Title 42, The Public Health and WelfareRelease 119-110
§1320f–3 Negotiation and Renegotiation Process
Title 42 › CHAPTER 7 — SOCIAL SECURITY › SUBCHAPTER XI — GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE SIMPLIFICATION › Part E — Price Negotiation Program To Lower Prices for Certain High-Priced Single Source Drugs › § 1320f–3
Summary
The Secretary must negotiate with a drug’s maker to set a maximum fair price while the agreement is in effect. The Secretary must use a single method that aims for the lowest fair price. The drug maker must send required information by March 1 of the year the drug is published. The Secretary must give a written first offer by June 1 after publication and must explain why that price was chosen. The maker has 30 days to accept or send a written counteroffer with its justification. The Secretary must reply in writing, and all talks must finish before November 1 after publication. The Secretary cannot agree to a price higher than the ceiling or lower than any required floor. The ceiling is the lower of two amounts. One is the Medicare Part D plan enrollment‑weighted negotiated price (net of all price concessions) summed across plans, or for Part B drugs the prior year Medicare Part B payment amount. The other is a percent of the drug’s average non‑Federal average manufacturer price (ANFMAP) from 2021 (or the first full year after market entry) adjusted by the Consumer Price Index from September 2021 (or December of that first full year) to the September before publication. For initial price year 2026 that adjusted 2021 price is used; for 2027 and later it is the lower of the adjusted 2021 price or the ANFMAP for the year before publication. The percent used is 75% for short‑monopoly drugs, 65% for extended‑monopoly drugs, and 40% for long‑monopoly drugs. An extended‑monopoly drug is one approved/licensed 12 to fewer than 16 years ago; a long‑monopoly drug is one approved/licensed at least 16 years ago. Vaccines licensed under the vaccine law are excluded from those two groups. A temporary floor of 66% of the adjusted 2021 ANFMAP applies for certain qualifying single‑source small biotech drugs whose first initial price year is 2029 or 2030. Starting in 2028, the Secretary must renegotiate prices for drugs that gain a new approved use, move into extended or long monopoly status, or have material changes in the facts used to set price. All extended‑ and long‑monopoly eligible drugs must be selected for renegotiation; other eligible drugs are chosen if renegotiation is likely to change the price substantially. The renegotiation process should follow the same steps, limits, and formulas as the original negotiations. A new maximum fair price must take effect no later than the first day of the first calendar quarter that starts after the applicable date set in the negotiation process.
Full Legal Text
Title 42, §1320f–3
The Public Health and Welfare, Source: USLM XML via OLRC
(a)In general
For purposes of this part, under an agreement under section 1320f–2 of this title between the Secretary and a manufacturer of a selected drug (or selected drugs), with respect to the period for which such agreement is in effect and in accordance with subsections (b), (c), and (d), the Secretary and the manufacturer—
(1)shall during the negotiation period with respect to such drug, in accordance with this section, negotiate a maximum fair price for such drug for the purpose described in section 1320f–2(a)(1) of this title; and
(2)renegotiate, in accordance with the process specified pursuant to subsection (f), such maximum fair price for such drug for the purpose described in section 1320f–2(a)(2) of this title if such drug is a renegotiation-eligible drug under such subsection.
(b)Negotiation process requirements
(1)Methodology and process
The Secretary shall develop and use a consistent methodology and process, in accordance with paragraph (2), for negotiations under subsection (a) that aims to achieve the lowest maximum fair price for each selected drug.
(2)Specific elements of negotiation process
As part of the negotiation process under this section, with respect to a selected drug and the negotiation period with respect to the initial price applicability year with respect to such drug, the following shall apply:
(A)Submission of information
Not later than March 1 of the year of the selected drug publication date, with respect to the selected drug, the manufacturer of the drug shall submit to the Secretary, in accordance with section 1320f–2(a)(4) of this title, the information described in such section.
(B)Initial offer by Secretary
Not later than the June 1 following the selected drug publication date, the Secretary shall provide the manufacturer of the selected drug with a written initial offer that contains the Secretary’s proposal for the maximum fair price of the drug and a concise justification based on the factors described in subsection (e) that were used in developing such offer.
(C)Response to initial offer
(i)In general
Not later than 30 days after the date of receipt of an initial offer under subparagraph (B), the manufacturer shall either accept such offer or propose a counteroffer to such offer.
(ii)Counteroffer requirements
If a manufacturer proposes a counteroffer, such counteroffer—
(I)shall be in writing; and
(II)shall be justified based on the factors described in subsection (e).
(D)Response to counteroffer
After receiving a counteroffer under subparagraph (C), the Secretary shall respond in writing to such counteroffer.
(E)Deadline
All negotiations between the Secretary and the manufacturer of the selected drug shall end prior to the first day of November following the selected drug publication date, with respect to the initial price applicability year.
(F)Limitations on offer amount
In negotiating the maximum fair price of a selected drug, with respect to the initial price applicability year for the selected drug, and, as applicable, in renegotiating the maximum fair price for such drug, with respect to a subsequent year during the price applicability period for such drug, the Secretary shall not offer (or agree to a counteroffer for) a maximum fair price for the selected drug that—
(i)exceeds the ceiling determined under subsection (c) for the selected drug and year; or
(ii)as applicable, is less than the floor determined under subsection (d) for the selected drug and year.
(c)Ceiling for maximum fair price
(1)General ceiling
(A)In general
The maximum fair price negotiated under this section for a selected drug, with respect to the first initial price applicability year of the price applicability period with respect to such drug, shall not exceed the lower of the amount under subparagraph (B) or the amount under subparagraph (C).
(B)Subparagraph (B) amount
An amount equal to the following:
(i)Covered part D drug
In the case of a covered part D drug (as defined in section 1395w–102(e) of this title), the sum of the plan specific enrollment weighted amounts for each prescription drug plan or MA–PD plan (as determined under paragraph (2)).
(ii)Part B drug or biological
In the case of a drug or biological product for which payment may be made under part B of subchapter XVIII, the payment amount under section 1395w–3a(b)(4) of this title for the drug or biological product for the year prior to the year of the selected drug publication date with respect to the initial price applicability year for the drug or biological product.
(C)Subparagraph (C) amount
An amount equal to the applicable percent described in paragraph (3), with respect to such drug, of the following:
(i)Initial price applicability year 2026
In the case of a selected drug with respect to which such initial price applicability year is 2026, the average non-Federal average manufacturer price for such drug for 2021 (or, in the case that there is not an average non-Federal average manufacturer price available for such drug for 2021, for the first full year following the market entry for such drug), increased by the percentage increase in the consumer price index for all urban consumers (all items; United States city average) from September 2021 (or December of such first full year following the market entry), as applicable, to September of the year prior to the year of the selected drug publication date with respect to such initial price applicability year.
(ii)Initial price applicability year 2027 and subsequent years
In the case of a selected drug with respect to which such initial price applicability year is 2027 or a subsequent year, the lower of— (I)
(II)the average non-Federal average manufacturer price for such drug for the year prior to the selected drug publication date with respect to such initial price applicability year.
(2)Plan specific enrollment weighted amount
For purposes of paragraph (1)(B)(i), the plan specific enrollment weighted amount for a prescription drug plan or an MA–PD plan with respect to a covered Part D drug is an amount equal to the product of— (A)
(B)a fraction—
(i)the numerator of which is the total number of individuals enrolled in such plan in such year; and
(ii)the denominator of which is the total number of individuals enrolled in a prescription drug plan or an MA–PD plan in such year.
(3)Applicable percent described
For purposes of this subsection, the applicable percent described in this paragraph is the following:
(A)Short-monopoly drugs and vaccines
With respect to a selected drug (other than an extended-monopoly drug and a long-monopoly drug), 75 percent.
(B)Extended-monopoly drugs
With respect to an extended-monopoly drug, 65 percent.
(C)Long-monopoly drugs
With respect to a long-monopoly drug, 40 percent.
(4)Extended-monopoly drug defined
(A)In general
In this part, subject to subparagraph (B), the term “extended-monopoly drug” means, with respect to an initial price applicability year, a selected drug for which at least 12 years, but fewer than 16 years, have elapsed since the date of approval of such drug under section 355(c) of title 21 or since the date of licensure of such drug under section 262(a) of this title, as applicable.
(B)Exclusions
The term “extended-monopoly drug” shall not include any of the following:
(i)A vaccine that is licensed under section 262 of this title and marketed pursuant to such section.
(ii)A selected drug for which a manufacturer had an agreement under this part with the Secretary with respect to an initial price applicability year that is before 2030.
(C)Clarification
Nothing in subparagraph (B)(ii) shall limit the transition of a selected drug described in paragraph (3)(A) to a long-monopoly drug if the selected drug meets the definition of a long-monopoly drug.
(5)Long-monopoly drug defined
(A)In general
In this part, subject to subparagraph (B), the term “long-monopoly drug” means, with respect to an initial price applicability year, a selected drug for which at least 16 years have elapsed since the date of approval of such drug under section 355(c) of title 21 or since the date of licensure of such drug under section 262(a) of this title, as applicable.
(B)Exclusion
The term “long-monopoly drug” shall not include a vaccine that is licensed under section 262 of this title and marketed pursuant to such section.
(6)Average non-Federal average manufacturer price
In this part, the term “average non-Federal average manufacturer price” means the average of the non-Federal average manufacturer price (as defined in section 8126(h)(5) of title 38) for the 4 calendar quarters of the year involved.
(d)Temporary floor for small biotech drugs
In the case of a selected drug that is a qualifying single source drug described in section 1320f–1(d)(2) of this title and with respect to which the first initial price applicability year of the price applicability period with respect to such drug is 2029 or 2030, the maximum fair price negotiated under this section for such drug for such initial price applicability year may not be less than 66 percent of the average non-Federal average manufacturer price for such drug (as defined in subsection (c)(6)) for 2021 (or, in the case that there is not an average non-Federal average manufacturer price available for such drug for 2021, for the first full year following the market entry for such drug), increased by the percentage increase in the consumer price index for all urban consumers (all items; United States city average) from September 2021 (or December of such first full year following the market entry), as applicable, to September of the year prior to the selected drug publication date with respect to the initial price applicability year.
(e)Factors
For purposes of negotiating the maximum fair price of a selected drug under this part with the manufacturer of the drug, the Secretary shall consider the following factors, as applicable to the drug, as the basis for determining the offers and counteroffers under subsection (b) for the drug:
(1)Manufacturer-specific data
The following data, with respect to such selected drug, as submitted by the manufacturer:
(A)Research and development costs of the manufacturer for the drug and the extent to which the manufacturer has recouped research and development costs.
(B)Current unit costs of production and distribution of the drug.
(C)Prior Federal financial support for novel therapeutic discovery and development with respect to the drug.
(D)Data on pending and approved patent applications, exclusivities recognized by the Food and Drug Administration, and applications and approvals under section 355(c) of title 21 or section 262(a) of this title for the drug.
(E)Market data and revenue and sales volume data for the drug in the United States.
(2)Evidence about alternative treatments
The following evidence, as available, with respect to such selected drug and therapeutic alternatives to such drug:
(A)The extent to which such drug represents a therapeutic advance as compared to existing therapeutic alternatives and the costs of such existing therapeutic alternatives.
(B)Prescribing information approved by the Food and Drug Administration for such drug and therapeutic alternatives to such drug.
(C)Comparative effectiveness of such drug and therapeutic alternatives to such drug, taking into consideration the effects of such drug and therapeutic alternatives to such drug on specific populations, such as individuals with disabilities, the elderly, the terminally ill, children, and other patient populations.
(D)The extent to which such drug and therapeutic alternatives to such drug address unmet medical needs for a condition for which treatment or diagnosis is not addressed adequately by available therapy.
In using evidence described in subparagraph (C), the Secretary shall not use evidence from comparative clinical effectiveness research in a manner that treats extending the life of an elderly, disabled, or terminally ill individual as of lower value than extending the life of an individual who is younger, nondisabled, or not terminally ill.
(f)Renegotiation process
(1)In general
In the case of a renegotiation-eligible drug (as defined in paragraph (2)) that is selected under paragraph (3), the Secretary shall provide for a process of renegotiation (for years (beginning with 2028) during the price applicability period, with respect to such drug) of the maximum fair price for such drug consistent with paragraph (4).
(2)Renegotiation-eligible drug defined
In this section, the term “renegotiation-eligible drug” means a selected drug that is any of the following:
(A)Addition of new indication
A selected drug for which a new indication is added to the drug.
(B)Change of status to an extended-monopoly drug
A selected drug that—
(i)is not an extended-monopoly or a long-monopoly drug; and
(ii)for which there is a change in status to that of an extended-monopoly drug.
(C)Change of status to a long-monopoly drug
A selected drug that—
(i)is not a long-monopoly drug; and
(ii)for which there is a change in status to that of a long-monopoly drug.
(D)Material changes
A selected drug for which the Secretary determines there has been a material change of any of the factors described in paragraph (1) or (2) of subsection (e).
(3)Selection of drugs for renegotiation
For each year (beginning with 2028), the Secretary shall select among renegotiation-eligible drugs for renegotiation as follows:
(A)All extended-monopoly negotiation-eligible drugs
The Secretary shall select all renegotiation-eligible drugs described in paragraph (2)(B).
(B)All long-monopoly negotiation-eligible drugs
The Secretary shall select all renegotiation-eligible drugs described in paragraph (2)(C).
(C)Remaining drugs
Among the remaining renegotiation-eligible drugs described in subparagraphs (A) and (D) of paragraph (2), the Secretary shall select renegotiation-eligible drugs for which the Secretary expects renegotiation is likely to result in a significant change in the maximum fair price otherwise negotiated.
(4)Renegotiation process
(A)In general
The Secretary shall specify the process for renegotiation of maximum fair prices with the manufacturer of a renegotiation-eligible drug selected for renegotiation under this subsection.
(B)Consistent with negotiation process
The process specified under subparagraph (A) shall, to the extent practicable, be consistent with the methodology and process established under subsection (b) and in accordance with subsections (c), (d), and (e), and for purposes of applying subsections (c)(1)(A) and (d), the reference to the first initial price applicability year of the price applicability period with respect to such drug shall be treated as the first initial price applicability year of such period for which the maximum fair price established pursuant to such renegotiation applies, including for applying subsection (c)(3)(B) in the case of renegotiation-eligible drugs described in paragraph (3)(A) of this subsection and subsection (c)(3)(C) in the case of renegotiation-eligible drugs described in paragraph (3)(B) of this subsection.
(5)Clarification
A renegotiation-eligible drug for which the Secretary makes a determination described in section 1320f–1(c)(1) of this title before or during the period of renegotiation shall not be subject to the renegotiation process under this section.
(g)Clarification
The maximum fair price for a selected drug described in subparagraph (A) or (B) of paragraph (1) shall take effect no later than the first day of the first calendar quarter that begins after the date described in subparagraph (A) or (B), as applicable.
Reference
Citations & Metadata
Citation
42 U.S.C. § 1320f–3
Title 42, The Public Health and Welfare
Last Updated
Sep 23, 2026
Release point: 119-110