Article

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

Oct. 2, 2025 · Authored by Samantha Sutherland, Timothy J. Nugent, and Casey Armstrong

Bona fide service fees (BFSFs) are payments made by manufacturers to certain third parties in the distribution channel for bona fide, clearly defined, itemized services that are performed on behalf of the manufacturer where the fees paid are not passed on to members of the third party. These fees are excluded from Average Sales Price (ASP) calculations, which determine Medicare Part B reimbursement rates. But exclusion is conditional: the fees must meet Centers for Medicare & Medicaid Services’ (CMS) four-part test, including the requirement that they reflect fair market value (FMV).

Misclassifying a price concession as a BFSF can artificially inflate ASP, triggering Medicare overpayments, higher coinsurance for beneficiaries, and potential False Claims Act exposure. Thus, FMV is not just a pricing exercise, it is a compliance imperative.

With CMS proposing sweeping changes in its 2026 Physician Fee Schedule Rule, the stakes for getting BFSF FMV right have never been higher.

What’s changing under CMS’s 2026 rule

CMS’s proposed updates aim to tighten the definition and documentation of BFSFs, particularly around FMV and fee disposition. Here are the most impactful changes:

• 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.
• 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.
• 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.