We hear news about drug prices almost daily. One of the latest developments related to this topic is the Medicare Drug Price Negotiation Program, which is being established by the Centers for Medicare & Medicaid Services (CMS) for initial implementation in 2026 with the intent to reduce Medicare drug prices.
These reduced drug prices will only apply to Medicare Part B and Part D. While this sounds like a laudable goal, pharmacies are left to wonder, “How exactly is this going to work, and how will it impact me?”
To achieve this goal, CMS must:
- Define the high-expenditure, single-source drug and biological product selection process.
- Complete the drug and biologic selections.
- Commence and complete manufacturer negotiations.
- Publish the prices to enable the pharmaceutical supply chain to use the maximum fair price (MFP) for Medicare Part B and Part D.
The law established a ceiling price for selected drugs and biologics to mitigate the increasing unit costs. The negotiation phase is designed to attain reduced drug prices. There are also penalties, which will be excise taxes on sales of the drug and/or biologic, for a manufacturer not agreeing to a negotiated MFP within the period. These penalties will be based on sales volume and start at 65%, but increase to 95% of sales as a deterrent to not agreeing with CMS to an MFP.
CMS Publication of MFP
Once the MFP is determined between CMS and the manufacturer, it will be published for use by CMS. According to the current CMS guidance document, the MFP will be a single price, even for a selected drug with multiple dosage forms and strengths. A single price will be assigned at the active ingredient level, and this price will represent the cost of the selected drug per 30-day equivalent supply.
CMS knows that this price is not sufficient for use in the market and has detailed 10 steps to calculate the Maximum Fair Prices (MFP) for each dosage form and strength. The steps provide additional detail to spread the final negotiated single MFP value across the dosage forms and strengths; this is done by weighting both dispensed metric quantity and strength-specific WAC (wholesale acquisition cost) prices to spread the MFP systematically. Pharmacies likely will not be required to use or verify these calculations.
The weighting process could be quite simple if the strengths are all priced the same and have the same average daily dose, with an even utilization distribution among the strengths. Another point to highlight is that low-priced, low-volume dosage forms and strengths could become the low-priced option. The MFP will shrink the price for these products, and that can be beneficial to patients willing to take multiple doses to save additional funds. To help illustrate this concept, let’s review an example of a product with a low MFP for a single strength.
A fictitious brand is available in 100mg, 200mg, and 300mg tablets, where the 100mg is one-third the price of the 300mg and only 1% of the units dispensed lead to a small weighted portion of the negotiated MFP. If the single MFP value were $500 for a 30-day supply, the weighting could lead to a $5 MFP for the 100mg for a 30-day supply. If patients were willing to take three tablets to achieve the same dose as the single 300mg tablet, they would have a $15 monthly cost, compared to a higher copay for the 300mg tablet (such as $25 for a Tier 2 preferred brand).
Use of Maximum Fair Price (MFP)
CMS expects the drug compendia to publish MFP values. This will make for easy incorporation into pharmacy management systems and claims adjudication systems. The values will be available prior to the Jan. 1, 2026, effective date.
The law describes payment to the pharmacy as MFP plus “any dispensing fees for such drug” (this aligns with the transparency requirement). Unlike Medicaid, where NADAC (National Average Drug Acquisition Cost) was implemented and pharmacies were required to be paid professional dispensing fees, the MFP drugs lack this requirement.
Pharmacies must understand this impact and negotiate to ensure that appropriate funds are included for the dispensing of these high-cost (and potentially high-volume) drugs. As Medicare Part D pharmacy network contracts are negotiated for 2024, pharmacies should consider that there will be no ingredient profit margin for MFP drugs starting in 2026.
Patient payment will be based on MFP and the copay/coinsurance structure (e.g., 25% coinsurance) defined by the plan. Manufacturers are responsible for ensuring dispensers have access to the products at the MFP value. Pharmacy acquisition is the MFP; therefore, there is currently no opportunity for pharmacy profit on the ingredient cost with the proposed process.
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Operationalizing Access to the MFP
CMS has offered its proposed process modeled on the generic drug chargeback process. This initiates with a Medicare Part D plan identified via BIN (bank identification number) and PCN (processor control number) on a paid claim. The pharmacy dispenses the drug, and the patient pays the copay or coinsurance based on the MFP and dispensing fee. The pharmacy communicates the dispensing and request for chargeback to its wholesaler to reduce the acquisition cost of the drug to the MFP (within 14 days and without any billed fees for this service).
This function could be performed by a pharmacy management system. As it stands today, there is no current process for a pharmacy to submit a chargeback claim to its wholesaler after dispensing a drug to a patient. The industry will need to develop a process to handle the MFP requirement before 2026. After the pharmacy submits the chargeback, the wholesaler and manufacturer complete the MFP reconciliation chargeback (this process currently exists for generic drugs).
It is not too early for pharmacies to engage wholesalers to understand their plans to accommodate this new “transaction.” This will likely require a new software release from pharmacy management system vendors to accommodate the new MFP fields and any related transactions.
There is also the potential for a 340B-like process, with separate or virtual inventories for select Medicare drugs, not connected with those used for all other lines of business. The details and steps in this guidance review are subject to change pending comment review and CMS updates. Keep an eye out for additional updates later this year and in 2024.
Stakeholders will have to work together to determine the processes and validations needed to ensure timely compliance for 2026. Pharmacies must proactively engage CMS, federal legislators, and PBMs (pharmacy benefit managers) regarding reimbursement for products with an MFP value, and they should also understand and contribute to the process of acquiring the product at the MFP value. Pharmacy interactions with wholesalers and pharmacy management system vendors will be key to successful implementation. CT
Alan Sekula, Pharm.D., is a consultant pharmacist at Pharmacy Healthcare Solutions, LLC. He can be reached at asekula@phsirx.com.