Last week, the Centers for Medicare and Medicaid Services published its “final rule” for the Medicare Drug Price Negotiation program. The guidance clarifies key terms used to determine which prescription medicines can be selected for price negotiation. It also closed possible loopholes around fixed-dose combination and reformulated products. As this program expands its reach over time to include more drugs, it will increase its impact on stakeholders, including pharmaceutical manufacturers, payers and patients.

There’s a lot of talk these days in policy circles about things that are unlikely to occur in the short term, such as Medicare for All legislation, but also a potential codification of most-favored nation drug pricing which pegs United States prices of pharmaceuticals to international benchmarks.

Ultimately, the policies that actually happen are the ones that matter most. One such policy is Medicare drug price negotiations, a high-profile provision contained in the Inflation Reduction Act and signed into law in 2022 by former President Biden. CMS posted its final rule last week on the trajectory of Medicare drug price negotiations going forward. This is the legally binding regulatory text that replaces all previous temporary guidance and establishes the permanent policy for the program starting in 2027 with selection of the next batch of 20 drugs for price negotiation. Most of the regulations are the same as those found in prior temporary guidance documents. Nevertheless, there are a few important changes that have a bearing on which drugs can and can’t be selected for price negotiation.

To be eligible for selection, a medication must be a “qualifying single-source drug” with no approved generic or biosimilars that offer “bona fide” marketing competition. Regulatory approval and launch of a generic of biosimilar isn’t sufficient. There have to be more than token or minimal sales as reflected in claims and utilization data, regular and consistent availability in the supply chain and no arrangements between originator companies and generic or biosimilar firms that could impede access.

Small molecule drugs must have been on the market at least seven years since their approval by the Food and Drug Administration; large molecules or biologics at least 11 years.

Eligible drugs are then ranked by their cost to Medicare. Those with the highest total gross expenditures in Medicare are prioritized for selection.

Within the parameters of ceiling prices set by law, a roughly nine-month negotiation process ensues in which the federal government and drug manufacturers reach agreements on maximum fair prices. These get publicly posted about a year before they are implemented, which means that everyone has access to them, including payers that can use them as benchmarks in the commercial sector when negotiating prices and formulary placement.

Maximum fair prices went into effect this year for the first round of ten drugs that had their prices negotiated in 2023 and 2024. In January 2027, maximum fair prices for the next round of 15 pharmaceuticals will be implemented; these were negotiated during 2025. And just last month, CMS completed negotiations of the third round of prices for 15 medicines whose maximum fair prices will be implemented in January 2028.

The final rule will impact selection of drugs in future rounds, beginning in February 2027 when CMS will choose 20 negotiation-eligible medications whose maximum fair prices will take effect in 2029.

Previous guidance had been somewhat ambiguous around reformulations of products and whether this could change timing on negotiation eligibility.

By preventing manufacturers from resetting the statutory negotiation clock through reformulations, the newly revised regulation ensures that a drug’s newer variants become subject to negotiations sooner than they otherwise would have as separate products.

To illustrate, fixed-combination drugs — combinations of two or more active drugs in a single dosage form — will now be grouped together if they’re determined to be new formulations of existing drugs. Only if a manufacturer creates a fixed-dose combination that pairs an existing drug with an entirely new active moiety will the clock be reset.

In addition, adding an inactive or co-administered ingredient merely to enable an alternative route of delivery will not alter the timing of potential negotiations. CMS specifically highlighted the practice of adding an enzyme like hyaluronidase to convert an intravenous drug into a subcutaneous injection.

If treated as an entirely new product, a subcutaneous variant would extend the grace period during which it wouldn’t be able to be chosen for negotiations. Now, this no longer applies.

The pharmaceutical industry has heavily criticized the guidance on reformulations, saying it would chill innovation. Reformulations can be seen as innovations in that they may make uses of a product more convenient and improve patient persistence on medications. In some instances, they could even be found to be more clinically effective.

Congressional Democrats have talked about accelerating both the volume and timing of Medicare drug price negotiations. This could imply raising the number of drugs selected from 20 to 50 , for example, and moving the timing of selection closer to launch. Following their legislative victories in the November 2026 midterms, these concepts may become legislative priorities, as reflected in proposed bills like the Lowering Drug Costs for American Families Act. Furthermore, Democrats want to extend applicability of Medicare-negotiated maximum fair prices to the commercial insurance market.

The pharmaceutical industry has long warned, however, that negotiating maximum fair prices even closer to launch and applying them systemwide would undermine the financial incentives required to fund clinical research and development.

It remains to be seen whether the scope of the law will expand further. Statutory changes to the negotiation timeline or numbers of drugs selected would require amendments to the legislation, which President Trump could veto.