Proposed rule changes to BFSF definition and FMV requirements

The proposed rule describes how FMV must be calculated for service fees:

• Fees not tied to drug price or volume: FMV can be determined by either comparable market transactions or a cost-plus method (cost of service + reasonable markup).
• Fees tied to price or sales volume: FMV must be determined via a cost-plus methodology (cost + reasonable markup), unless sufficient cost data are unavailable, in which case a market-based approach can be used temporarily. In practice, percentage-of-sales fees and similar arrangements are expected to require cost-plus validation.
• Independent Third-Party Valuation: All such FMV assessments for variable fees must be conducted by an independent valuator with no financial stake in the outcome. Manufacturers must obtain written documentation of the FMV methodology and are expected to submit it with their quarterly Average Sales Price (ASP) reports.
• Periodic Reassessment: FMV analyses must be updated at least as often as the contract’s renewal cycle (e.g., annually for one-year agreements). An annual FMV review may become the norm, creating a continuous compliance cycle.

• Presumption Against Percentage Fees: CMS explicitly presumes that fees based on a percentage of drug price or sales (or any fixed fee structured to mimic a percentage) are price concessions rather than BFSFs – unless proven otherwise through the new FMV process. To overcome this presumption, manufacturers must validate such fees as FMV via cost-plus analysis and maintain evidence for the same.
• “No Pass-Through” Certification: Historically, manufacturers could assume that a service fee was not being passed on down the line (to hospitals, payers, etc.) absent evidence to the contrary. CMS proposes that manufacturers must obtain, each quarter, a certification or warranty from the fee recipient that the fee will not be passed on (in whole or part) to any affiliate or customer.
• Documentation submission to CMS: The rule would require quarterly submission of documentation supporting BFSFs, including the following:
• FMV methodology and analysis details (how the fee’s FMV was determined and when it was last reviewed).
• The certifications from the bona fide fee recipients confirming no pass-through.
• “Reasonable assumptions” used in ASP calculations. (Notably, CMS has usually allowed but not required manufacturers to submit assumptions. Now certain assumptions must be provided each quarter, effectively formalizing the rationale behind treating a fee as bona fide.)

Conclusion

The proposed changes aim to increase transparency in drug pricing calculations. In the long run, manufacturers and their channel partners who proactively establish fair, well-documented fee structures can reduce regulatory risk and continue their collaborations. Preparing early will help mitigate disruption and ensure that critical channel partnerships remain compliant.

References:

1. Proposed Changes to Medicare Payment Rules: What Life Sciences
2. Medicare 2026 Proposed Rules, Major Drug Pricing Updates, and What
3. CMS Proposals Would Raise the Bar on Bona Fide Service Fees for Average
4. Fact Sheet - Centers for Medicare & Medicaid Services