It is the kind of month where I walk around with a legal pad to capture all the random thoughts floating around my head. Which is how “figure out gift baking (scones? Levain cookies?)” ends up next to “Look at MedPAC agenda.” There are no dull moments around here.

While I’m on the topic. MedPAC agenda, in case you were interested. A lot of payment adequacy and nothing super drug related.

Promise Now, Deliver … Never? On Thursday, a framework reviewed by Endpoints News outlined how “Most Favored Nation” (MFN) deals are being papered between drugmakers and the U.S. Department of Commerce. The template “letter of agreement” gives signers until January 1, 2029 to finish U.S. manufacturing investments—new plants or expansions—in exchange for a three-year tariff exemption. The White House wants signatures by December 31.

The investment ask is negotiated company-by-company, with at least one multibillion-dollar pledge expected to be fully spent by the 2029 deadline. The document bars stockpiling in the U.S. to dodge tariffs and makes clear future acquisitions won’t escape tariffs. A separate Commerce “Section 232” investigation into pharmaceuticals is still pending.

While realistic, it is interesting that the timelines are pushed out to 2029 because a lot can politically between now and then.

MA Stop Loss and Listen. This week, STAT News reported that some larger Medicare Advantage (MA) organizations are implementing aggressive tactics to discourage the enrollment of costly new-to-Medicare beneficiaries. This shift has made the current open enrollment unusually chaotic.

Insurers, including UnitedHealthcare and Humana, are actively limiting plan access by cutting broker commissions for new MA and Part D enrollments and requiring outdated paper applications. This selective enrollment primarily targets individuals who are just turning 65 or enrolling in MA for the first time. The Centers for Medicare & Medicaid Services (CMS) said it is reviewing the situation but has not yet penalized any entity. Plans worry that these individuals have pent-up demand for care: new enrollees transitioning from high-deductible commercial or Affordable Care Act (ACA) plans frequently seek expensive services, such as knee or hip surgery, immediately upon enrollment, when their out-of-pocket (OOP) cost burden is reset by Medicare coverage.

It remains to be seen whether state insurance commissioners, who have voiced concern over suppressed consumer choice, will take regulatory action to curb these selective enrollment tactics before CMS completes its review.

340B Blues. On Monday, hospital groups led by the American Hospital Association sued to stop the Health Resources and Services Administration’s (HRSA’s) 340B “Rebate Model” pilot, which would replace up-front discounts with post-sale rebates. The model is available starting January 1 for the 10 drugs with Medicare-negotiated prices for 2026.

Plaintiffs argue that HRSA reversed its long-held stance without proper process and that forcing safety-net providers to float drug costs threatens cash flow and patient access.

Expect an expedited bid for a temporary restraining order and fast-tracked briefing on Administrative Procedure Act claims. For pharma, the case will shape manufacturer–covered entity contracting risk and could influence parallel Inflation Reduction Act (IRA) litigation timelines.

Flip Side of the Coin. On Monday, IQVIA released a white paper assessing whether shifting the 340B Drug Pricing Program to post-sale rebates (like the rebate model described above) would squeeze covered entities’ cash flow. The analysis models eight inventory/rebate scenarios and finds that financing costs (interest on temporary negative cash balances) are small. The paper also estimates that for the ten Medicare Drug Price Negotiation “maximum fair price” products included in the pilot, aggregate interest costs would be roughly $11 million on $56.2 billion of list-price volume (~0.02%). So…not a big deal.

Assumptions do matter. The HRSA pilot expects manufacturers to pay approved rebates within 10 days of receiving complete claims data, with the agency reserving the right to eject slow payers — a timeline that materially limits any cash-flow float.

Expect to see this study cited everywhere in comment letters and court filings, while providers refocus objections on compliance workload, dispute resolution, and data-sharing burdens that fall outside pure financing cost.

(Buck)eye of the Storm. On Wednesday, the Buckeye Institute released a policy brief arguing that 340B Disproportionate Share Hospitals (DSH) are failing to properly put their program savings back into patient care. Raise your hand if you are shocked. No one?

Drawing on recent investigations, the brief notes that hospitals and contract pharmacies, not low-income patients, have become the primary financial beneficiaries of 340B, as drug spending by covered entities has ballooned. A consulting analysis cited in the paper finds that much of DSH hospital 340B revenue is routed into financial portfolios rather than into patient care, while Ohio 340B hospitals deliver charity care below the national average and many contract pharmacies intended for low-income communities are instead located in more affluent areas.

The brief also warns that opaque pricing, duplicate-discount risks, and government-mandated price controls may undermine innovation and shift hundreds of millions of dollars in costs to employers, employees, and state Medicaid programs.  The findings put pressure on covered entities to show the direct benefit of program savings on patient services.

Home Is Where the Cuts Are. On Friday, CMS finalized the Calendar Year 2026 Home Health Prospective Payment System rule. CMS projects a 1.3% net payment decrease (about $220 million) driven by permanent behavior adjustments and recalibration of case-mix weights, functional impairment levels, comorbidity subgroups, and low-utilization payment thresholds. Policy teams should flag implications for infusion, wound care, and therapy utilization — areas where home health partners can become chokepoints for specialty drug adherence and transitions of care. Expect provider pushback and potential legislative interest if access complaints rise; manufacturers with buy-and-bill or white-bag strategies into the home setting should review discharge pathways and prior authorization frictions.

ACCESS Granted. On Monday, the CMS Innovation Center unveiled the ACCESS Model (Advancing Chronic Care with Effective, Scalable Solutions), a voluntary Original Medicare payment model aimed at tech-supported care for hypertension, diabetes, chronic pain, and depression.

The model pays for outcomes, allows direct beneficiary enrollment, and opens applications January 1; the first performance cohort begins July 1. Pharma should note the focus on total cost and functional outcomes, not product utilization.

Keeping Calm and Carrying On. On Monday, the United States and United Kingdom announced a deal trading zero tariffs on U.K.-made medicines for higher U.K. drug payments and looser value thresholds. The U.K. says its exports get a 0% tariff into the U.S., and the National Institute for Health and Care Excellence (NICE) will raise its core cost-effectiveness range from £20,000–£30,000 to £25,000–£35,000 per quality-adjusted life year, with related appraisal tweaks aimed at faster National Health Service (NHS) access.

U.S. officials frame it as an “agreement in principle” on pharmaceutical pricing: the U.K. will lift net prices for new medicines by 25% and limit clawbacks under the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG), while the U.S. exempts U.K. drugs, ingredients, and medtech from punitive tariffs and holds off new Section 301 actions.

Raising NICE thresholds and curbing VPAG repayments can provide a model for how other countries think about the U.S. moves toward Most Favored Nation (MFN) pricing without losing patient access to innovative treatments in their countries.

Part D Misestimation. Late last month, the Congressional Budget Office (CBO) asked researchers to help unpack why Medicare Part D bids for 2026 point to far higher per-enrollee costs than expected. Bids indicate a ~35% jump versus CBO’s ~5% pre-bid assumption. If this continues, federal Part D spending over 10 years could land roughly $500 billion above earlier projections. Whoops.

CBO sketches several hypotheses. One is simple, market-wide trends in drug spending. Another focuses on manufacturer patient assistance programs (PAPs). CBO notes it may have underestimated spending growth because some manufacturers tightened PAP eligibility after the IRA introduced an OOP cap. Prescriptions that previously bypassed insurance via free-drug channels may now be billed to plans, raising plan liability without any change in clinical use.

For manufacturers, plans, and advocates — expect closer scrutiny of PAP policies, specialty-drug dynamics, and how IRA mechanics are flowing through bids and subsidies as 2026 plan designs and contracting settle into the new normal.

Healthy Profits? Sick Incentives. On Saturday, the New England Journal of Medicine ran a Perspective arguing that today’s corporatized delivery system still can’t make real money by keeping people healthy. The core point is that prevailing incentives reward billable treatment volume far more reliably than prevention, care coordination, or population health. This means that even well-meaning corporations gravitate to revenue centers (imaging, procedures, infusion) rather than investments that reduce utilization. This is framed as corporatization, amplifying a long-standing mismatch between profit and health maintenance.

If delivery organizations are structurally paid to do more, not avoid downstream costs, products that thrive under prevention-first models, such as vaccines, cardiometabolic agents with long time horizons, and adherence technologies, face an uphill commercial path unless payment rules change. Conversely, therapies tied to procedure lines or inpatient revenue can remain sticky even when alternatives reduce total cost of care, because budgets and incentives are siloed.

As you might expect, there isn’t an “aha” silver-bullet solution. But without payment models that share savings (and risk) over multi-year horizons, and without metrics that reward avoided complications, prevention won’t be the focus.

Reimbursement Fundamentals
I couldn’t decide on a title so let’s offer up both my options:

Bubble Trouble: More and then Likely Less for Pharmacies.

or

Killing me Softly. Why I needed to reread Adam Fein’s article 3 times. (And it was totally worth it)

On Tuesday, Drug Channels made a rather provocative point, that some pharmacies might do BETTER in 2026,not worse, with the Medicare negotiated drugs. That’s a big switch from what some are saying (including this article in STAT News.) I had to read the article a few times before it all came together, but I think the points made are so important. So, let’s dive in and examine it more closely.

First, a few key terms:

• Wholesale Acquisition Cost (WAC) = the drug’s list price from the manufacturer.
• Average Wholesale Price (AWP) = a sticker price that’s usually set at 120% of WAC. Plans often pay pharmacies using AWP formulas (for example, “AWP minus 20%”).
• Maximum Fair Price (MFP) = the Medicare negotiated price created under the IRA.
• Pharmacy refund (new for MFP drugs) = a payment the manufacturer sends the pharmacy after the claim, meant to cover the gap if the pharmacy bought the drug at a cost above the MFP.

Think of it like buying cereal. Lucky Charms perhaps. The store pays its wholesaler one amount. Shoppers (insurers) pay the store based on a posted shelf price formula. Later, the cereal company (the manufacturer) might mail the store a coupon (the refund) to make sure the store isn’t losing money on a sale. If the shelf price drops closer to the store’s cost, there’s less need for a big coupon.

Now layer in the current reality. Many pharmacies are paid below list price on Part D claims when the plan uses “AWP minus 20%.” Why? Because AWP is 120% of WAC, so “AWP minus 20%” ends up at 80% of AWP, which is about 96% of WAC. If the pharmacy’s actual acquisition cost is around WAC, that math often leaves a small loss on the ingredient–unless something else fills the gap. Pause here to take that in. It is crazy and true. I’ve never quite understood why the system is okay with this but, here we are.

Enter MFP refunds in 2026 for those 10 newly negotiated Part d drugs.

Refund = WAC − MFP (per unit) × quantity.

That refund, in addition to the plan payment, can flip a money-losing fill into a profitable one–at least while WAC (list price) sits far above the MFP. That means that, at least for early on, pharmacies might do better financially on these drugs than they are today. But if manufacturers lower WACs toward their net prices (a trend starting to show up), the gap between WAC and MFP shrinks. Smaller gap → smaller refund → smaller pharmacy margin from this mechanism.

But here’s a (made-up) example with a $550 drug to hopefully help.

Assume a drug with WAC = $550 for a 30-day supply. Then AWP = 1.20 × 550 = $660.

Regular, non-MFP drug:

Plan pays the pharmacy using “AWP − 20%.”
Payment = 80% × $660 = $528.

Pharmacy’s acquisition cost ≈ WAC – 5% (Wholesalers give a discount, they don’t want pharmacies underwater on brand drugs) so $550 – 5% = $522.50

Pharmacy margin = Plan Payment – Acquisition Cost = $528 – $522.50 = $5.50

Now let’s make that $550 drug a Medicare negotiated drug with an MFP:

The negotiated price, MFP, is $200.
Manufacturer refund = WAC − MFP = $550 − $200 = $350.*

The plan reimburses the pharmacy at MFP, so, in this case, $200.
Net margin after refund = Plan Payment + Manufacturer Refund – Acquisition Cost = $200 + $350 − $522.50 = $27.50

$27.50 (under MFP) > $5.50 (today)

*Sidenote:  This is an overpayment because manufacturers don’t have actual acquisition cost so they use WAC which, as pointed out earlier, gets discounted by wholesalers so pharmacies “double-dip” and get the ~5% twice.

But now imagine the manufacturer cuts WAC to $250 to better align list with net:

New AWP = $300; plan pays 80% × $300 = $240.

Acquisition cost ≈ $237.50 ($250 – 5%) → pre-refund margin = $2.50

The negotiated price, MFP, is $200.

Manufacturer refund = new WAC − MFP = $250 − $200 = $50.

Net margin after refund = Plan Payment + Manufacturer Refund – Acquisition Cost = $200 + $50 – $237.50 = $12.50

A reduction in WAC would reduce the margin of the pharmacy from $27.50 to $12.50, which, while better than today, is still narrow. Plus, pharmacies are waiting for this payment and, remember, this is all just an example.

Same patient, same drug, same clinical outcome — but a much smaller gross margin because the list-to-net bubble deflated.

Why would manufacturers cut list prices?

1. MFP refunds shrink when WAC falls, reducing the manufacturer’s outflow per claim.
2. Coinsurance math and “best price” mechanics become cleaner when list and net are closer, limiting odd incentives.
3. 340B and channel spreads (where some payments scale off list or reimbursement) tighten, dampening arbitrage that doesn’t add clinical value.

Which means:

• Commercial markets that still anchor payments to AWP or list-based formulas will also see spreads compress as WAC falls. Contract terms that are “percentage of AWP” or “AWP minus X%” will point to smaller dollars.
• 340B contract pharmacies often earn per-script or percentage-of-paid fees influenced by reimbursement levels; lower list prices mean smaller fees and narrower spreads between acquisition and reimbursement for some flows.
• Hospital–manufacturer dynamics change under any 340B rebate pilots. When list prices drop, the difference between WAC and the discounted 340B price tends to drop too, which reduces the size of rebates and the cash-flow “float” that has been at the center of recent debates.

So what does it all mean …

• Before 2026, many pharmacies rely on a spread between what the plan pays (using list-anchored formulas) and what they pay wholesalers.
• In 2026, for selected Medicare drugs, MFP refunds add a new revenue stream that can more than cover that spread–as long as WAC stays high relative to MFP. Which won’t last forever. AND there is a lot of behind-the-scenes work (and cash flow issues) that go into this.
• If manufacturers cut list prices, the WAC–MFP gap narrows, refunds shrink, and pharmacy margins built on list-anchored math fall. The system moves closer to “net pricing,” which may be healthier for patients and payers but is tougher on channel profits that depended on the gross-to-net bubble.

This is the heart of the Drug Channels point: MFP-era refunds can create a temporary cushion, but list-price reductions deflate refunds and list-anchored spreads, pushing the system toward net-price economics and away from margins built on the distance between list and net. But go back and take another look now that you have some grounding.