By Susan L. Smith, JD, MA
An Office of Inspector General audit concluded thatduring calendar year 2016, Minnesota did not bill for and collect from manufacturers over $12 million in rebates because the state and its contractor failed to identify all rebate-eligible drugs that were included in utilization data submitted by Medicaid Managed Care Organizations.
An Office of Inspector General (OIG) audit of the Minnesota Medicaid state agency revealed that the state agency failed to bill for and collect from manufacturers’ all eligible rebates for drugs dispensed through Medicaid Managed Care Organizations (MCOs) because the state agency and its contractor did not identify all of the rebate-eligible drugs in the utilization material submitted by the MCOs due to a drug rebate application system error. The OIG audit reviewed drug utilization data for pharmacy and physician-administered drugs from eight Minnesota MCOs from January 1 through December 31, 2011, and found that the state agency had not billed for or collected rebates of over $12 million of which $6,073,088 represents the federal share for pharmacy and physician-administered drugs. Therefore, the state agency did not fully comply with federal Medicaid requirements for billing manufacturers for rebates for drugs dispensed to MCO enrollees (OIG Report, A-05-17-00018, October 21, 2020).
State process for collecting rebates. Manufacturers are required to pay rebates on covered outpatient drugs dispensed to eligible individuals. States must require MCOs to submit National Drug Codes (NDCs) for drugs dispensed to eligible individuals and must submit drug utilization data containing NDCs to manufacturers to collect rebates for the drugs. NDCs identify the drugs and their manufacturers to simplify the process for the collection of rebates for the drugs. When billing manufacturers for rebates, states include the drug utilization data reported by MCOs.
In Minnesota, the state agency is responsible for billing and collecting Medicaid drug rebates for pharmacy and physician-administered drugs. The state agency uses a drug rebate application system to identify drug encounters eligible for rebate, invoice manufacturers quarterly, and maintain a record of rebate accounts receivable from the manufacturers that pay the rebates directly to the state agency.
OIG findings. OIG found that the drug rebate application system excluded certain encounters due to a system error that incorrectly identified some providers as 340B providers and, therefore, eligible drugs were not invoiced for rebate. In addition, the drug rebate application system incorrectly identified some pharmacy and physician-administered drugs as part of a bundled service, which made the encounter ineligible for rebate. However, upon further analysis, the state determined that the encounters were not part of a bundled service and could have been invoiced for service.
Recommendations. The OIG recommended the state to bill for and collect manufacturers’ rebates for pharmacy drugs and single source and top-20 multiple source physician-administered drugs and refund the federal share to the federal government. The OIG calculated the federal share to be about $5.9 million. In addition, the OIG recommended the state work with CMS to determine whether the non-top-20 multiple-source physician-administered drugs were eligible for rebates and refund the federal share of the rebate once it was received. The OIG also recommended the state work with CMS to ensure that all pharmacy and physician-administered drugs after the audit period were processed for rebates and confirm that the drug rebate application system is properly identifying drug rebate eligibility.
ReportsLetters: OIGReports 340BNews AgencyNews DrugNews ManagedCareNews NewsFeed
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