The Bubble You Don’t Know You’re In: A Three-Part Series on The Medical Benefit Bubble

There is a conversation happening in boardrooms and brand planning cycles across the pharmaceutical industry right now, and it goes something like this: “We’re not exposed to the gross-to-net bubble. We’re a medical benefit product. Our pricing is stable. And besides, our orphan designation protects us from negotiation.”

That statement is technically accurate. It is also dangerously incomplete.

Chief commercial officers, brand leads, and pricing strategists who manage physician-administered, infused, and injected products have spent two decades operating under a reimbursement architecture that the government deliberately designed to be stable, transparent, and resistant to the pricing distortions that inflated the pharmacy benefit side of the ledger. For the most part, that architecture worked exactly as intended.

Until now.

A convergence of forces — loss-of-exclusivity (LOE) cycles, biosimilar market dynamics, coverage determination as a pricing mechanism, and the arrival of Maximum Fair Price (MFP) — is introducing structural pressure to the medical benefit space that the industry has never had to model before. The commercial leaders who navigate the next five years most effectively will not be the ones who feel most protected.

They will be the ones who stopped assuming they were protected and started modeling what comes next.

Two Bubbles. Two Completely Different Architectures.

To understand why medical benefit is now under pressure, you first have to understand why the pressure looks nothing like what happened on the pharmacy benefit side. The pharmacy benefit gross-to-net bubble was a creature of pharmacy benefit manager (PBM) economics and how those incentives work against a manufacturer in government markets such as Medicaid, Medicare, 340B, and the Federal Supply Schedule (FSS).

This model in which manufacturers start with a high wholesale acquisition cost (WAC), pay large rebates to PBMs in exchange for formulary placement, continuously raise WAC above the Consumer Price Index, and simply deal with statutory government price implications always had a life expectancy on it. This bubble is easy to see: with LOEs, WAC reductions, and MFP, it is set to rapidly deflate.

Medical benefit pricing, however, was built on an entirely different foundation — one that made that kind of inflation structurally impossible. When Congress enacted the Medicare Modernization Act (MMA) in 2003, it created the Average Sales Price (ASP) methodology, effective 2005, because the government had grown tired of chasing discounts through estimates and surveys.

Rather than negotiate or approximate net prices, the Centers for Medicare & Medicaid Services (CMS) required manufacturers to report sales prices net of most reportable discounts, rebates, and other price concessions, subject to statutory and regulatory exclusions, and average them across the applicable reporting period. The result was ASP: a market-derived, quarterly reported price that became the basis for Medicare Part B reimbursement at ASP plus 6%.

The discipline the system imposed was elegant in its logic. The goal of every well-managed medical benefit brand became — and remains — to keep WAC and ASP as close to a 1:1 ratio as possible.

Reportable discounts and price concessions extended through the channel — including to specialty clinics, hospitals, group purchasing organizations (GPOs), and distributors — flow into the ASP calculation and reduce future Medicare reimbursement, generally with a two-quarter sales-to-payment lag. Discounts were not free in this system.

They carried a systemic cost that showed up in the reimbursement statements of every infusion center and oncology practice in the country. Clinics track ASP changes with the same precision that manufacturers track gross-to-net erosion on the pharmacy side — because a meaningful ASP move changes both their cost of goods and their reimbursement margin simultaneously.

Although this was the invention of the federal government, policy makers have increasingly challenged the pricing outcomes that developed under it. The response from industry was not simply to lay down and take it.

Rather, manufacturers increasingly launched at prices closer to the point at which products historically might have ended their lifecycles. Traditional Medicare did not have direct price-negotiation authority, and it does not generally manage physician-administered drugs through PBM-style formularies, rebate-driven preferred positioning, or step therapy.

Coverage instead operates through the reasonable-and-necessary standard, National and Local Coverage Determinations, and related Medicare coverage policy; Medicare Advantage plans have additional utilization-management tools. Consequently, our industry saw launch prices of medical benefit products jump from roughly $40,000/year when MMA went into effect to more than $150,000/year in 2026.

Now the federal government wants to pop this bubble. But it is not a gross-to-net bubble.

It is a total cost of drug bubble. The government wants to see the WAC:ASP ratio stretch, which is happening for generics, biosimilars, and even 505(b)(2)s.

We see this intent in MFP and to a lesser degree with the changes in the 2026 Physician Fee Schedule. The government can now negotiate directly with manufacturers once a drug meets the Initial Price Applicability Year criteria.

In theory, this should pop the bubble and prevent the bubble from reforming.

Point One: LOE Deflates the Bubble, but the Mechanism Depends on Your Molecule

LOE has always been the primary event that disrupts ASP stability, but the mechanism of disruption depends entirely on whether the product is a small molecule approved under a New Drug Application or a large-molecule biologic approved under a Biologics License Application. These concepts are not interchangeable.

They deflate differently, at different speeds, under different competitive dynamics — and commercial teams that treat them as the same category will be caught flat-footed when the clock runs out. For small-molecule products, the dynamic is familiar if underappreciated: when a generic enters the market, its sales are folded into a common ASP calculation for both the reference and generic products, creating a linked ASP.

As generic market share grows and prices fall, the innovator’s reimbursement follows — not because the innovator took a discount, but because the market did. The ASP architecture reports reality, and reality becomes more competitive every quarter after the first generic entry.

For large-molecule biologics, the post-LOE dynamic is more nuanced and, for those who have not lived through a biosimilar wave, often counterintuitive. The reference biologic retains its original reimbursement formula but on a gradually descending ASP as competitive pressure from biosimilars erodes list price over time.

Qualifying biosimilars, during the applicable five-year period, are reimbursed at the biosimilar’s own ASP plus an add-on equal to 8% of the reference biological product’s ASP, rather than the standard 6% add-on — a formula designed to create a provider incentive for biosimilar adoption while preserving meaningful economics for both the originator and the entrant. The bubble does not pop suddenly in this model.

It deflates in stages, across multiple formulary cycles, as contracting pricing descends and ASP follows at a lag. The Physician Fee Schedule, mentioned earlier, has added another layer of complexity.

In the 2026 final rule, CMS stopped short of finalizing its proposed revisions to the bona fide service fee definition and fair-market-value standards, but it materially increased documentation, reasonable-assumption, and verification requirements surrounding these arrangements. The practical implication for commercial teams is greater scrutiny around commercial arrangements with specialty clinics, GPOs, management services organizations, and distributors and whether fees qualify for exclusion from ASP.

Arrangements that might once have received less attention now require more rigorous documentation. Commercial leaders need to know which arrangements, at what thresholds, trigger ASP reporting impact — and whether their contracting teams are applying that knowledge prospectively or catching up to it in quarterly filings.

Point Two: The Orphan Shield Is a Temporary Wall, Not a Permanent One

Many commercial leaders have concluded, not unreasonably, that their orphan drug designation insulates them from MFP negotiation. For now, in some cases, they are correct.

But the mechanism behind that protection — and the conditions under which it holds — deserve closer examination than they are currently receiving. The original Inflation Reduction Act (IRA) orphan drug exclusion was narrow by design: a drug was exempt from MFP negotiation only if it carried a single orphan designation and all of its approved indications addressed that one rare disease or condition.

The moment a manufacturer expanded into a non-orphan indication, the exclusion ended and the drug became eligible for negotiation on the standard timeline. Recent legislation — the 2025 changes to the IRA’s orphan drug exclusion provisions — fundamentally rewrote those boundaries.

Under the revised rules, drugs with one or more orphan designations and approvals are excluded from negotiation so long as all of their approved indications remain within designated rare diseases or conditions. If a product subsequently receives its first non-orphan indication, the exclusion ends.

Importantly, however, the 7- or 11-year negotiation eligibility clock begins when the product first ceases to qualify for the orphan exclusion, rather than from its original FDA approval. The practical impact is significant.

The 2025 changes have delayed negotiation eligibility for two of the highest-spend Part B products anticipated for MFP selection — pembrolizumab and nivolumab, with combined global 2024 sales exceeding $38 billion. A third major product, with multiple orphan designations and no non-orphan approvals, is ineligible under its current label.

But here is the point that should concern every commercial leader who has concluded they are protected: rules that change once can change again. The 2025 legislative changes expanded the exclusion; a future administration or Congress could narrow it.

The companies building five-year commercial models around the current orphan exclusion provisions are implicitly betting that those provisions remain intact through a period of sustained political pressure on drug pricing — a period in which the exemption of billion-dollar blockbusters from negotiation will remain visible and controversial. That is not a bet a disciplined organization should make without modeling the alternative.

Point Three: MFP Is Not a Price Adjustment. It Is an Architecture Change

The most consequential misunderstanding in medical benefit commercialization right now is the belief that MFP is simply a price reduction applied on top of the existing ASP framework. It is not. It is a departure from ASP logic entirely — and that distinction has structural consequences that most commercial models have not yet absorbed.

ASP was built on a foundational principle: the government would follow the market. Observe what manufacturers actually charge, average those transactions, and reimburse based on what the market itself determined.

That principle gave manufacturers a degree of agency — price and contract with discipline, and the reimbursement system would reflect that discipline. The system rewarded transparency and punished undisciplined discounting and price increases.

MFP operates on a different principle: the government will set a price, and the market will follow. That is not an extension of ASP logic, it is a replacement of it.

For the products it reaches, the government’s reference point is no longer what the market has established — it is what the government determines constitutes fair value, using a methodology that manufacturers did not design and cannot fully control. The implications for commercial planning are substantial.

The stability that ASP provided — the ability to model reimbursement trajectories years in advance, to calibrate WAC and net price relationships, to build contracting strategies around predictable quarterly ASP movements — no longer fully applies to products under MFP. A new pricing logic has entered the room, and it plays by different rules.

The Call to Action: Model the World You’re Entering, Not the One You’ve Known.

Here is what I would ask every chief commercial officer, brand lead, and pricing strategist reading this to sit with. Your clinic customers — the oncologists, rheumatologists, infusion centers, and specialty practices that administer your products — are already doing this math.

Every quarter, when new ASP rates are published, they recalculate their cost of goods and their margin. They are building contingency plans for MFP-adjusted reimbursement on the products they depend on most.

Some of them will make formulary and stocking decisions based on those contingency plans before your commercial organization has a response ready. The medical benefit bubble was never going to hold indefinitely.

Loss of exclusivity was always going to erode ASP stability. Biosimilar competition was always going to test contract price discipline.

What MFP introduces is a variable that operates outside the logic the industry has relied on for 20 years — a government-determined price that becomes the effective ceiling, regardless of what the market would otherwise have established. The commercial leaders who will navigate the next five years most effectively are not those whose orphan designations currently provide shelter, or those who have admirably managed their WAC:ASP ratios.

They are the ones building models — now, not in the next planning cycle — that account for what their reimbursement architecture looks like when the rules continue to evolve. The bubble is not announcing itself. The question is not whether it will deflate, it is whether your organization sees it clearly enough to act before it does.

In part two of this series, we examine how the government’s binary coverage authority — National Coverage Determinations — became the precursor shock wave that previewed everything MFP would later formalize, and what it means for how pharmaceutical companies must rethink launch strategy from the ground up.

About the Author

Bill Roth, SVP of Consulting and Advisory, IntegriChain.