Mintz IRA Update — Medicare Part B Physician Fee Schedule Guidance and Its Potential Implications for Medicare Part D

This article is part of the Mintz IRA Update – Fifth Edition. Explore the full series of IRA-related insights here.

As we discussed in a recently published post, the CY 2026 Physician Fee Schedule Proposed Rule (PFS Proposed Rule) introduces significant changes to how drug manufacturers must treat Bona Fide Service Fees (BFSFs) when calculating Average Sales Price (ASP) for Medicare Part B drugs. And although the rule is directed at manufacturers, it has important implications for plans, pharmacy benefit managers (PBMs), group purchasing organizations (GPOs), and other entities that receive BFSFs. We provide a high-level analysis of the PFS Proposed Rule below, given its material implications for Part B and — at Centers for Medicare and Medicaid Services’ (CMS) discretion — potential to similarly affect Part D.

Fair Market Value: A New Standard for BFSFs

The PFS Proposed Rule seeks to eliminate historical ambiguities regarding what is considered “fair market value” for BFSFs under current regulations and more clearly delineate what fees may (and may not) be considered BFSFs. Additionally, the PFS Proposed Rule seeks to shift previous CMS policy by repealing the well-established presumption that if a manufacturer has determined that a fee paid meets the other elements of the definition of a BFSF, then the manufacturer may presume, in the absence of any evidence or notice to the contrary, that the fee paid is not passed on to a client or customer of any entity.

Assessing FMV and Delineating Price Concessions from BFSFs

CMS includes three new requirements to assist in FMV assessments of BFSFs: (1) prescribing standards and methodologies for determining FMV based on whether fees are tied to drug prices or sales volume (e.g., percentage of Wholesale Acquisition Cost); (2) requiring manufacturers to reassess and update FMV determinations as frequently as the underlying service agreement’s renewal periods; and (3) requiring FMV assessments to be conducted by independent third-party valuators with no financial interest in the outcome of the determination.

The PFS Proposed Rule also establishes a presumption that fees paid by a manufacturer to an entity based on drug price or volume — such as percentage-based fees — will be presumed to be price concessions unless validated as FMV using the cost-plus approach.

Repealing the “Not Passed On” Presumption

Under the PFS Proposed Rule, CMS would require manufacturers to obtain certifications or warranties from BFSF recipients that confirm that the fees received are not passed on — either in whole or in part — to clients, customers, or affiliates. Manufacturers will have to submit these certifications or warranties as part of quarterly data submissions. In addition, manufacturers will have to submit documentation substantiating that the BFSFs are consistent with FMV and demonstrating the methodology used to reach that determination. This represents a shift from prior CMS policy, which currently allows manufacturers to presume BFSFs are not passed on without evidence to the contrary, and places new compliance expectations on BFSF recipients.

Implications for Part D and Direct and Indirect Reporting (DIR)

Although the PFS Proposed Rule applies only to Medicare Part B drugs, CMS could choose to extend similar requirements to Part D and DIR reporting due to the overlap between the programs in terms of the definition and requirements related to BFSFs. For these requirements to impact Part D, CMS would first need to finalize the PFS Proposed Rule, and CMS would need to propose and ultimately finalize a change to the Part D rules.

As noted above, the PFS Proposed Rule introduces substantial changes to how BFSFs must be evaluated, especially when fees are tied to drug prices, such as those paid to GPOs or for data services. If CMS adopts the PFS Proposed Rule and chooses in the future to adopt similar requirements for Part D DIR reporting, manufacturers and plans would need to use a cost-plus methodology to establish whether GPO and data fees are consistent with FMV, since such fees are generally based on the price of drugs. Additionally, manufacturers would be required to report quarterly on the assumptions and FMV determinations used in their pricing calculations.

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