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. While 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, particularly if the Centers for Medicare & Medicaid (CMS) proposes similar changes to Part D. 

Fair Market Value: A New Standard for BFSFs

One of the requirements for BFSFs is that they reflect fair market value (FMV). In the PFS Proposed Rule, CMS includes requirements for FMV assessments, with methodologies varying based on whether fees are tied to drug prices or sales volume (e.g., percentage of Wholesale Acquisition Cost):

• Fees not tied to drug prices or sales volume: FMV may be determined using either a market-based approach or a cost-plus methodology.
• Fees tied to drug price or sales volume: FMV must be determined using a cost-plus approach, unless material cost data is unavailable. In such cases, a market-based approach may be used temporarily.

FMV assessments must be conducted by an independent third-party valuator with no financial interest in the outcome and must be updated at least as frequently as the service agreement’s renewal. BFSF recipients should be prepared to support FMV assessments and may be asked to provide cost data or participate in third-party valuations.

Fees that vary based on drug price or volume—such as percentage-based fees—are presumed to be price concessions unless validated as FMV using the cost-plus approach. BFSF recipients should evaluate whether their current fee arrangements could be subject to this presumption and whether documentation is sufficient to rebut it.

Certification and Reporting Obligations

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. 

CMS Flags Non-Qualifying BFSFs

CMS also provides some specific, non-exhaustive examples of payments that do not qualify as BFSFs:

• Covering an Entity’s Credit Card Processing Fees. CMS references the DOJ’s April 2024 complaint against Regeneron for allegedly engaging in fraudulent drug price reporting by classifying payments to distributors to cover credit card processing payments as BFSFs instead of price concessions.
• Tissue Procurement. Noting that tissue procurement is an integral part of the manufacturing process, CMS states that fees for tissue procurement should be included in the price of the product and do not qualify as BFSFs.
• Data Sharing Services. CMS states a concern that fees paid for certain data sharing services about products frequently appear to exceed the FMV or are not for bona fide services because the data is required for legal compliance and audit purposes under the services agreement (e.g., data to validate that a rebate or discount is earned and not duplicative).
• Distribution Services. CMS expresses concern that fees paid for distribution services often exceed the FMV. According to CMS, manufacturers should assess distribution fees for FMV, and a certification or warranty should be provided by the entity distributing the product.

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.