Medicare’s negotiated prices would reach hospital pharmacies as refunds, and refunds have float

The week

On August 29, 2023, the Centers for Medicare & Medicaid Services announced the first ten drugs selected for Medicare price negotiation under the Inflation Reduction Act of 2022. All were covered under Medicare Part D. They included widely used treatments for diabetes, heart failure, blood clots, cancer and autoimmune conditions, among them Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara and a group of NovoLog and Fiasp insulin products. Negotiations with manufacturers were to run through 2024, and the resulting maximum fair prices would take effect on January 1, 2026. Several manufacturers and industry groups had already sued to challenge the program. The law set a schedule for further rounds, with drugs covered under Part B, typically administered in clinical settings, entering the program for 2028.

Coverage of the August 2023 announcement focused on manufacturers, Medicare spending and patient savings. Health systems looked like spectators. Many of them, however, run outpatient, retail and specialty pharmacies, and many participate in the 340B drug discount program. For those systems, the program would change how money moves through the pharmacy, and the mechanics would be settled in guidance over the next two years, well before any price took effect. We separate the exposure into three parts with different owners: the cash gap a refund creates, which belongs to finance; the overlap with 340B, which belongs to the 340B program office and counsel; and the reconciliation capability both depend on, which belongs to pharmacy operations and IT.

The cash gap

The maximum fair price is what a Medicare beneficiary’s pharmacy should effectively pay for a selected drug. Pharmacies, however, buy from wholesalers at list-based prices that have no direct relation to the negotiated figure. The law put the obligation to close that gap on manufacturers. CMS guidance in 2023 allowed manufacturers to provide the price either up front or through a retrospective refund, and it was clear early that refunds would dominate. Under the approach CMS later finalized, Part D plans pay the pharmacy based on the negotiated price, and the manufacturer refunds the difference between a standard acquisition cost benchmark and that price. A CMS-contracted Medicare Transaction Facilitator passes claim data and, if the pharmacy chooses, payments.

Any arrangement in which the pharmacy pays more today and is made whole later creates float. Several of the selected drugs are among the highest-volume brand drugs in Medicare, so the amount outstanding at any moment can be material for a hospital outpatient or specialty pharmacy already running on thin margins. The finance work in 2023 was straightforward to describe. Pull Medicare dispensing volumes for the ten drugs, estimate the gap between acquisition cost and a plausible negotiated price, and model the outstanding balance under different refund timings. Then decide whether to change wholesaler payment terms, inventory levels or working capital lines before 2026, and set a threshold at which overdue refunds escalate to the chief financial officer.

The 340B overlap

Many hospital-owned and contract pharmacies dispense drugs bought under 340B, which gives eligible safety-net providers steep discounts. The negotiation law says a manufacturer does not have to provide both the 340B price and the negotiated price on the same unit; the covered entity gets the lower of the two. Applying that rule requires knowing, unit by unit, which dispensed drugs were 340B purchases. In many organizations that is determined only after the fact, by split-billing software and third-party administrators that sort claims days or weeks after dispensing.

The exposure runs in two directions. A manufacturer that believes a 340B discount already applied may decline to pay a refund, and a covered entity that cannot show otherwise loses the difference. A covered entity that accepts a refund on a unit later classified as 340B may face a duplicate discount claim. Both disputes turn on claim-level evidence the entity may not control, because contract pharmacy data sits with the pharmacy chain and the administrator. In 2023 these deduplication rules were being written while separate litigation over manufacturers’ restrictions on contract pharmacy was still running. The practical steps were to map where 340B status is decided for every pharmacy channel and to ask each administrator how quickly it could flag Medicare claims for selected drugs. Counsel also needed a briefing on where the entity’s evidence would be weakest.

The reconciliation capability

Both of the earlier problems reduce to one capability: matching expected money to received money at the claim level. For each selected drug dispensed to a Medicare beneficiary, a pharmacy needs the acquisition cost, the plan payment, the expected refund, the manufacturer that owes it, the 340B status, and the date the refund arrived. Very few pharmacy management systems tracked manufacturer refunds against individual claims, because before this program there was little reason to.

That made it a procurement question as much as a technical one. Pharmacy management systems, claims switches, 340B administrators and wholesalers would all need to exchange new data. Health systems could ask each vendor, in writing, which flows it would support, by what date, and at what price, and put those commitments into renewals signed in 2024 and 2025. Contract pharmacy agreements needed a clause giving the covered entity timely access to claim data for selected drugs. Internally, someone had to own a monthly report of refunds outstanding by manufacturer and age, reviewed alongside the 340B program’s own compliance reporting.

None of this required knowing the final prices. It required only the list of drugs, which became public in the last week of August 2023. A health system that treated the announcement as a manufacturer story lost roughly two years of lead time on the part of the program it would actually have to operate.

With hindsight

CMS published the negotiated prices for the first ten drugs in August 2024, and they took effect on January 1, 2026, using the Medicare Transaction Facilitator. A second round of fifteen drugs, including semaglutide, was announced in January 2025 for 2027. Manufacturers’ constitutional challenges failed in the federal courts that heard them through 2024 and 2025. Pharmacy groups, especially those representing independent and smaller pharmacies, pressed CMS throughout 2025 about refund timing and cash flow, which confirms where the pressure sat. The 340B overlap grew more contentious. In 2025 HRSA announced a 340B rebate pilot for the negotiated drugs, set to start with the prices in January 2026, which would have moved covered entities onto refunds there too. A federal court in Maine blocked it in late December 2025 in a suit led by the American Hospital Association, and HHS then said it would withdraw the pilot. Claim-level evidence remains central to both programs.