January 25, 2016

CMS Releases Final Medicaid Rebate Rule

Arnold & Porter Advisory

On January 21, 2016, CMS issued its much-anticipated regulation implementing the Medicaid rebate provisions of the Affordable Care Act (the Final Rule). With certain limited exceptions discussed herein, the Final Rule is effective on April 1, 2016, and is not retroactive to periods prior to that date. Thus, manufacturers have approximately two months to update their systems and to develop new Medicaid rebate policies and reasonable assumptions documentation to come into compliance with the Final Rule. The Final Rule contains important new guidance for Medicaid rebate calculations, and in many ways deviates from the Proposed Rule that CMS issued in February 2012.

The Final Rule touches almost every aspect of the Medicaid rebate calculation. Moreover, it continues to underscore the importance of reasonable assumptions documentation, which is now defined as an interpretation that is "consistent with the requirements and intent of section 1927 of the Act and federal regulations." Unlike the prior CMS regulations, this formulation notably no longer references "customary business practices" as a basis for a reasonable assumption. And, unlike Section II(i) of the Medicaid Rebate Agreement, the Final Rule formulation of a reasonable assumption does not reference consistency with the Medicaid Rebate Agreement.

This Advisory summarizes the key points of the Final Rule in detail. We have also attached, as Exhibit A, a chart showing the inclusion/exclusion requirements as detailed in the Final Rule. We hope you find this Advisory useful and look forward to speaking to you about implementation of the Final Rule in the coming months.

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