Purpose

To determine whether the Department of Health (Department) is maximizing revenues from Medicaid drug rebates. The audit covered the period April 1, 2010 to December 31, 2014.

Background

In 1990, Congress created the Medicaid Drug 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 the 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).

Currently, the Department monitors drug dispensing to Medicaid enrollees through claim information that is submitted to the Department’s Medicaid claims processing and payment system, eMedNY. Included in this information is a drug’s National Drug Code (NDC), which is a unique number that identifies each medication by its drug manufacturer and is the basis for the Department’s manufacturer rebate requests. The Department uses NDCs and other information in eMedNY to identify drugs that are eligible for rebates. The Department then calculates quarterly rebates for each drug and submits rebate invoices to the manufacturers. For 2014, the Department invoiced $2.4 billion in rebates for pharmacy drugs and $72 million in rebates for physician-administered drugs (drugs administered by a medical professional in an office setting).

Key Findings

• The Department has not maximized revenues from the Drug Rebate Program, and has overlooked multiple sources of rebates that collectively account for an estimated $95.1 million during our audit period. By the end of the audit fieldwork, the Department had already acted on some of the findings and, as a result, invoiced $9.3 million of the $95.1 million in identified rebates.
• The Department implemented exclusionary rebate policies that were dubious when adopted or inadequately monitored thereafter, thus undermining its ability to collect all drug rebate revenue. We found that the Department does not routinely review its internal policy decisions regarding rebate exclusions to reaffirm or reject their validity – which is especially critical given the dynamic nature and complexity of Medicaid claims processing. We found that such policies accounted for $86.4 million (of the $95.1 million) in unclaimed rebates.
• The Department did not adequately oversee its rebate invoicing processes to ensure all claims that were eligible for rebate were accurately identified and invoiced to manufacturers. We identified errors in the drug rebate invoicing process that prevented the Department from properly identifying $8.7 million (of the $95.1 million) in rebate revenue due. We further found that the Department had not performed sufficient risk assessments of its rebate invoicing processes to ensure key operations functioned correctly and effectively.

Key Recommendations

• Review the rebate policies identified in this report and revise as appropriate to ensure all rebate-eligible drugs are identified for invoicing.
• Review the rebate processing errors identified in this report and take action as appropriate to ensure all rebate-eligible drugs are identified for invoicing.
• Where appropriate, issue retroactive rebate invoices on the drug claims identified.
• Formally document the entire drug rebate process and regularly reassess policy decisions.

Other Related Audits/Reports of Interest

Department of Health: Medicaid Drug Rebate Program Under Managed Care (2014-S-41)
Department of Health: Rebates and Discounts on Physician-Administered Drugs (2010-S-72)