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, the federal agency that runs Medicare, published a list that drug makers had been bracing for. It named the first ten drugs selected for Medicare price negotiation under the Inflation Reduction Act of 2022. For the first time, Medicare would sit across the table from manufacturers and bargain over what it pays for specific brand-name medicines, rather than simply accepting the prices that flow through the system.

The names were familiar. All ten were covered under Medicare Part D, the part of Medicare that pays for prescriptions people pick up at a pharmacy. They included widely used treatments for diabetes, heart failure, blood clots, cancer and autoimmune conditions: Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara, and a group of NovoLog and Fiasp insulin products. Millions of older Americans take at least one of them.

The timetable was long. Negotiations with manufacturers were to run through 2024. The resulting prices, which the law calls “maximum fair prices,” would take effect on January 1, 2026. The announcement started a clock more than two years before any patient or pharmacy would feel the result.

The start was contentious. Several manufacturers and industry groups had already sued to challenge the program, arguing it was unconstitutional, so the list arrived with a legal cloud over it. And the law set a schedule for further rounds. Drugs covered under Part B, the part of Medicare that pays for medicines typically administered in clinical settings, such as infusions given in a hospital outpatient department or a doctor’s office, would enter the program for 2028.

Most coverage that week treated the story as a contest between drug companies and the federal government, with patient savings as the prize. That framing was accurate as far as it went. But it left out a group of organizations that would have to make the new prices work in practice, day after day, at the pharmacy counter: health systems that run their own pharmacies. For them, the announcement was the first notice of a change to how cash would move through one of their busiest departments, and the clock had just started.

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.

A policy announcement that looks like a story about other people can turn out to be an operating change, and the time to prepare is when the list is published, not when the prices arrive. The exposure here has 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.

How a negotiated price actually reaches a pharmacy

Follow a single prescription to see why a hospital pharmacy should care. A patient on Medicare walks up to the counter of a hospital-owned outpatient pharmacy with a prescription for one of the selected drugs. The pharmacy hands over the medicine. Behind that simple moment sit three separate flows of money.

First, the pharmacy bought the drug earlier from a wholesaler, the distributor between manufacturers and pharmacies. Wholesalers sell at prices tied to the manufacturer’s list price. Second, the patient’s Part D plan, the private insurer that administers the Medicare drug benefit, pays the pharmacy for the prescription. Third, the patient may pay a share.

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. So there is a gap: the pharmacy paid a high price on the way in, but under the new program it will be paid on the basis of a lower one.

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. A retrospective refund is exactly what it sounds like: the pharmacy pays the higher price now, and the manufacturer sends back the difference later, after the drug has been dispensed and the claim recorded.

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. The facilitator acts as a clearinghouse in the middle: it tells each manufacturer which of its drugs were dispensed to Medicare patients, and where, so the manufacturer knows whom to refund.

The arrangement works like a mail-in rebate on a large appliance. You pay full price at the store, fill in the form, and wait for a check. For a household, a few weeks’ delay on one rebate is an annoyance. For a pharmacy filling thousands of prescriptions a month for some of Medicare’s most common brand drugs, it is a standing balance of money owed to it by a handful of manufacturers.

The cash gap: why refunds have float

“Float” is a finance term for money that is in transit: already gone from your account, not yet back. 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.

Suppose a mid-sized health system runs two outpatient pharmacies and a specialty pharmacy. Each week it dispenses selected drugs to Medicare patients. Each week it pays its wholesaler on normal terms. Each week it waits for refunds that arrive on the manufacturers’ schedule, not its own. If refunds take a month, the system is carrying roughly a month of the gap at all times. If one manufacturer is slow, disputes a batch of claims, or changes its process, the balance grows without anyone in the pharmacy noticing, because the drugs are still flowing and the patients are still being served. The problem shows up later, in working capital, where a CFO notices that cash is tighter than the income statement suggests.

Managing it takes no exotic skill; it is the same discipline any business applies to accounts receivable, the money customers owe it. The difference is that most hospital pharmacies had never had to manage a large, recurring receivable from drug manufacturers, so the reports, owners and thresholds did not exist.

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.

Doing this early was never about precision, since in 2023 nobody knew the final prices. The model’s value is that it forces the right conversations: which pharmacies carry the most exposure, which manufacturers matter most, how much cash the organization could tolerate having tied up, and who would be told when that limit was approached.

The 340B overlap: two discounts, one unit

The second exposure is more legally delicate. It involves 340B, a federal program that most board members of safety-net hospitals have heard of but few could explain.

Many hospital-owned and contract pharmacies dispense drugs bought under 340B, which gives eligible safety-net providers steep discounts. Hospitals and clinics that serve large numbers of low-income or uninsured patients can buy outpatient drugs from manufacturers at sharply reduced prices, and use the savings to support their services. The organizations that qualify are called covered entities. Many of them dispense 340B drugs through their own pharmacies and also through contract pharmacies, outside pharmacies such as retail chain stores that dispense on their behalf.

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. That sounds tidy. 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 reason is practical. A busy pharmacy usually keeps one shelf of each drug, not a separate 340B shelf and a regular shelf. It dispenses from a single stock, and software later works out which dispenses qualified for 340B, based on the patient, the prescriber and the location, and replenishes the 340B stock accordingly. That is what split-billing means: sorting a mixed stream of dispenses into categories after the fact. Third-party administrators, specialist firms, often run that process, especially for contract pharmacies.

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.

That last point is the one general counsel should hear. In a dispute, the question will be what the records show about a specific unit on a specific day. If those records live with a chain pharmacy or an outside administrator, the hospital’s position depends on how quickly and completely those partners respond.

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 problems depend on

Both of the earlier problems reduce to one capability: matching expected money to received money at the claim level. Reconciliation is the accounting word for it. It means taking two records that should agree, what you expected to receive and what you actually received, and explaining every difference.

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.

A pharmacy management system is the software that runs the pharmacy: it records prescriptions, checks insurance, prints labels and tracks inventory. It was built to get the right medicine to the right patient and to bill the right payer. It was not built to keep a running ledger of money owed by manufacturers, line by line. The data it would need is spread across several places: acquisition cost with the wholesaler, plan payment in claims records, 340B status with the administrator, refund details with the transaction facilitator and the manufacturer.

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. A claims switch is the electronic routing service that carries a pharmacy’s claim to the right insurer and brings the answer back in seconds. Each of these vendors would have to send or receive information it had never handled before.

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.

“Age” here means how long each refund has been outstanding, the same way an accounts receivable report shows what is current, thirty days late and ninety days late. A report like that turns a vague worry about cash into a short list: this manufacturer, these claims, this many days.

Four reasons this is more than plumbing

This is more than pharmacy back-office plumbing, for four reasons.

Money. Float is real cash that is not available for payroll, equipment or debt service. For an outpatient or specialty pharmacy on thin margins, an unmanaged refund balance can turn a profitable service line into a drain on liquidity.

Legal and regulatory risk. Duplicate discount disputes in 340B are not new, but the negotiation program created a new way to have one. An organization that cannot document its position at the claim level is negotiating from weakness, with manufacturers and potentially with regulators.

Mission. For many covered entities, 340B savings fund services for low-income patients. Revenue lost to refund disputes or duplicate discount claims comes out of that.

Lead time. The pieces that take longest, vendor contracts and data-sharing clauses, renew on their own cycles. Contracts signed in 2024 and 2025 would be in force when prices took effect in 2026. Missing that window meant either renegotiating mid-term or living without the data.

Preparing required no knowledge of the final prices, 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.

Owners who meet, and one monthly report

A well-prepared health system in this situation tends to share a few traits. It has named owners for each of the three exposures, and they meet. Finance has a working model of the refund balance, even if the inputs are estimates, and a threshold that triggers escalation. The 340B office has a map, channel by channel, of where 340B status is decided and how quickly. Counsel knows where the evidence is thin. Pharmacy operations and IT have written commitments from vendors, with dates and prices, rather than verbal reassurance. And there is one monthly report that shows refunds outstanding by manufacturer and age.

When preparation fails, it usually fails on ownership or timing:

• Treating it as someone else’s story. If leadership hears about drug price negotiation only as national policy, nobody inside the organization is asked to prepare.
• Waiting for final prices. The prices affect the size of the problem, not its shape. The shape was clear from the list.
• Giving the whole thing to the pharmacy. The pharmacy director can see the claims but usually does not own working capital, contract terms or litigation risk.
• Assuming vendors will handle it. Vendors build what customers ask for and pay for. A request made in writing, with a date, is more likely to be met than a general expectation.
• Forgetting contract pharmacies. The data that matters most in a 340B dispute often sits with a chain pharmacy or administrator the hospital does not control.

What to ask when the list is published

If you sit on the board or the executive team of a health system with its own pharmacies, these are plain questions worth asking whenever a program like this is announced:

1. Which of our pharmacies dispense the selected drugs to Medicare patients, and in what volumes?
2. If the price is delivered as a refund, how much cash could we have tied up at any moment, and who decides how much is too much?
3. For each pharmacy channel, including contract pharmacies, where is 340B status decided, by whom, and how long after dispensing?
4. If a manufacturer refuses a refund because it believes a 340B discount applied, can we produce the claim-level evidence to show otherwise, and how quickly?
5. Which vendor contracts renew before the prices take effect, and what have we asked those vendors to commit to, in writing?

The answers will not be perfect at first. Asking early shows which questions nobody can answer while there is still time to fix that.

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. The program had become a recurring cycle, and each round adds drugs a hospital pharmacy may need to reconcile.

Manufacturers’ constitutional challenges were rejected by the federal courts that decided them in 2024 and 2025. Leaders who held off preparing in the hope that the courts would make the problem go away found that the program proceeded on schedule.

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. Float was the issue the people closest to the counter chose to raise.

The 340B overlap grew more contentious. In 2025 HRSA, the federal agency that oversees 340B, 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. That would have compounded the float problem: covered entities would have been waiting on refunds for 340B discounts as well as for negotiated prices.

A federal court in Maine blocked the pilot on December 29, 2025, in a suit led by the American Hospital Association, and in February 2026 the court vacated it and sent it back to HRSA at the parties’ joint request. In August 2026 HRSA published a revised pilot for the negotiated drugs, set to start in January 2027. So the question of whether 340B discounts arrive up front or as refunds is open again, with a new start date.

Claim-level evidence remains central to both programs. Whatever happens to the pilot, the organizations in the strongest position are those that can say, for any unit of a selected drug, what they paid, what they were paid, what they are owed, by whom, and whether it was a 340B purchase.

The point reaches beyond drug pricing. When a regulator publishes a list, a schedule or a framework years ahead of the effective date, the lead time is the asset. The organizations that use it to assign owners, model the cash and write data access into contracts are the ones that find the effective date uneventful.