Purpose

To determine the implementation status of the 12 recommendations made in our initial audit report, Medicaid Drug Rebate Program Under Managed Care (Report 2014-S-41).

Background

The State’s Medicaid program provides a wide range of health care services to individuals who are economically disadvantaged and/or have special health care needs. Since January 1991, 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), including both pharmacy and physician-administered drugs.

We issued our initial audit report on February 18, 2015. The audit objective was to determine whether the Department of Health (Department) took 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. We found that the Department did not take sufficient steps to maximize rebate collections on drugs dispensed to individuals enrolled in managed care. As a result of ineffective policies and processes and untapped rebate opportunities, we determined the Department did not collect as much as $119.3 million in available rebates during the audit period. We found that 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 did not have proper monitoring controls in place to ensure rejected MCO drug encounter claims were successfully resubmitted to the Medicaid claims processing system so that rebates could be requested. We also concluded the Department did not seek rebates on drugs from all categories of Medicaid services.

We recommended that the Department obtain the $119.3 million in uncollected rebates and improve its claims and rebate processes in order to maximize rebate collections on drugs dispensed to individuals enrolled in managed care.

Key Finding

Department officials made significant progress in addressing the problems we identified in the initial audit. However, further actions are still needed. In response to our audit recommendations, the Department invoiced $159 million in rebates since the initial audit. We also determined, however, that as much as $72.4 million in rebates has not been invoiced, but could still be collected with additional efforts by the Department. Given the current fiscal stress on state Medicaid programs, we strongly urge the Department to take the steps necessary to collect these rebates. The Department also provided training and assistance to MCOs regarding the proper submission of encounter claims and implemented controls to prevent some of the problems we identified in the initial audit from recurring. Of the initial report’s 12 audit recommendations, seven were implemented and five were partially implemented.

Key Recommendation

Officials are given 30 days after the issuance of the follow-up report to provide information on any actions that are planned to address the unresolved issues discussed in this report.

Other Related Audit/Report of Interest

Department of Health: Medicaid Drug Rebate Program Under Managed Care (2014-S-41)