Purpose

To determine whether the Department of Health (Department) accurately excluded 340B drugs from the Medicaid Drug Rebate Program and sought appropriate rebates. The audit covered the period April 1, 2010 through June 30, 2015.

Background

Congress created the Medicaid Drug Rebate Program in 1990. The program requires drug manufacturers to pay rebates to state Medicaid programs for prescription drugs dispensed to Medicaid recipients. To collect rebates, states determine the amount of rebates owed to them and send invoices to the manufacturers. Congress also created the 340B Drug Pricing Program in 1992. The 340B program requires drug manufacturers to discount the price of drugs sold to eligible health care providers. The Medicaid program benefits when these providers submit claims reflecting the discounted (lower) drug prices.

Federal law prohibits duplicate discounts, which occur if manufacturers pay Medicaid rebates on drugs sold at the already-discounted 340B price. Consequently, to collect allowable rebates and avoid duplicate discounts, states must accurately exclude 340B drugs from the Medicaid Drug Rebate Program.

The Department developed its own 340B provider list, which contained about 200 Medicaid provider ID numbers. During the audit period, the accuracy of the Department’s 340B provider list was crucial to ensuring proper rebates were sought because the Department excluded drugs from the rebate process based on this list. Effective April 1, 2017, the Department will solely rely on 340B drug claim identifiers to exclude 340B drugs from the rebate process. Accordingly, the Department has instructed providers to accurately identify 340B drugs with the required claim identifiers.

Key Findings

• The Department incorrectly identified 13 Medicaid providers as 340B providers. Consequently, the drug claims that these providers submitted were improperly excluded from the Medicaid Drug Rebate Program. These errors, if left undetected, could have resulted in $10.7 million in uncollected rebates. In response to the audit, the Department took steps to correct some of the errors identified and invoiced $4.7 million of the drug rebates before the conclusion of the audit fieldwork.
• We identified an additional 26 providers who the Department identified as 340B providers, but who were not on the official federal Medicaid Exclusion File of 340B providers. Because these providers were identified by the Department as 340B providers, claims from these providers were excluded from the drug rebate process. As a result, we estimated that $531,650 in potential rebates may have gone uncollected. The Department agreed to review the discrepancies and seek rebates where appropriate.

Key Recommendation

• We made four recommendations to the Department to recover about $6.5 million ($6 million + $531,650) in uncollected drug rebates and to take certain steps to help ensure future rebates are properly collected.

Other Related Audits/Reports of Interest

Department of Health: Optimizing Medicaid Drug Rebates (2015-S-1)
Department of Health: Medicaid Drug Rebate Program Under Managed Care (2014-S-41)