Bona Fide Service Fees: A 2026 Outlook
Introduction: Why BFSFs Matter More Than Ever
Bona fide service fees (BFSFs) have long been a standard component of pharmaceutical contracting, used to compensate trading partners for legitimate services such as distribution, data reporting, and inventory management. Historically, BFSFs were often treated as a narrow compliance consideration: important in theory, but static once established. This approach is no longer sufficient.
Recent CMS rulemaking and enforcement trends have elevated BFSFs into a critical area of regulatory and financial risk for manufacturers. Expanded documentation expectations, heightened scrutiny of fair market value (FMV), and increased focus on pass-through arrangements mean that BFSFs are now directly linked to broader pricing integrity concerns. Failure to properly structure or document BFSFs may result in their reclassification as price concessions1, creating a ripple effect across Average Sales Price (ASP), Medicaid, and 340B ceiling prices.
As manufacturers navigate an increasingly transparent and tightly regulated pricing environment, BFSFs should be viewed not as a contracting afterthought, but as an integral part of enterprise pricing governance, one that requires ongoing oversight, cross-functional coordination, and proactive risk management.
Beginning January 1, 2026, CMS has moved BFSFs from a principles-based concept to an evidence-based compliance obligation. In an environment already reshaped by the Inflation Reduction Act (IRA), manufacturers must now consider BFSFs not only as contractual arrangements, but as dynamic pricing inputs with direct implications for Government Pricing.
It is important to note that these new evidence-based obligations were put into effect under the Medicare Part B ASP reporting framework and apply specifically to manufacturers of drugs payable under Medicare Part B. Manufacturers of products not covered under Part B remain subject to the substantive four-part BFSF test for AMP and Best Price purposes under the MDRP, but are not directly subject to the new submission and certification mandates.
Defining Bona Fide Service Fees – The “Four Part Test”
Let’s break down how CMS defines a Bona Fide Service Fee (BFSF) and determine what does and does not qualify for each piece of the definition. To start, a BFSF is a fee paid by a manufacturer to an entity for legitimate, itemized services. Merely labeling a payment as a service fee is insufficient. CMS consistently focuses on a substance-over-form approach, evaluating the economic reality of each arrangement. Conversely, any admin fee that does not meet all criteria is considered a non-bona fide service fee (NBSF or NBFSF). To be considered a Bona Fide Service Fee, it must meet the below requirements2, which are commonly referred to as the “Four Part Test”, essentially breaking down the legislation to each component.
- Performed on behalf of the manufacturer: A BFSF must correspond to services that are not only contracted for but actually performed. Manufacturers must demonstrate performance through tangible evidence such as reports, deliverables, transaction logs, or other documented outputs. Ongoing services should show consistent performance over the contract period. Fees paid merely for access, availability, contract execution, or readiness, or payments made regardless of whether services are delivered, do not meet this requirement.
- Provide identifiable value: These consider services that are clearly defined and itemized on the contract and are incremental or not already included in another fee or rebate. These include services such as distribution logistics beyond standard buy-sell functions, data reporting or analytics services that are explicitly requested by the manufacturer, inventory management, and order-to-cash support services. Services that are vague, poorly defined, bundled without itemization, primarily benefit the customer rather than the manufacturer, or are already compensated through margins or discounts cannot meet this test threshold
- Reflect fair market value (FMV): This means the compensation aligns with the value of the services provided and is determined independently of the drug’s price or sales volume. Acceptable approaches include cost-plus methodologies or benchmarking against comparable third-party services, provided the analysis is documented and reflects current market conditions. (See page 5 for more on FMV options.) Fees tied to a percentage of sales, calculated as a function of WAC, or supported by outdated or undocumented FMV analyses fail to meet the FMV standard and risk being reclassified as price concessions. This defines the services as ones a manufacturer would reasonably purchase in an open market and make sense from a business perspective even if no drug sales occurred. Services that appear excessive, duplicative, unnecessary, or only make sense in connection with product volume or placement, may be viewed as commercially unreasonable. When payments mirror incentives more than compensation for services, they raise major compliance concerns.
- Not passed through to customers: A BFSF must not be passed through, in whole or in part, to customers or downstream purchasers directly or indirectly. The entity receiving the fee must absorb the payment and not offset it through reduced pricing or other financial adjustments to customers. Notably, the CMS certification language covers clients and customers of an entity; CMS explicitly clarified in the final rule that the certification scope does not extend to affiliates of the receiving entity, though manufacturers should evaluate affiliate arrangements independently as a matter of compliance best practice. Fees that are directly or indirectly passed through, or where non–pass-through assumptions cannot be substantiated, must be treated as non-bona fide service fees and included in government pricing calculations.
BFSFs Before and After January 1, 2026: What Changed
Pre-2026 Environment
Before the CY 2026 Final Rule, manufacturers largely relied on a principle-based interpretation of BFSFs. While CMS required that service fees be bona fide, reasonable, and tied to fair market value, expectations around documentation, refresh cadence, and pass-through evidence were less explicit3. Many manufacturers operated with:
- One-time or infrequently updated FMV studies
- High-level service descriptions
- Informal assumptions regarding non–pass-through treatment
- Decentralized ownership of BFSF governance
Post-2026 Environment
Beginning January 1, 2026, CMS moved BFSFs into an evidence-driven compliance framework6. Manufacturers must now be prepared to affirmatively demonstrate BFSF compliance through contemporaneous documentation and certifications. Key differences apply specifically within the ASP reporting framework for Part B-covered drugs and include:
- Explicit FMV methodology disclosure9
- Expectation of periodic FMV refresh
- Mandatory pass-through certifications for new contracts executed on or after January 1, 2026; Q1 2026 submission was waived due to a Paperwork Reduction Act delay, with the first live submission deadline of July 30, 2026 (Q2 2026)8
- Default reclassification risk when evidence is incomplete
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
