2026 CMS Proposed Rule: BFSF Clarifications & Compliance Risks for Pharma Manufacturers

On July 16, 2025, CMS released the CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program (“2026 Proposed Rule”). An updated version was published on August 14, 2025.

For pharmaceutical manufacturers, the stakes could be high. Potentially beginning in 2026, failure to properly comply with CMS’s new requirements – particularly around Bona Fide Service Fees (BFSFs) – may result in significant operational strain, increased resource demands, and financial risk. And while this guidance is framed around ASP reporting within the Medicare program, historically impacts in one program are likely to carry over to other CMS programs, including the Medicaid Drug Rebate Program – potentially impacting any manufacturer with a Medicaid National Drug Rebate Agreement (NDRA). With the clock already ticking toward implementation, manufacturers must move quickly to understand what could be changing and prepare their compliance frameworks now.

Once the proposed rule is issued, CMS allows a 60-day public comment period before finalizing the rule — typically in November or early December — for implementation the following January.

The 2026 Proposed Rule is extensive, but for pharma manufacturers, one of the most notable developments is long-awaited guidance and clarification on Bona Fide Service Fees (BFSFs). Given the frequency with which BFSF questions arise in our client discussions, this update represents a critical development for pharma manufacturers to monitor closely.

Why This Matters

BFSFs have been a source of industry uncertainty for nearly two decades. CMS introduced the Four-Part Test in 2007 to help determine whether certain fees and rebates must be treated as price concessions in government pricing calculations. However, the test has left significant room for manufacturer interpretation.

In 2019, the OIG published a report highlighting BFSFs as an area “likely warranting additional CMS guidance,” with 53% of surveyed manufacturers requesting more clarity. While CMS has issued piecemeal clarifications over the years, the rules have still required significant reasonable assumptions.

CURRENT CMS BFSF DEFINITION

CMS currently defines BFSFs as fees paid by a manufacturer to an entity that:

1. Represent fair market value (FMV);
2. Are for a bona fide, itemized service performed on the manufacturer’s behalf;
3. Are for services the manufacturer would otherwise perform (or contract for) in the absence of the arrangement;
4. Are not passed on, in whole or in part, to a client or customer of the entity—whether or not the entity takes title to the drug.

Fees meeting all these criteria are excluded from Average Sales Price (ASP) and similar calculations, as they are considered legitimate service fees, not discounts.

2026 PROPOSED RULE – BFSF CLARIFICATIONS

1. Fair Market Value (FMV) Requirements

• Fees not tied to volume or price: FMV must be based on:
  • Comparable market transactions under current conditions, or
  • Cost of service + reasonable markup
• Fees tied to volume or price: FMV must be determined using a cost-plus-reasonable-markup approach, with valuation performed by an independent third party.
• Frequency: FMV analyses must occur at least as often as the service agreement renewal (e.g., annually)—a clear shift from CMS’s previous hands-off stance.

2. “Passed-On” Requirement

• CMS proposes to end the long-standing presumption that BFSFs are not passed through.
• Manufacturers must now obtain certification or warranty from service providers affirming that fees are not passed on to clients, customers, or affiliates—even if those entities never take title to the drug.

3. Documentation & Quarterly Submission
If the pending rule becomes law, (due April 30, 2026), manufacturers must provide:

• FMV methodology and periodic review documentation
• Certification from BFSF recipients that fees are not passed on
• Any reasonable assumptions used in ASP calculations

4. Examples of Non-Qualifying Fees
CMS’s non-exhaustive list of fees that may be considered price concessions rather than BFSFs includes:

• Reimbursement of credit card processing fees to distributors
• Tissue procurement fees
• Data fees exceeding FMV
• Distribution services fees beyond FMV levels

What Manufacturers Need to Know

Many of these new compliance requirements present significant operational, financial, and resource burdens for pharmaceutical manufacturers. Recognizing these challenges, CMS has proposed additional guidance in certain complex areas, such as situations where establishing fair market value (FMV) for services – particularly those with pricing tied to cost or volume – can be difficult.

Specifically, CMS proposes that if fees paid by a manufacturer to a third party vary directly with the amount or price of the manufacturer’s drugs (e.g., percentage-based fees, or flat/fixed fees structured to approximate percentage-based fees), such fees will be presumed to be price concessions and therefore must be deducted from the manufacturer’s ASP. The only exception would be when the manufacturer can substantiate FMV through a cost-based valuation, which may then be validated with market-based data.

While this guidance is written specifically for BFSFs in the context of ASP reporting within the Medicare program, we believe it is likely that CMS may extend this definition and framework to other government programs, including the Medicaid Drug Rebate Program—thereby potentially impacting any pharmaceutical manufacturer with a Medicaid National Drug Rebate Agreement (NDRA).

We believe that drug manufacturers aim to be accurate and compliant in all of the calculations they perform and believe that this guidance could help provide clarification on a long-debated topic. We’re anxiously awaiting the 2026 final rule to see what carries forward through rule and how it may impact not only ASP but if and how it could be applicable to other CMS programs.