Bona Fide Service Fees in Pharma: Which Payments Belong in AMP and ASP?

A discount dressed up as a bona fide service fee can inflate Medicare payments. Pharmaceutical fraud can also run the other way: deduct a genuine service fee from the reported drug price and shrink the Medicaid rebate. The same label can move money away from public healthcare programs in opposite directions. If you work in government pricing or contracting, you may know where the description in the agreement stops matching the work, the money or the price reported.

What Makes a Service Fee Bona Fide?

A bona fide service fee must satisfy all four requirements. Fair market value is only one part of the test. The work performed, the manufacturer’s need for it and the recipient’s use of the payment also matter:

1. Fair market value. What supports the amount paid for the particular service?
2. An itemized service actually performed. What work did the recipient deliver on the manufacturer’s behalf?
3. Work the manufacturer would otherwise perform or purchase. What manufacturer function does the service replace?
4. No pass-through. Did any part of the fee reach the recipient’s client or customer?

That last question reaches beyond the manufacturer’s books. In its review of average sales price reporting, the Department of Health and Human Services Office of Inspector General gave a concrete example: a pharmacy benefit manager receives an administrative fee and transfers a small portion to a health plan that contracts with it. The fee fails the test and becomes a discount that lowers average sales price.

The contract may describe administration. The payment trail can show a customer getting a price reduction.

How Service Fees Change AMP and ASP

Qualifying bona fide service fees stay out of the price concessions used to calculate both average manufacturer price and average sales price. But Medicaid uses manufacturer prices to calculate rebates owed by the manufacturer, while Medicare Part B uses sales prices to calculate payments for drugs. The financial incentive points in opposite directions.

Medicaid AMP and Best Price

For drugs distributed through retail community pharmacies, average manufacturer price measures prices paid by wholesalers and by pharmacies buying directly from manufacturers. Qualifying distribution fees, inventory management fees, stocking allowances, administrative fees and patient-care program fees are excluded from AMP.

Excluded means the service payment does not reduce the reported drug price. If a manufacturer instead deducts that payment as a price concession, AMP falls. A lower AMP generally means a smaller Medicaid rebate. The manufacturer keeps money it should have paid back to the program.

Bona fide service fees are also excluded from Best Price. A qualifying discount belongs in the price calculation. The distinction can change the lowest price the manufacturer reports as well as its average. Those figures also affect the 340B Drug Pricing Program: its ceiling price is AMP minus the Medicaid unit rebate amount. Misstating those inputs can change what participating health care providers pay for drugs.

Medicare Part B ASP

Average sales price reflects sales after applicable discounts, rebates, chargebacks and other price concessions. A qualifying bona fide service fee is not deducted as a price concession. Medicare Part B generally pays 106% of ASP, so a concession left out of that calculation can raise the government’s payment and the patient’s coinsurance.

Here the alleged manipulation is the reverse of the Medicaid pattern: classify a discount as a service fee, leave ASP higher, and Medicare reimburses against the higher number. Paying a distributor’s transaction costs can deliver that discount without changing the price printed on the drug invoice.

What Evidence Is Needed to Prove Fraud?

The evidence connects the actual payment and service to the price reported and the government money affected. The delivered work, valuation analysis and recipient’s records show what happened under the agreement.

We connect the fee schedule and invoices to the work the manufacturer received, then follow the payment into the AMP or ASP calculation. An itemized data-reporting service raises a concrete question about the data delivered. An administrative fee raises a question about whose administration the manufacturer paid for. A distribution fee raises a question about whether part of the payment reached the distributor’s customer.

The comparison extends across businesses. The manufacturer has the agreement and pricing submission. A wholesaler, group purchasing organization, pharmacy or pharmacy benefit manager may hold the records showing the service or where the fee went. The employee calculating the benchmark and the employee administering the contract can see different parts of the same transaction.

Communications about the classification matter alongside the calculation. We look at what the company knew about the service and pass-through, what it told the pricing team, and how the resulting report affected payment or rebates. That is how we build the connection between a commercial arrangement and a False Claims Act case.

Service-Fee Cases Show the Opposing Effects

The Medicaid wholesaler cases and the Medicare credit-card case show why a fee review needs both the underlying transaction and the reporting rule. Medicaid loses rebates in one pattern. Medicare pays too much in the other. Taxpayers bear the cost either way.

AstraZeneca and Cephalon’s Medicaid Rebate Settlements

AstraZeneca agreed to pay $46.5 million and Cephalon agreed to pay $7.5 million in settlements announced by the Justice Department in July 2015. The government alleged that both companies improperly deducted wholesaler service fees from reported AMP and consequently underpaid quarterly Medicaid rebates.

A pharmacist brought the whistleblower case. The relevant knowledge concerned the manufacturer’s treatment of wholesaler payments and the rebates owed to states. The alleged saving came from making the reported drug price smaller.

Regeneron’s Credit-Card Fee Allegations

Regeneron allegedly paid distributors’ credit-card processing fees so physician customers could buy Eylea with a card while paying the lower cash price. In its April 2024 complaint announcement, the Justice Department alleged that Regeneron omitted those payments from ASP price concessions and internally tried to disguise them as bona fide service fees.

The government alleged that physician customers obtained the fee waiver and credit-card rewards while Medicare paid inflated reimbursements. The reported price allegedly left that benefit out.

A whistleblower’s lawsuit prompted the government’s investigation. The whistleblowers’ complaint describes a related discount arrangement through Besse Medical. Its allegation makes the service-fee label particularly revealing:

That allegation connects the distribution agreement to the customer’s reduced price. The service-fee account and the customer discount need to be read together.

Elixir’s Retained-Rebate Allegations

Elixir Insurance and Rite Aid agreed to pay $101 million to the United States in a July 2024 resolution concerning Part D rebate reporting. The government alleged that retained manufacturer rebates were reported as bona fide service fees even though manufacturers had not negotiated to pay those fees.

A former RX Options employee brought the whistleblower case. Part D plans have a separate reporting obligation: they report rebates and other manufacturer remuneration so the government receives the benefit of price concessions. The question here was what the manufacturer had actually agreed to purchase. In the alleged arrangement, a portion of a rebate acquired a service-fee label without the negotiated service-fee agreement behind it.

Price Appreciation Credits Omitted From Manufacturer AMP

Bristol-Myers Squibb’s $75 million settlement, announced in April 2021, concerned alleged Medicaid rebate underpayments. The government alleged both improper deductions for wholesaler service fees and exclusion of additional value received under price-appreciation provisions in wholesaler contracts.

The commercial mechanism begins with inventory. A wholesaler holds drugs bought before a manufacturer raises its price and can sell that inventory at the new price. A price-appreciation provision can return part of that value to the manufacturer. In the Bristol-Myers Squibb allegations, that additional manufacturer value belonged in AMP.

The Bristol-Myers Squibb case was pursued by the whistleblower after the government declined to join. The settlement concerned what the manufacturer received as well as what it paid out. A reconciliation limited to outgoing service fees would miss that other side of the allegation.

Bundled Discounts Reach Beyond a Single Fee

A discount tied to purchases across products has to be allocated in proportion to the dollar value of the products sold under the arrangement. A fee review that stops at one invoice can miss the commercial condition elsewhere in the contract.

Wyeth and Pfizer agreed to a $784.6 million settlement in April 2016 over allegedly omitted Protonix discounts. Two whistleblowers brought the allegations concerning bundled discounts on oral and intravenous Protonix left out of Medicaid Best Price. The useful parallel is the unit of comparison: the arrangement can set the price through connected purchases, even when the records separate the products.

For an insider reviewing service fees, the agreement, discount allocation and reported price belong in the same picture. The Centers for Medicare & Medicaid Services’ FAQ also allows manufacturers to summarize bundled arrangements and their reallocation approach, with further information requested when needed.

Bona Fide Service Fee Fair Market Value Documentation in Pharma

This documentation needs to explain the valuation method, its data, its assumptions and its rationale. The certification FAQ says detailed summaries containing those elements are acceptable. A valuation conclusion without the reasoning leaves out what CMS asks to see.

In the inspector general’s December 2022 review, a manufacturer reported that CMS had not defined fair market value for this purpose and sought guidance on both the method and when to reassess it. The inspector general also described differing pass-through practices: some manufacturers sought contractual assurances, while others presumed fees stayed with the recipient unless told otherwise.

Those differences put the assumptions themselves at the center of the inquiry. We examine the explanation used at the time alongside the service, the payment and any information the company received that contradicted it.

A 2020 Oregon Law Review paper, Exposing the Middlemen in Rising Drug Costs, argues for separating administrative compensation from drug list prices. Its proposed approach states the economic distinction plainly:

A fee set as a percentage of a drug’s list price rises when that price rises, even if the service stays the same. The paper’s proposal puts the question plainly: what happened to the work when the payment increased?

What Changed With the 2026 ASP Certification?

Effective January 1, 2026, the ASP reporting policy added reasonable-assumption documentation, including fair-market-value methodology, and certification that a bona fide service fee is not passed through. CMS waived those submissions for the first sales quarter of 2026.

The FAQ states that if a service provider refuses to provide certification, the fee cannot be considered a bona fide service fee.

These controls make the relationship between the contract, the valuation and the recipient’s account of the payment visible in the reporting process. The certification addresses where the money went. The actual service and its value remain separate questions.

You Know What the Fee Bought

If you know why a service fee, customer discount or price-appreciation credit disappeared from the right calculation, speak with our whistleblower experts about that payment. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We work beside you to build your strongest whistleblower case from the commercial facts and bring in pharmaceutical pricing whistleblower lawyers who understand manufacturer reporting and rebate disputes.