Bona Fide Service Fees: A 2026 Outlook
Downstream Pricing Impacts
BFSF classification doesn’t exist in isolation, rather it directly affects multiple government pricing programs that govern manufacturer financial liabilities and pricing obligations. While the new documentation and certification mandates are scoped to the ASP framework, BFSF misclassification has long carried downstream consequences across Medicaid and 340B as well, because price concessions flow through to AMP and Best Price under the MDRP regardless of which program triggers the reclassification. The stakes below apply when a fee fails the four-part test under any program.
When a fee qualifies as a BFSF, it is excluded from government pricing calculations, preserving ASP, AMP, Best Price, and other inputs that inform downstream rebates and discounts. If a fee is determined to be a non-bona fide service fee (NBFSF), it is treated as a price concession and included in those calculations (ASP, AMP, BP), with significant consequences. In short, NBFSFs behave like discounts or rebates for GP purposes, with the following implications:
BFSFs Practical Implications
- AMP increases, raising Medicaid rebate liability
- Best Price may reset, increasing unit rebates
- 340B ceiling prices may decrease, increasing penny pricing and refund risk
- ASP may decline, impacting Medicare Part B reimbursement
- IRA inflation penalties may increase due to higher baseline prices
In the context of the Medicaid Drug Rebate Program, price concessions reduce AMP and may lower Best Price, both of which influence the rebate amount manufacturers owe to state Medicaid programs. Greater concessions typically translate into higher rebate liabilities for manufacturers. These rebates help offset state and federal spending on outpatient drugs.
The 340B Drug Pricing Program adds another layer of impact. HRSA calculates the 340B ceiling price using the formula AMP – unit rebate amount [URA] to determine the maximum price manufacturers may charge covered entities for outpatient drugs. When price concessions such as NBFSFs are included in AMP, the AMP increases and URA may rise, leading to a lower 340B ceiling price. In extreme cases, this can result in “penny pricing,” where the ceiling price approaches zero, significantly compressing revenues from sales to covered entities while increasing program administration complexity.
Downstream effects also extend into Medicare Part B reimbursement and IRA pricing provisions. ASP feeds into Part B payment limits1 and, under the Inflation Reduction Act, into inflation rebate calculations and price negotiation baselines. NBFSFs that increase reported ASP can distort these measures. When ASP is inflated due to inclusion of NBFSFs, Medicare Part B reimbursement may be artificially elevated, and inflation penalties under IRA provisions may increase due to larger differences between historical prices and current levels.
Manufacturers must therefore consider BFSF classification not only in ASP context but across the broader pricing ecosystem. Aligning BFSF treatment across programs mitigates inconsistent reporting risks and reduces potential liability associated with price reconciliation, rebate disputes, or audit findings.
High-Risk BFSF Arrangements
High-risk BFSF arrangements are those that present a heightened likelihood of being reclassified as price concessions by regulators, leading to potential inclusion in government pricing calculations. Certain patterns and structures make arrangements particularly vulnerable to regulatory challenges.
One common high-risk scenario involves service fees that are tied directly or indirectly to drug price, volume, or utilization. For instance, arrangements in which compensation increases with sales volume or market share resemble discounts more than BFSFs and can be reclassified as price concessions. CMS’s longstanding “four-part test” for BFSFs makes this volume linkage problematic in practice. Fees that function as incentives rather than true service compensation fail this analysis.
Another risk arises from vague or poorly documented services. When service descriptions lack specificity, it becomes difficult for a manufacturer to demonstrate the service’s benefit to the organization or tie the fee directly to performed work rather than a revenue lever. This is particularly true for arrangements involving contract pharmacies, group purchasing organizations, or distributors where service elements may be embedded in broader commercial terms.
Outdated FMV analyses also constitute risk. Under the CY 2026 Final Rule, CMS now expects manufacturers to document their FMV methodology and assumptions as part of quarterly ASP submissions5, reinforcing the need for contemporaneous, defensible valuation. Fees based on legacy analyses or cursory market comparisons often do not withstand scrutiny.
While this FMV documentation requirement applies within the ASP submission framework for Part B products, manufacturers of Medicaid-only products are not subject to the same submission mandate, but should maintain defensible FMV support as a matter of AMP compliance best practice.
As noted previously, arrangements lacking non-pass-through certification are especially high risk. CMS requires new contracts entered on or after January 2026 to include recipient certifications that fees are not passed through to clients or customers. Failure to secure and submit these certifications can result in default reclassification of the fee as a price concession.
For manufacturers, proactively identifying these high-risk arrangements allows allocation of remediation resources where they matter most. Contracts that mix service fees with performance incentives, lack detailed service scope, or insufficiently support FMV should be prioritized for review and potential restructuring.
Preparing for Increased Scrutiny: A Proactive Manufacturer Approach
Manufacturers need to prepare for increased scrutiny of BFSFs as government price reporting becomes more data-driven, and documentation expectations rise. A proactive approach to BFSFs is essential for manufacturers seeking to mitigate pricing risk and stay ahead of evolving expectations.
A proactive approach begins with comprehensive contract and fee inventory. Manufacturers should create a centralized repository of all service fee arrangements, including existing, new, and renewed contracts, capturing detailed service descriptions, fee structures, FMV analyses, and evidence of non-pass-through. This inventory serves as the foundation for consistent application of BFSF criteria and facilitates identification of high-risk arrangements.
Once contracts are inventoried, teams should evaluate FMV documentation for each arrangement. Robust FMV support practices are critical. Even though CMS did not finalize specific FMV standards in the 2026 rule, the requirement to document FMV methodology and periodic reviews with ASP submissions elevates the importance of defensible valuation practices. Manufacturers should adopt structured FMV approaches (including cost-plus analyses, market benchmarking, or hybrid methods) supported by current data and clear rationales and refreshed at contract renewal or on a defined cadence. Manufacturers should adopt continuous improvement practices. Internal audits, gap analyses, and scenario testing against evolving CMS guidance help uncover areas for remediation before regulators do.
In parallel, manufacturers must build strong certification and documentation controls into contracting processes, particularly new agreements. Service providers should be asked to affirm in writing that fees will not be passed through to clients, affiliates, or customers. Requiring these certifications upstream in the contract lifecycle ensures they are available for quarterly reporting and audit defense. Manufacturers with large contract portfolios should triage by prioritizing the arrangements most material to ASP calculations first, as collecting certifications from all counterparties simultaneously may not be operationally feasible within a single reporting cycle. The first live deadline for Q2 2026 ASP submissions, including reasonable assumptions and applicable BFSF certifications, is July 30, 2026. Another preparatory step is updating contract templates and processes to embed certification requirements. Organizations should build this requirement into contracting playbooks and ensure service partners are prepared to provide timely documentation.
Cross-functional collaboration and training are crucial. Government pricing teams, legal, compliance professionals, contract negotiators, and finance teams all need a shared understanding of BFSF definitions, FMV expectations, and documentation standards. Teams should jointly develop policies and standard operating procedures (SOPs) for BFSF assessment, documentation, and reporting. Integrated systems that link contracts, pricing data, and submission artifacts can reduce errors and ensure that reporting is grounded in accurate, auditable source documents. Regular training sessions and governance meetings help align interpretation and application of BFSF criteria across the organization.
By embedding BFSF oversight within broader pricing governance structures, manufacturers position themselves not just to comply with current requirements, but to anticipate future regulatory developments.
Conclusion
Bona fide service fees are no longer a narrow contracting detail. They are a pricing integrity issue with far-reaching implications across Medicaid, 340B, ASP, and IRA-driven reforms. Manufacturers that reassess BFSF structures, strengthen FMV support, and improve governance will be better positioned as regulatory scrutiny continues to intensify.
Proactive engagement with legal and external advisors can help interpret evolving guidance, stress-test interpretations, and prepare for potential inquiries or audits by CMS. These preparations can reduce regulatory risk, support defensible reporting, and enable manufacturers to respond confidently to scrutiny as pricing oversight intensifies.
Northridge supports manufacturers by helping translate evolving BFSF requirements into practical, defensible, and operationally sound solutions, bridging the gap between regulatory interpretation and execution.
Resources
1 PART B DRUG PAYMENT LIMITS OVERVIEW Background [Internet]. Available from: https://www.cms.gov/files/document/part-b-drug-payment-limits-overview.pdf-0
2 Medicare and Medicaid Programs; CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program [Internet]. Federal Register. 2025 [cited 2026 Feb 21]. Available from: https://www.federalregister.gov/d/2025-19787/p-2142
3 Medicare Program; Revisions to Payment Policies, Five-Year Review of Work Relative Value Units, Changes to the Practice Expense Methodology Under the Physician Fee Schedule, and Other Changes to Payment Under Part B; Revisions to the Payment Policies of Ambulance Services Under the Fee Schedule for Ambulance Services; and Ambulance Inflation Factor Update for CY 2007 [Internet]. Federal Register. 2006 [cited 2026 Feb 10]. Available from: https://www.federalregister.gov/d/06-9086/p-956
4 “FAQs: BFSF Certification and ASP Reasonable Assumptions | CMS.” Cms.gov, 2026, https://www.cms.gov/files/document/frequently-asked-questions-faqs-bfsf-certification-asp-reasonable-assumptions.pdf
5 42 CFR 414.804 — Basis of payment. [Internet]. Ecfr.gov. 2026 [cited 2026 Feb 10]. Available from: https://www.ecfr.gov/current/title-42/part-414/section-414.804#p-414.804(a)(5)(iii)
6 Medicare and Medicaid Programs; CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program [Internet]. Federal Register. 2025 [cited 2026 Feb 21]. Available from: https://www.federalregister.gov/d/2025-19787/p-2203
8 Medicare and Medicaid Programs; CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program [Internet]. Federal Register. 2025. Available from: https://www.federalregister.gov/d/2025-19787/p-2240
9 Medicare and Medicaid Programs; CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program [Internet]. Federal Register. 2025 [cited 2026 Feb 21]. Available from: https://www.federalregister.gov/d/2025-19787/p-2270
10 Medicare and Medicaid Programs; CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program [Internet]. Federal Register. 2025 [cited 2026 Feb 21]. Available from: https://www.federalregister.gov/d/2025-19787/p-2141
11 CMS. “Frequently Asked Questions (FAQs): BFSF Certification and ASP Reasonable Assumptions.” January 7, 2026. Available at: https://www.cms.gov/medicare/payment/part-b-drugs/asp-education-outreach/faqs-bfsf-certification-asp-reasonable-assumptions
