Over the next few months, as the January 1, 2026, kick off date approaches, pharmacies across the nation are likely to receive proposed Provider Agreement amendments from Pharmacy Benefit Managers (PBMs). These agreements will seek to alter the terms of reimbursement for certain drugs that have been made subject to the Maximum Fair Price (MFP) regime established by the Inflation Reduction Act (IRA) of 2022. The IRA authorized HHS to negotiate an MFP for certain high-spend single-source drugs and biologics reimbursable under Medicare Parts B and D.[1]
Although the purpose of the drug price negotiation is to achieve an overall reduction in Medicare drug spend, pharmacies must remain vigilant as the drug price negotiation program fundamentally shifts pharmacy reimbursement dynamics, altering cash flow patterns for pharmacies for some of the most utilized brand drugs. While Medicare patients benefit from lower out-of-pocket costs, pharmacies may find that their margins have evaporated, administrative burdens have grown, and operational liquidity impacted by delayed rebates or manufacturer reimbursements.
A Brief Overview of the Medicare Drug Price Negotiation Program
The Act’s Medicare Drug Price Negotiation Program (MDPNP) was introduced in 2022 with the stated purpose of reducing Medicare prescription drug costs for beneficiaries and the Medicare program. For the first time in the history of Medicare, the MDNPN granted authority to Medicare to directly negotiate prescription drug costs with pharmaceutical manufacturers for a limited cohort of high-cost high-utilization drugs covered under Medicare Part D (outpatient drugs) and, subsequently, Medicare Part B (physician administered drugs) and biologics. Negotiations for the initial tranche of ten drugs are completed and the MFP will take effect as noted above on January 1, 2026[2]. CMS has already announced that an additional fifteen drugs will be subject to negotiation in 2027[3], and the number of drugs impacted by the MDPNP will expand over the next few years.
The goals and impact of the MDPNP will vary widely across the U.S. drug ecosystem. For manufacturers, there may be a reduction in profit-margins on the selected drugs, and subsequently pressure on the resources available for drug research and development (assuming that the MFP for these drugs are lower than the prices already negotiated by the PBMs). For Medicare beneficiaries, lower net drug prices are expected to reduce out of pocket costs, presumably leading to decreased premiums and improved access to these medications. Pharmacies, which typically purchase drugs paid for through Medicare at a slight discount from the Wholesale Acquisition Cost (WAC), will be reimbursed at the lesser of the MFP or the current default reimbursement logic, which may create a significant financial gap. This is because MFP represents a significant discount from the WAC based acquisition price, and yet the IRA prohibits Medicare Part D Plans from reimbursing pharmacies more than the CMS-set final drug price, in order to ensure that beneficiaries receive the full value of the CMS negotiated price. In other words, pharmacies are likely to encounter altered reimbursement structures that directly affect their operations, including an adverse impact on cash flow and profitability. This is particularly financially impactful for long-term care pharmacies, which rely heavily on the type of branded products that may be subject to the MDPNP and typically receive lower dispensing fees. It is therefore essential that pharmacies not only understand the structure of the MDPNP but also carefully review proposed amendments to their PBM Provider Agreements to ensure that PBMs do not take advantage of the new law to introduce ever more onerous reimbursement structures and strategies. Let’s take a more detailed look at the impact of the new reimbursement regime on pharmacies, and how Frier Levitt can help you navigate the revised methodologies.
The Impact of the MDPNP on Pharmacy Operations and Cash Flow
In order to address the financial gap facing pharmacies, CMS requires manufacturers to reimburse pharmacies for the difference between their acquisition cost and the MFP. To effectuate this mandate, CMS is currently developing a Medicare Transaction Facilitator (MTF) system to implement MFP.[4] The system consists of two components: the MTF Data Module (MTF DM) and the MTF Payment Module (MTF PM). The purpose of the MTF DM is to enable the seamless exchange of data among CMS, manufacturers, and pharmacies to ensure efficient and timely application of the negotiated prices. The MTF PM, on the other hand, will provide an optional service for manufacturers to facilitate the distribution of MFP refunds to the appropriate dispensing entities.
Pharmacies are required, as a condition of their Medicare participation, to enroll in the MTF DM. If you have not already, you can anticipate receiving an amendment to your Provider Agreement requiring enrollment effective as of January 1, 2026. During enrollment, pharmacies will select their preferred method for receiving MFP refund payments: either an electronic funds transfer (the default option) or a paper check.
To support the implementation of the MFP, pharmacies will require refunds aligned with their acquisition prices. According to CMS guidance,[5] manufacturers are responsible for ensuring the availability of the MFP to dispensing entities and are required to calculate the appropriate MFP refund amount for each qualifying claim to fulfill this obligation.
Pharmacy cash flow will now be captive to a third, potentially unpredictable variable; i.e., acquisition cost from drug wholesalers and reimbursement from PBMs will now be joined by “refunds” from drug manufacturers (through the MTF). While the MFP alters the amount of reimbursement, the MTF process elongates the time frame for the pharmacy to be made “whole,” to the extent that this is even possible. Additionally, pharmacies are likely to face increased operational expenses related to implementation. Although pharmacies may receive an enhanced dispensing fee from PBMs to cover their overhead and reasonable profit due to MFP implementation, this is not explicitly confirmed in applicable legislation, nor is it clear that a fixed dispensing fee is adequate compensation for the work associated with carrying and dispensing typically expensive, high-touch specialty drugs. Pharmacies are likely therefore to experience a marked reduction in financial liquidity while waiting to be made “whole” by the manufacturers via MTF.
The MFP represents a ceiling, not a floor, for selected drug pricing. However, it will be challenging for pharmacies to negotiate even deeper discounts below MFP to maintain their already diminishing profit margins. The MFP intends to shift the drug pricing mechanism for negotiated drugs from a discount-based system, where rebates varied by plan, to one which provides all Part D plans with the same access price for negotiated drugs. Negotiations with individual pharmacies would undermine the objective of establishing a level-playing field. For example, for the 2027 negotiation year, CMS will use the lower of net part D plan payment and beneficiary liability, which excludes both rebates as well as payments made by manufacturers in the coverage gap discount program, or the maximum fair price negotiated for 2026 selected drugs if any are therapeutic alternatives for 2027 selected drugs. Accordingly, the incentive for manufacturers to negotiate rebates is substantially diminished. Notwithstanding this, it is possible that manufacturers may offer lower prices to certain wholesalers or direct customers to increase volume. In addition, PBMs may use their ability to determine formularies as a powerful bargaining tool to influence prices below the MFP, although their direct rebate incentives are heavily scrutinized. Finally, a discounted acquisition cost below the manufacturer’s official list price may result, depending upon the specific arrangements between a wholesaler and the pharmacy, such as “charge-back” systems.
340B and MTF
The IRA also has the potential to impact drug pricing and created additional uncertainty under the 340B program. The IRA makes it clear that manufacturers of selected drugs do not need to provide pharmacies with both the 340B discounts and the MFP (i.e., a “duplicate discount”). Instead, a “lesser of logic” is employed such that the total reimbursement for the drug will be the lesser of the 340B price or the MFP. This begs the question: how (and when) does the manufacturer know when a drug is dispensed to a 340B eligible patient and thus eligible for the 340B price? This issue is further complicated by the fact that the manufacturer is required to reimburse the pharmacy the difference between the amount it paid for a selected drug and the MFP within two weeks of the drug’s identification as MFP-eligible. Since it is already difficult to identity when a drug is 340B eligible, the timeframe may cause financial disruption and confusion for both 340B pharmacies and manufacturers. Unfortunately, MTF modules do not contain the data elements necessary to prevent duplication of MFP and 340B claims and therefore identification of the claims as 340B eligible or MFP is left to the manufacturer and/or the pharmacy.
The convergence of “lesser of logic” and the failure of CMS to address the risk of duplicate discounts creates a minefield for pharmacies. The problem is that if a pharmacy or manufacturer does not identify a claim as a 340B claim within 14 days, the manufacturer will pay the covered entity the difference between the non-340B price and the MFP. Of course, if the claim is a 340B drug, the covered entity will not be entitled to that credit, since it already received pricing that may be higher than the MFP price. If the claim is identified as 340B after the 14-day window or after the MFP credit has been paid to the purchaser, CMS has suggested using a system to track the credits owed back to the manufacturer (the entire credit, in this case), which can be applied against future MFP payments owed to the pharmacy.
Another “twist” in 340B drug pricing saga is the July 31, 2025, HRSA announcement of a rebate pilot program (Pilot Program), with potentially far- reaching impact on the operations of the 340B program, The Pilot Program mandates that covered entities front the costs of high-cost drugs in exchange for a potential post-purchase rebate, rather than obtaining the discounted 340B pricing at the time of purchase. In other words, pharmacies will be required to pay the wholesale acquisition cost for selected drugs up front and then receive a post-purchase rebate from the manufacturer. The Pilot Program itself would be applicable only to the drugs selected for inclusion under the MDPNP. It is noteworthy that manufacturers must submit plans to opt into the Rebate Program, but it provides no opportunity for covered entities to opt out. It is likely, however, the Pilot Program, as well as the implementation of the MDPNP, will create another layer of bureaucracy and associated administrative costs, as well as additional lengthy reimbursement delays, burdens that pharmacies will be forced to bear.
How Frier Levitt Can Help
The looming implementation of MFP represents yet another serious challenge to the operations and economic viability of pharmacies. Pharmacies will need to consider adjustments to drug purchasing and inventory policies and the implementation of new policies and procedures to track manufacturer reimbursement and inventory levels. Just as importantly, pharmacies will also need to remain vigilant, as the legal landscape around the IRA is evolving, and the actual economic impact of the MDPNP remains to be seen. The Trump administration is likely to revise or reconsider certain provisions and CMS guidance, although a full repeal is unlikely.
While adjusting to the full implementation of the MDPNP may present challenges, Frier Levitt can help. From assessing the legal and compliance risks your pharmacy may face, reviewing PBM revisions to your provider agreement, and to assessing the impact on your 340B operations and reimbursement of the MDPNP and the Pilot Program (including potential legal challenges to the Pilot Program), the attorneys at Frier Levitt can provide the guidance necessary to ensure that your rights and the rights of your patients are protected.
[1] H.R. 5376, 107th Cong. § 11301, codified at 42 U.S. Code § 1320f.
[2] Eliquis • Enbrel • Entresto • Farxiga •Fiasp/Novolog • Imbruvica • Januvia • Jardiance • Stelara • Xarelto
[3] Ozempic; Rybelsus; Wegovy • Trelegy Ellipta • Xtandi • Pomalyst • Ibrance • Ofev • Linzess • Calquence • Austedo; Austedo XR • Breo Ellipta • Tradjenta • Xifaxan • Vraylar • Janumet; Janumet XR • Otezla
[4] CMS is currently seeking comments on the Draft MTF 835 Companion Guide regarding transaction sets and values the MTF will be transmitting. CMS anticipates posting a Final MTF 835 Companion Guide in Summer 2025.
[5] See CMS’s Medicare Drug Price Negotiation Program: Final Guidance, Implementation of Sections 1191–1198 of the Social Security Act for Initial Price Applicability Year 2027 and Manufacturer Effectuation of the Maximum Fair Price in 2026 and 2027.
