CMS proposes rule to codify and expand the Medicare Drug Price Negotiation Program

On June 16, 2026, the Centers for Medicare & Medicaid Services (CMS) published a proposed rule that would codify the Medicare Drug Price Negotiation Program (Program) established by the Inflation Reduction Act of 2022 (IRA).[1] If finalized, the rule would formalize existing program guidance, introduce several new policy proposals, and establish the regulatory framework for drug selection, negotiation, re-negotiation, compliance monitoring, and civil monetary penalties beginning with initial price applicability year (IPAY) 2029.

Comments are due on August 17, 2026.

Background

Sections 11001 and 11002 of the Inflation Reduction Act of 2022, signed on August 16, 2022, established the Program, authorizing the Secretary of Health and Human Services to negotiate maximum fair prices (MFPs) with manufacturers for certain high-expenditure, single-source drugs and biologics covered under Medicare Part B and Part D.

Since the Program’s inception, CMS has selected drugs for negotiation and re-negotiation under an accelerated timeline:

• IPAY 2026: Ten Part D drugs
  
  
• IPAY 2027: 15 Part D drugs
  
  
• IPAY 2028: 15 Part D and/or Part B drugs; re-negotiation process initiated (one drug selected)
  
  
• IPAY 2029 and beyond: Up to 20 drugs to be selected annually

Key provisions of the proposed rule

The proposed rule would generally codify the policies and procedures previously outlined in CMS program guidance into regulatory text at 42 C.F.R. Part 429 and related amendments to Part 423 (Medicare Prescription Drug Benefit Program).

In addition, CMS proposes several substantive policy changes. We outline the key provisions below.

1. Fixed-combination drugs

CMS proposes modifying the general fixed-combination drug policy for certain new formulations to address circumstances in which related products may otherwise be treated separately for selection purposes. Under the current policy, when a drug is a fixed combination with two or more active moieties, active ingredients, or antigen components, the distinct combination is generally treated as a single active moiety or active ingredient for identifying potential single-source drugs. Therefore, a product containing only one, but not all, of the active moieties in the combination would not generally be aggregated with the fixed combination drug and would be considered a separate potential qualifying single-source drug.

CMS proposes to revise this policy by treating the original drug and the new formulation as a single qualifying single-source drug. This treatment would apply where products held by the same New Drug Application (NDA) or Biologics License Application (BLA) holder differ due to the inclusion of an additional active moiety or active ingredient that:

• Creates a new formulation and
  
  
• Enables an alternative route of administration for the co-administered active moiety/active ingredient.

CMS will use the approval date of the earliest approved drug for determining selection eligibility under certain circumstances.

2. Orphan drug exclusion from Medicare drug price negotiation

Beginning with the drug selection process for IPAY 2029, CMS would exclude a potential qualifying single-source drug if 1) all dosage forms and strengths of that drug were designated for one or more certain rare diseases or conditions and 2) the only Food and Drug Administration (FDA)-approved indications are for a rare disease.

Under the proposed rule, CMS will not consider withdrawn orphan drug applications or orphan drug exclusions if the FDA-approved indication is covered under Medicare Part B or Part D. For drugs that qualified for the orphan drug exclusion but lost that status due to a non-orphan indication, CMS would determine a drug’s eligibility based on the applicable seven-year or 11-year time period, beginning on the FDA approval date for the non-orphan indication, even if the non-orphan indication is later withdrawn.

3. Bona fide marketing determinations

CMS proposes revising the process and scheduling to determine whether a manufacturer is engaged in bona fide marketing (BFM), as defined in 42 C.F.R. Section 429.20, of a generic or biosimilar. Specifically, CMS proposes reviewing additional data when making a BFM determination.

4. Manufacturer transfers and Program agreement responsibilities

CMS proposes a framework for when a primary manufacturer transfers its Program agreement responsibilities to an acquiring entity. The primary manufacturer remains responsible for all requirements under the Program agreement unless and until it transfers all NDAs and BLAs associated with the selected drug to another entity and the acquiring entity assumes responsibility as the primary manufacturer. CMS proposes that this assumption of responsibility be evidenced by a novation, which must be submitted to CMS for review and approval at least 30 calendar days before the proposed transfer’s intended effective date.

5. 30-day equivalent supply

CMS proposes a new methodology for calculating the 30-day equivalent supply for drugs typically administered once (e.g., vaccines).

6. Temporary MFP floor for small biotech drugs

Another proposal includes implementing a statutory floor for qualifying small biotech drugs in IPAYs for 2029 and 2030.

7. Off-label use

CMS clarifies how it would consider off-label use for re-negotiation eligibility and selection by aligning those policies with the initial offer development process. CMS states that this approach is intended to maintain consistency across its negotiation and re-negotiation processes.

In this proposal, a selected drug with an agreed-upon MFP will be eligible for re-negotiation if a new indication – either an indication added to the FDA-approved labeling or a new off-label use – is added for the selected drug since the drug was last negotiated or re-negotiated. For new off-label use, CMS will rely on data voluntarily submitted by the manufacturer during the re-negotiation process. CMS has proposed criteria for defining when an off-label use is considered “new” for re-negotiation purposes.

8. Drug selection process

Under the proposed rule, CMS would select qualifying single-source drugs for negotiation based on the following criteria:

• The total Part D or Part B expenditures exceeded USD200 million during the applicable measurement period
  
  
• At least seven years have passed since FDA approval for small-molecule drugs, or 11 years since licensure for biologics
  
  
• There is no generic or biosimilar competitor with BFM status
  
  
• The drug does not qualify for the orphan drug exclusion or small biotech drug exception

Manufacturers would have ten business days (reduced from 21 days under prior guidance) to submit a suggestion of error regarding ceiling calculations and MFP applicability across dosage forms.

9. MFP ceiling and temporary floor

Under the proposed rule, CMS restricts the negotiated MFP to ensure it does not exceed the statutory ceiling.

10. Compliance monitoring and civil monetary penalties

CMS seeks to establish a formal compliance monitoring framework, which would include civil monetary penalties for non-compliance. Compliance monitoring would continue beyond the negotiation period and extend to all aspects of a primary manufacturer’s participation in the Program.

CMS would monitor primary manufacturer compliance with the Program agreement through various channels, including third-party complaints, direct communications with manufacturers, audits of manufacturers’ records and data submissions, and comprehensive reviews of Program agreement compliance.

Compliance violations and their penalties are as follows:

• A violation of a Program agreement: USD1 million per day (adjusted annually for inflation)
  
  
• Submitting false information regarding biosimilar delay or small biotech exception eligibility: USD100 million per item of false information
  
  
• Failure to pay a biosimilar delay rebate: Ten times the rebate amount owed

A manufacturer may appeal a civil monetary penalty determination. However, payment of the penalty is due within 60 days of the penalty notice (or 60 days after a final appeal decision, if applicable).

Additional provisions

1. Excise tax

Failure to comply with certain Program deadlines may result in excise tax liability. Manufacturers may avoid the excise tax by terminating the Program agreement and ceasing participation in both the Medicaid Drug Rebate Program and the Medicare Part D Manufacturer Discount Program.

2. Part D formulary requirements

Part D plan sponsors must include each selected drug for which an MFP is in effect on their formularies, with limited exceptions for immediate substitution of corresponding generic or biosimilar products.

3. Biosimilar delay provisions

Biosimilar manufacturers may request a delay of reference drug selection if a biosimilar is likely to be licensed and marketed within a specified timeframe. Reference manufacturers may owe rebates if the biosimilar is not licensed and marketed during the delay period.

4. Voluntary participation

Participation in the Program remains voluntary. However, termination of participation could carry significant consequences, including potential excise tax liability, unless the manufacturer also withdraws from the Medicaid Drug Rebate Program and Medicare Part D Manufacturer Discount Program.

Key considerations for pharmaceutical and biotechnology manufacturers

Pharmaceutical and biologics companies are encouraged to carefully evaluate CMS’s proposals and their implications for product portfolios and commercial strategies. Key considerations include the following:

• Manufacturers with products approaching the seven-year (for small-molecule drugs) or 11-year (for biologics) post-approval threshold may assess selection risk and model potential MFP outcomes under the proposed negotiation framework.
  
  
• The proposed compliance monitoring and negotiation processes require submission of extensive data, including research and development costs, production costs, revenue information, and clinical evidence. Manufacturers are encouraged to ensure internal data systems can support these reporting obligations. Given the proposed penalties, including up to USD1 million per day for violations of a Program agreement and USD100 million per instance of false information, manufacturers may wish to consider implementing or strengthening compliance programs and internal controls.
  
  
• Companies with biosimilar products in development may consider evaluating the biosimilar delay provisions, including the timeline requirements and potential rebate obligations for reference product manufacturers.
  
  
• Companies that may qualify for the temporary small biotech drug floor may wish to evaluate eligibility criteria and ensure they can document compliance with the statutory requirements.

Learn more

For additional information regarding the proposed rule, implications for businesses, or assistance with submitting comments, please contact the authors or any member of DLA Piper’s Healthcare Regulatory team.

 

^{[1] 91 Fed. Reg. 36236 (June 16, 2026).}