CMS Releases Final Guidance for Initial Price Applicability Year 2028

CMS Releases Final Guidance for Initial Price Applicability Year 2028 and Manufacturer Effectuation of the Maximum Fair Price in 2026, 2027, and 2028
Final guidance addresses how drugs payable under Medicare Part B will be eligible for negotiation, requirements and process for renegotiation

The Centers for Medicare & Medicaid Services (CMS) released final guidance for the third cycle of negotiations under the Medicare Drug Price Negotiation Program (Negotiation Program). This final guidance incorporates significant policy refinements based on public feedback, with a particular focus on increasing transparency, and implements expanded protections for orphan drugs enacted in the Working Families Tax Cuts Act (Public Law 119-21).

This guidance builds off the historic efforts by the Trump Administration to lower prescription drug prices and continues to deliver on the promise to put American patients first as outlined in the Executive Order " Lowering Drug Prices by Once Again Putting Americans First ."

"Thanks to President Trump's leadership, HHS and CMS are working every day to lower drug prices, increase transparency, and unleash American innovation," said Health and Human Services Secretary Robert F. Kennedy, Jr. "Today's guidance will provide Americans with greater access to affordable, life-saving medications while promoting continued investment in new drugs."

"CMS is working to lower healthcare and prescription drug costs for Americans while ensuring the negotiation process is open, fair, and responsive to changes in the market and patient needs," said CMS Administrator Dr. Mehmet Oz. "We've listened to stakeholders, and their feedback helped us make the Negotiation Program more transparent, more workable for manufacturers, and more responsive to the needs of Medicare beneficiaries."

Key Provisions in the Final Guidance:

Enhanced Orphan Drug Protections: The final guidance implements changes to the Orphan Drug Exclusion (section 71203 of Public Law 119-21). CMS broadens exclusions from negotiation for products designated by the Food and Drug Administration (FDA) as drugs for one or more rare diseases or conditions under section 526 of the Federal Food, Drug, and Cosmetic Act (FD&C Act), if all approved indications are for one or more such rare diseases or conditions, as defined in section 526(a)(2) of the FD&C Act (rather than solely products designated by FDA as drugs for one rare disease or condition and for which all approved indications are for such rare disease or condition). These enhanced protections preserve critical incentives for rare disease research while maintaining negotiation eligibility when appropriate.

Medicare Advantage Integration in Drug Selection: The final guidance marks a shift from draft guidance in calculating Total Expenditures for drugs and biological products payable under Part B, where Total Expenditures are one of several criteria used to select drugs for negotiation. The final guidance describes a framework for including both Medicare Advantage (MA) encounter data for Part B items and services and traditional Fee-for-Service (FFS) Part B claims data in Total Expenditure calculations under Part B. Including MA encounter data with traditional FFS claims data will ensure equitable treatment of expenditures in selecting drugs for negotiation across Medicare Parts B and D.

Treatment of Vaccines for Infectious Disease(s): CMS' final guidance addresses how CMS will identify a potential qualifying single source drug that is a vaccine based on its antigen component(s). While vaccines for infectious diseases remain eligible for Medicare drug price negotiation, this approach recognizes the dynamic nature of product development for certain vaccines.

"This final guidance shows CMS' commitment to ensuring Americans get the best value for their health care dollars," said Director of the Center for Medicare Chris Klomp. "By negotiating fair prices for high-cost drugs, we protect beneficiaries from unaffordable out-of-pocket costs. We also safeguard taxpayer resources and sustain incentives for medical innovation."

Timeline and Implementation:

The third cycle of negotiations will occur in 2026, with negotiated maximum fair prices (MFPs) taking effect on January 1, 2028. CMS will announce up to 15 additional drugs covered under Part D and/or payable under Part B for potential negotiation by February 1, 2026, plus any additional drugs selected for the first cycle of renegotiation.

Building on the success of previous negotiation cycles - including the completion of negotiations for the first 10 selected drugs in August 2024 and ongoing negotiations for 15 additional drugs during 2025 - this final guidance ensures the program continues to prioritize high-cost drugs, achieve fair prices for Medicare beneficiaries, and maintain incentives for genuine pharmaceutical innovation.

The Fact Sheet for the Final Guidance for Initial Price Applicability Year 2028 and Manufacturer Effectuation of the Maximum Fair Price in 2026, 2027, and 2028 is available at: https://www.cms.gov/files/document/ipay-2028-final-guidance-fact-sheet.pdf .

Additional information about the Medicare Drug Price Negotiation Program can be found at: https://www.cms.gov/priorities/medicare-prescription-drug-affordability/overview/medicare-drug-price-negotiation-program .

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