Raising the bar: Why fair market value for bona fide service fees is more critical than ever

Bona fide service fees (BFSFs) are service/administrative fee payments made by manufacturers to third parties in the distribution and reimbursement channel and qualify as bona fide under the: 

• Medicaid Drug Rebate Program (MDRP) codified in 42 C.F.R. section 447.502; or 
• Medicare Part B under CY 2026 Final Rule (historically prior to the Final Rule, the criteria was similar to MDRP requirements) 

BFSF are excluded from MDRP when calculating Average Manufacturer Price (AMP) and Best Price for Medicaid rebates and 340B pricing purposes, as well as exclusion from the Medicare calculation of Average Sales Price (ASP) used to determine Medicare Part B reimbursement rates.  Each service or administrative fee needs to be assessed independently for each government program’s specific requirements before applying these transactions to Medicaid or Medicare price point calculations.  

Misclassifying a price concession as a BFSF can result in: 

• Inaccurate pricing being certified and reported to a government program 
• Over/Under paying Medicaid quarterly rebates 
• Over/Under 340B pricing being offered 
• Medicare reimbursement and coinsurance errors 
• Incorrect Medicare Part B drug inflationary rebate amounts 

Thus, fair market value (FMV) isn’t just a pricing exercise, it’s a compliance imperative.  

With the Centers for Medicare & Medicaid Services (CMS) sweeping changes in its 2026 Physician Fee Schedule Rule and each program (i.e., Medicaid and Medicare) having their own BFSF determination requirements, the stakes for getting BFSF FMV right have never been higher. 

What’s changing under CMS’s Medicare 2026 Final Rule 

CMS’s Medicare 2026 Final Rule aims to tighten the definition and documentation of BFSFs, particularly around FMV documentation and fee disposition. Here are the most impactful changes, including clarity around what was proposed vs. finalized, under the Medicare Part B program: 

Included in Final Rule:  

• Bundled arrangements definition: CMS will align the definition of a “bundled arrangement” with the Medicaid Drug Rebate Program, where discounts depend on purchasing patterns or performance requirements. 
• Certification and reporting: Manufacturers must obtain certifications from third party vendors (e.g., PBMs, GPOs, etc.) confirming that fees are not passed on in whole or in part to clients or customers. These certifications, along with FMV documentation, must be submitted quarterly as part of ASP reporting obligations. 

These changes signal CMS’s intent to reduce ambiguity and risk in ASP reporting. For life sciences companies, that means more rigor, more documentation, and less room for interpretation. 

What was proposed, but not finalized in the Final Rule:  

While prescriptive elements of FMV methodology were ultimately not included in the final rule, it still gives valuable line-of-sight into the views of risk and the importance of FMV held by CMS. The following elements were proposed by CMS but not ultimately included in the 2026 rule:  

• Presumption of price concession: Percentage-based fees (e.g., tied to WAC) are presumed to be price concessions unless validated as FMV using the cost-plus method. 
• Third-party valuation: FMV assessments must be conducted by independent third-party valuation experts with no financial interest in the outcome. These assessments must be refreshed at least as frequently as the service agreement’s renewal.  
• FMV methodology requirements: CMS will now mandate that FMV be determined using either a market-based approach or a cost-plus methodology. If fees are tied to drug price or sales volume (e.g., percent of Wholesale Acquisition Cost or WAC), only the cost-plus method is acceptable.  

What’s not changing 

Despite the new requirements, several foundational principles remain intact: 

• The four-part test: CMS continues to rely on its longstanding four-part test to determine whether a fee qualifies as a BFSF. FMV is just one component; the service must also be bona fide, itemized, and not passed through to customers.  
• Impact on ASP reporting: BFSF FMV will still be an input to ASP calculations. What is considered a concession and will need to be included will be under higher scrutiny. 
• Manufacturer responsibility: The burden of proof still lies with manufacturers rather than the third party vendors. CMS does not define FMV methodology but expects companies to justify their determinations with defensible methodologies.  
• Compliance risk: The consequences of misclassification such as financial penalties, reputational damage, and regulatory scrutiny remain unchanged. What’s new is the level of detail CMS expects in your defense. 

Medicare final rule vs. MDRP requirements 

With the new Medicare Final Rule, the following provides a summary of the significant differences between the Medicare Final Rule and MDRP requirements: 

• Enhanced documentation: Manufacturers must provide detailed documentation of reasonable assumptions used in calculating ASP, including FMV methodology. 
• Certification requirements: Recipients of BFSFs must certify that fees are not passed through to affiliates or customers. 
• Compliance timeline: The first ASP submission with these requirements is due April 30, 2026. 

However, it is important to note that there is no change to the definition of BFSF: CMS retained the existing definition codified by Medicaid under 42 CFR section 447.502. 

Compliance considerations 

As manufacturers navigate this complex landscape there are a number of compliance considerations that must be addressed. Below is a detailed checklist that manufacturers may want to consider: 

1. Documentation requirements 

• Maintain itemized service descriptions and contracts. 
• Record FMV analysis methodology and supporting data. 

2. Fair market value compliance 

• Ensure BFSFs reflect FMV for actual services performed. 
• Avoid fees that resemble discounts or price concessions. 

3. Certification obligations 

• Obtain written certification from service providers. 
• Include certification language in all BFSF contracts. 

4. Reporting and submission 

• Report BFSFs accurately in ASP submissions. 
• Comply with Medicaid Drug Rebate Program under 42 CFR section 447.502. 

5. Internal controls and monitoring 

• Implement compliance policies and annual audits. 
• Train staff and establish escalation procedures. 

How Baker Tilly is responding 

At Baker Tilly, we’ve long recognized the complexity of BFSF FMV assessments and ASP calculations. Our life sciences team applies a risk-based, defensible approach that aligns with CMS’s evolving expectations.  We will continue to leverage defensible methodologies and robust data sources, using both cost and market approaches depending upon service type. 

We are also designing BFSF FMV with tomorrow in mind, through automated technology-based workflows that integrate seamlessly with your current systems and processes. 

As CMS raises the bar, so do we. Whether you’re preparing for an audit, refreshing your FMV models, or navigating new certification requirements, Baker Tilly is here to help you stay compliant and confident.