only be due annually. However, the amended regulation text at 42 C.F.R. § 414.804(a)(5) states that ASP, reasonable assumptions (including documentation of the FMV methodology), and certification letters must be submitted “within 30 days of the close of the quarter,”¹⁹Id. at 50009. suggesting FMV documentation and certification letters are due quarterly, not annually.
• Rather than require exhaustive documentation of FMV/BFSF determination, which we suspect would have swamped CMS, the Final Rule requires that we quarterly submit “well-detailed summaries” of our methodologies. You should work with counsel and the business to provide comprehensive summaries that will permit CMS to understand how your company operationalizes the exemption from ASP for BFSFs, conscious of the fact that CMS may use these summaries to initiate investigations (see below).
• CMS states that “FMV determinations for current contracts are due by April 30, 2026 with their submission of ASP for first quarter of sales in 2026. 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.”²⁰Id. at 49540.
• The preamble distinguishes the requirement to submit certification letters for “new”²¹Id. at 49542. or “prospective”²²Id. at 49541. contracts from those that are “current” or “renewed,” holding that manufacturers must submit letters for contracts in the former category only.
• The preamble also emphasizes that “documentation of the FMV methodology applies to current as well as new”²³Id. at 49542.

CMS will provide a template of the reasonable assumptions letter manufacturers should use to document their FMV analysis.²⁴Id. at 49540.  Manufacturers should begin the process of documenting their reasonable assumptions, which, as explained further below, must be submitted to CMS by April 30, 2026.  Companies should be aware that CMS will review reasonable assumptions carefully, including for potential referrals to law enforcement:

Reasonable assumptions will be used to review industry-wide issues for potential future policy development and, in certain instances, to make referrals to law enforcement partners. Manufacturers should not expect individual feedback from us on their reasonable assumptions submissions, nor should they interpret a lack of response from us as an approval of those submissions. If we determine that a manufacturer has misrepresented information in the reporting of its ASP, CMS may refer the issue to HHS's Office of Inspector General (OIG) to determine whether a civil monetary penalty should be imposed, in accordance with section 1847A(d)(4) of the Act.²⁵Id. at 49536.

c. Bundled Arrangements

Manufacturers often utilize “bundled arrangements,” under which price concessions are conditioned on a purchase or performance requirement.  Manufacturers are required to aggregate and allocate discounts in bundled arrangements to accurately reflect the price of each drug in the arrangement.  While the Medicaid program has defined the term “bundled sale” for purposes of calculating average manufacturer price (AMP) and best price, CMS has declined to adopt a formal definition in ASP.  In the proposed rule, CMS acknowledged that many manufacturers utilize portions of the Medicaid bundled sale definition to identify and allocate bundled arrangements in their ASP calculations. 

i. Proposed rule: define “bundled arrangement” for purposes of ASP calculation

For general consistency with the Medicaid definition of “bundled sale”, CMS proposed to define “bundled arrangement” at 42 C.F.R. § 414.802 as:

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, purchasing patterns, prior purchases), 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.”²⁶90 Fed. Reg. 32849.

CMS also proposed the following allocation rules, also consistent with the Medicaid bundled sale definition at 42 C.F.R. §447.502:

• Discounts in a bundled arrangement should be allocated proportionally to the dollar value of the units of all drugs or products in the bundle;²⁷Id. at 32542. and
• For bundled arrangements where multiple drugs are discounted, the aggregate value of all discounts must be proportionally allocated across all drugs and biologicals in the bundle.²⁸Id.

The proposed rule preamble claims that non-contingent discounts must be aggregated and allocated in Medicaid, and that to be consistent, the same should be true for ASP.²⁹Id. at 32542-32543.  This is not at all clear in Medicaid, and indeed most manufacturers, in our experience, do not reallocate non-contingent discounts in either Medicaid or Medicare Part B.  To do so, in our view, improperly distorts the reported pricing.³⁰For example, assume you offer a 10% discount on drug A, without any contingent purchase or performance requirement relating to drug B or otherwise.  Assume you then offered 5% more on drug A if the customer purchases 10 units of drug B.  The 10% is non-contingent, and the 5% is contingent.  Allocating the noncontingent 10% shifts price concessions to B from A, when for that price concession, there is no tie to B at all.   Nevertheless, in the name of “consistency” (itself a dubious proposition), the Final Rule proposed to require the reallocation of non-contingent discounts.   

ii. Final rule: finalizes bundled arrangement definition with “purchasing patterns” and “prior purchases” removed

• CMS adopted as final its proposed definition of the term “bundled arrangement,” except that it removed the triggers “purchasing patterns” and “prior purchases” in response to commenters’ concerns that these terms would create a misalignment with the MDRP definition of “bundled “sale.”³¹90 Fed. Reg. 49534.
• CMS was not persuaded by requests to delay the effective date of the policy change: the finalized definition of “bundled arrangement” is effective for sales occurring on or after January 1, 2026, which will be reflected in the ASPs reported by April 30, 2026 and the Medicare Part B Drug Payment Limit File beginning July 2026.³²Id. at 49535.

In response to comments opposing the reallocation of non-contingent discounts in bundled arrangements, CMS explained the sorts of arrangements it considers “bundled sales,” before stating that it was “finalizing as proposed to direct that discounts in a bundled sale, including those discounts resulting from a contingent arrangement, are allocated proportionally to the total dollar value of the units of all drugs or products sold under the bundled arrangement.”³³Id  Query whether this requirement could be accommodated by creating separate contracting vehicles—one for the non-contingent discount and a second for the contingent discount—thereby taking the non-contingent discount outside of the bundled arrangement (that is, not “in the bundled sale”).  This seems like more work than should be necessary to accurately reflect drug prices and incentives, but it may be what is required in a world with this ASP rule.

II. Inflation Reduction Act Policies

a. MFP Units in ASP: Clarification Finalized as Proposed

CMS “clarified” that units of selected Part B or Part D drugs sold to ASP-eligible purchasers at maximum fair price (MFP) are to be included in ASP, potentially dramatically lowering provider reimbursement for these drugs. MFP will be displayed in the ASP drug pricing file (which CMS will now refer to as the “Medicare Part B Drug Payment Limit File”) when the payment limit is based on MFP, effective January 1, 2026.³⁴Id. at 49543.

b. Part B Inflation Rebates: Proposals Finalized as Proposed

CMS adopted the following policies for the Part B inflation rebate program as proposed:

• Drugs covered as preventive services (DCAPS) are considered Part B rebatable drugs for which inflation rebates are owed.³⁵Id. at 49735-49736. In response to public comments concerned that DCAPS are included in the “preventive services” benefit category and not the “drug” benefit category for which ASP reporting is mandatory, CMS encouraged manufacturers to report ASP for DCAPS and noted that it will use wholesale acquisition cost (WAC) to calculate rebates when ASP data is not available.³⁶Id. at 49736.
• CMS will use the third full calendar quarter after the Part B rebatable drug is assigned a billing and payment code as the payment amount benchmark quarter if data needed to calculate the payment amount in the payment amount benchmark quarter as described in and determined under § 427.302(d)(1) are not available in the calendar quarter beginning July 1, 2021, or the third full calendar quarter after such drug's first marketed date, whichever is later.³⁷Id. at 49736 – 49737.
• If a published payment limit is not available for the applicable payment amount benchmark quarter, the payment amount will be calculated in the payment amount benchmark quarter using positive ASP or positive WAC data.³⁸Id. at 49737.
• If neither positive ASP nor positive WAC data are available for the given quarter, CMS will use WAC data from other public sources for the given quarter to calculate the payment amount in the payment amount benchmark quarter.³⁹Id.

c. Part D Inflation Rebates: Proposals Generally Finalized as Proposed

With minor modifications, CMS finalized the following proposals for the Part D inflation rebate program:

• Removing 340B Units: CMS will remove 340B units from the Part D inflation rebate calculations using a “Prescriber-Pharmacy Methodology,” whereby CMS will determine whether a Prescription Drug Event (PDE) record is potentially 340B-eligible based on (1) the affiliation of the National Provider Identifier (NPI) 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.⁴⁰Id. at 49742-49747. CMS will identify PDE records as potentially 340B-eligible based on two criteria: (1) the prescriber with the NPI listed on the PDE record provides care at a covered entity, and (2) the pharmacy NPI on the PDE record is a contract pharmacy for that same covered entity. CMS acknowledged that its approach would likely overestimate the number of 340B-eligible claims.⁴¹Id.

CMS rejected manufacturers’ requests to report errors in the number of 340B units reported using the Prescriber-Pharmacy Methodology, explaining that “the Suggestion of Error process will be limited to mathematical steps involved in determining the rebate amount, and the elements precluded from administrative or judicial review will not be considered in-scope for the Suggestion of Error process.”⁴²Id. at 49750. This strikes us as an unwarranted narrowing of the Suggestion of Error mechanism that will lead to manufacturers paying more in Part D inflation rebates than the statute permits.

• 340B Claims Repository: CMS will establish a repository for covered entities to voluntarily submit portions of Part D 340B claims to allow CMS to identify in a future applicable period units of Part D rebatable drugs for which manufacturers provided a 340B discount.⁴³Id. at 49755. Covered entities can begin submitting data on 340B units of Part D rebatable drugs in 2026, which will allow CMS to begin testing the usability of the repository. We will be pleasantly surprised if there is significant voluntary adoption of this reporting mechanism by covered entities.

III. Payment for Preparatory Procedures for Tissue Procurement Required for Manufacturing of Autologous Cell-Based Immunotherapy and Gene Therapy

a. Proposed rule: preparatory procedures included in payment for finished product and in ASP reporting

CMS proposed that, like CAR T-cell therapies, the preparatory procedures for tissue procurement required to manufacture other autologous cell-based immunotherapy or gene therapies (CGT) would be included in the payment for the products themselves.⁴⁴90 Fed. Reg. 32546. CMS also proposed that any manufacturer payment to an entity for tissue procurement would not be considered a BFSF and should be included in the calculation of ASP for the product.⁴⁵Id. at 32547.

b. Final rule: preparatory procedures included in payment for the finished CGT product but payments not required to be included in the ASP calculation

CMS finalized its proposal to include payment for preparatory procedures in payment for the finished CGT product⁴⁶90 Fed. Reg. 49595-49596. but was persuaded by commenters that payment for these procedures could be BFSFs, in which case they would be exempt from inclusion in ASP.⁴⁷Id. at 49546.

IV. Skin Substitutes

a. Proposed rule: non-BLA skin substitutes paid as incident-to supplies at $125.38cm²

Citing the significant growth in Medicare expenditures for skin substitutes in the non-facility setting, CMS proposed that for all skin substitutes other than those with a Biologics License Application (BLA) (skin substitutes with premarket approvals (PMAs), 510(k)-cleared skin substitutes, and Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/Ps)), would be paid as incident-to supplies when used as part of a covered application procedure and would be paid at a rate of $125.38cm², instead of ASP, under both the PFS and the hospital Outpatient Prospective Payment System.⁴⁸90 Fed. Reg. 32516.  BLA skin substitutes would continue to be paid at  ASP.⁴⁹Id.

b. Final rule: finalized as proposed with products not in sheet form considered skin substitutes that will be MAC priced

In addition to finalizing its skin substitute proposals as proposed, CMS adopted a final policy to consider products not in sheet form to be skin substitutes for which payment amounts will be set by Medicare Administrative Contractors.⁵⁰90 Fed. Reg. 49501.