Purpose

To determine whether the Department of Health (Department) has taken appropriate steps to maximize rebate collections on drugs dispensed to individuals enrolled in Medicaid managed care. The audit covered the period from October 1, 2011 to June 30, 2014.

Background

In 1990, Congress created the Medicaid Drug Rebate Program (Rebate Program) to reduce state and federal expenditures for Medicaid prescription costs. Since January 1991, the State of New York has been able to recover a portion of Medicaid prescription drug costs by requesting rebates from drug manufacturers. The Affordable Care Act, enacted in 2010, extended prescription drug rebates to cover medications dispensed to enrollees of Medicaid managed care organizations (MCOs), including both pharmacy and physician-administered drugs.

The inclusion of drug coverage within managed care, as of October 1, 2011, presented a unique challenge for the Department in terms of identifying all occurrences of drug dispensing in order to maximize rebate savings to the Medicaid program. Currently, the Department monitors drug dispensing through MCOs based on claim information from MCOs (referred to as encounter claims), including a drug’s National Drug Code (NDC). The NDC is a unique number that serves as a universal product identifier for each medication and is the basis for the Department’s manufacturer rebate requests.

The Department’s Medicaid claims processing system (eMedNY) has edits to reject MCO encounter claims that have incomplete information, such as a missing NDC. The Department uses information from eMedNY to identify drugs that are eligible for rebate based on the NDC information submitted on the encounter claims, calculates the rebates for each, and submits rebate invoices to the drug manufacturers. According to Department officials, from October 1, 2011 to June 30, 2014, the Department collected a total of approximately $3.6 billion in rebates from MCO drug encounter claims.

Key Findings

• The Department has not taken appropriate steps to maximize rebate collections on drugs dispensed to individuals enrolled in managed care.
• As a result of ineffective policies and processes, as well as untapped rebate opportunities, the Department did not collect as much as $119.3 million in available rebates for the Medicaid program during the audit scope period.
• The Department did not conduct risk assessments to determine the impact of its policies and processes on MCO claims processing and rebate revenue.
• The Department doesn’t have proper monitoring controls in place to ensure rejected encounter claims are successfully resubmitted to eMedNY so that rebates can be requested.
• The Department does not seek rebates on drug encounter claims from all categories of Medicaid services.

Key Recommendations

• We made 12 recommendations to the Department to obtain the $119.3 million in uncollected rebates and improve its claims and rebate processes to maximize rebate collections on drugs dispensed to individuals enrolled in managed care.

Other Related Audit/Report of Interest

Department of Health: Rebates and Discounts on Physician-Administered Drugs (2010-S-72)