Health Reform WK-EDGE New Jersey failed to collect millions in rebates from drug manufacturers
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Friday, September 13, 2019

New Jersey failed to collect millions in rebates from drug manufacturers

By Sheryl Allenson, J.D.

The OIG determined that New Jersey failed to bill and collect for rebates due from drug manufacturers arising from certain drugs dispensed to Medicaid managed-care organization enrollees.

In a review of drug utilization data for both pharmacy and physician-administered drugs, the HHS Office of Inspector General (OIG) concluded that New Jersey did not comply with Medicaid requirements, namely billing manufacturers for rebates due for drugs administered to managed care organizations’ (MCO) enrollees. As a result, the OIG recommended that New Jersey bill for and collect rebates from the manufacturers for certain drugs, that it refund the federal government its share, and that it collaborate with CMS to determine whether other drugs were eligible for rebates (OIG Report, A-02-16-01011, August 30, 2019).

Rebates. For a covered outpatient drug to be eligible for federal reimbursement under Medicaid, the drug manufacturer is required to enter into a rebate agreement administered by CMS. The manufacturers pay quarterly rebates to the individual states, which in turn shares the rebates with the federal government "to offset the cost of prescription drugs." The state is required to bill for and collect the rebates from the drug manufacturers. The manufacturers must make certain disclosures, from which CMS determines the rebate amount for each drug. The OIG explained that the Social Security Act prohibits federal reimbursement when the state fails to capture certain information needed to properly invoice for rebates.

The OIG explained that pharmacy drugs are typically billed to Medicaid using national drug codes (NDCs) while physician-administered drugs are billed on a claim form using Healthcare Common Procedure Coding System (HCPCS) codes, each of which can relate to more than one NDC. In order to invoice for the rebates, a given state must use drug utilization data. This is data that identifies, by NDC, the metric number of units of each drug that the state reimbursed a Medicaid provider. It is the state’s responsibility to "capture" the drug utilization data and to report that data to the manufacturers, which in turn are used to pay the rebates.

According to the OIG, before the Deficit Reduction Act of 2005 (DRA), certain states did not collect rebates on physician-administered drugs where the drug claim did not contain NDCs However, the DRA amended relevant sections of the Social Security Act to address collection of rebates arising from physician-administered drugs for all single-source drugs and the top 20 multiple source drugs, which are all defined in the OIG report. The OIG also explained that under the Patient Protection and Affordable Care Act (ACA), manufacturers are required to pay rebates "on covered outpatient drugs dispensed to MCO enrollees if the MCOs are responsible for coverage of such drugs."

Audit. To determine if the New Jersey Department of Human Services was properly billing drug manufacturers for rebates for drugs dispensed to MCO enrollees, the OIG conducted an audit of the state agency’s billing of rebates for both pharmacy and physician-administered drugs provided to MCO enrollees. The OIG found that the state did not bill and collect from drug manufactures an estimated $138,347,944, of which the federal share was about $75.5 million for pharmacy and physician-administered drugs that were or might be eligible for rebates during the OIG audit period, from January 1, 2014 to December 31, 2016. Moreover, by extrapolating data from the audit period, the OIG estimated that the state did not bill and collect approximately $266 million in rebates, about $119.5 million of which was a federal share, for approximately the four-year period prior to the OIG audit. The OIG found that the state did not always bill and collect the rebates because it lacked a system edit to ensure that National Drug Codes (NDCs) were submitted for physician-administered drugs before January 1, 2015, and that even after that date, the system did not ensure the codes were captured for all physician-administered drugs.

As a result of its audit, the OIG recommended, among other things, that the state agency bill and collect rebates from manufacturers for the identified drugs and in turn that it refund the federal government its share and that the state agency work with CMS to determine whether other drugs were eligible for a rebate prior to the audit period. The state agency concurred with the OIG’s findings.

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