By Rebecca Leemputte and Brady Stiller

The Inflation Reduction Act’s (IRA) Maximum Fair Price (MFP) provision enables the Centers for Medicare & Medicaid Services to negotiate prices for highly utilized drugs, representing a transformative shift in Medicare’s approach to drug pricing. Starting in 2026, MFPs will take effect for 10 high-volume Part D drugs and will expand in subsequent years to include additional Part D and Part B drugs. The magnitude of negotiated discounts is significant, with an average discount of over 50% for first-round drugs that treat diabetes, cardiovascular diseases, autoimmune diseases, and blood cancers.

While intended to make medications more affordable for beneficiaries, the implementation of MFPs will give rise to many unintended consequences that will disrupt patient access to medications. Top among these concerns are pharmacies not stocking and dispensing selected drugs and even community pharmacy closures resulting from material cash flow constraints, reduced profitability due to lower MFP-based reimbursement, and additional administrative workload.

Manufacturers will need to make strategic decisions on MFP effectuation to ensure continued therapy access in an environment with evolving drug purchasing workflows, channel economics, and brand access dynamics.

Prospective vs. Retrospective MFP Effectuation: Implementation Options & Risks

CMS guidance provides manufacturers with the option of effectuating MFPs prospectively or retrospectively. This decision will have significant impacts on pharmacy operations, brand access, patient experience, and manufacturer visibility.

With prospective MFP effectuation, pharmacies will purchase selected drugs at MFP. While pharmacies will benefit from reduced cash outlays given upfront purchasing at a significant discount, MFP inventory must be managed separately to avoid dispensing to ineligible patients. For manufacturers, this model is expected to pose challenges in tracking MFP dispensing and verifying patient eligibility, similar to challenges experienced with the 340B program today. Given anticipated program oversight and compliance monitoring limitations with the prospective model, it is likely that many manufacturers will opt for a retrospective effectuation model.

With retrospective MFP effectuation, pharmacies will purchase products at list price, payers will provide MFP-based reimbursement, and manufacturers will retroactively transmit a rebate to pharmacies following MFP eligibility validation, resulting in a net acquisition cost of MFP. While this effectuation model enables greater manufacturer control over patient eligibility validation, it will introduce significant financial and operational challenges for pharmacies:

  • Pharmacy Cash Flow Issues: Many pharmacies will experience cash flow constraints while waiting for the MFP rebate beyond typical Medicare reimbursement timelines
  • Pharmacy Administrative Workload: Pharmacies must establish new operational workflows to track and dispute rebate payments, which requires additional staffing and resources
  • Pharmacy Profitability Impact: Many pharmacies currently experiencing favorable Medicare reimbursement margins may experience reduced profitability due to lower MFP-based reimbursement, with the magnitude of impact being influenced by manufacturer approach to rebate calculations

For manufacturers, the retrospective model also comes with risks:

  • Brand Access Risks: As a result of the above financial and operational challenges, pharmacies may struggle to dispense selected drugs and maintain their business models, with downstream effects for patient access to medications
  • Risk of Duplicative MFP & 340B Discounts: Since manufacturers must only provide the lower of MFP and the 340B ceiling price, manufacturers must validate claims for which a MFP rebate is required to avoid offering duplicate discounts, requiring sufficient levels of 340B claims visibility
  • Compliance Risks For MFP Rebate Calculation & Transmission: Manufacturers must calculate the proper rebate amount and transmit the rebate within the designated prompt pay window to remain compliant

MFP effectuation model decisions will significantly impact pharmacy operations, brand access, and manufacturer compliance across multiple government pricing programs. It is essential that manufacturers address these risks with a proactive, strategic approach to ensure continued therapy access and maintain compliance.

Next Steps for MFP: Key CMS Deadlines and Risks Manufacturers Must Address 

By September 1 of this year, first-round manufacturers must develop an extensive effectuation plan to comply with CMS requirements.

When developing an effectuation plan, manufacturers should proactively address the following questions regarding customer and brand access risks as well as compliance:

  • What key operational and financial challenges will our distributor and pharmacy partners face due to our MFP effectuation strategy?
  • What is our plan for helping customers navigate and minimize these challenges to support continued brand access?
  • How will we maintain oversight across multiple pricing programs (e.g., 340B, MFP) to maintain compliance and ensure programs are used for appropriate patients?

Without a robust MFP effectuation plan, patients face significant risks of disrupted access to critical medications. It is imperative that manufacturers collaborate with pharmacies and distributors to implement strategies that ensure uninterrupted access and navigate the increasingly complex and evolving access landscape.

Need advice for navigating your MFP effectuation strategies? The Dedham Group can help. Contact us.

 

About the Authors
Rebecca Leemputte is an Associate Partner at The Dedham Group. Email her at rebecca.leemputte@dedhamgroup.com.

Brady Stiller is a Senior Consultant at The Dedham Group. Email him at brady.stiller@dedhamgroup.com.