Purpose

To determine the implementation status of the four recommendations made in our initial audit report, Errors in Identification of 340B Providers in the Medicaid Drug Rebate Program (Report 2016-S-6).

Background

We issued our initial audit report on June 30, 2017. The audit objective was to determine whether the Department of Health (Department) accurately excluded 340B drugs from the Medicaid Drug Rebate Program and sought appropriate rebates. 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. 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. 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.

Our initial audit covered the period from April 1, 2010 through June 30, 2015. The audit determined the Department incorrectly identified Medicaid providers as 340B providers. As a result, the providers’ drug claims were excluded from the Medicaid Drug Rebate Program. These errors, if left undetected, could have resulted in over $10.5 million in uncollected rebates. We recommended that the Department: review the drug rebates identified and seek retroactive rebates where appropriate; ensure that rebates from July 1, 2015 and thereafter are appropriately claimed and collected for the providers we identified; and monitor providers’ use of 340B claim level identifiers to ensure they properly identify 340B drugs.

Key Finding

Department officials made progress addressing the problems identified in the initial audit report. The Department invoiced about $15.6 million in drug rebates as a result of the audit. The Department also contracted with a vendor to perform its rebate invoicing and to monitor and make recommendations for improvements in the rebate process. Of the initial audit report’s four recommendations, two were implemented and two 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: Errors in Identification of 340B Providers in the Medicaid Drug Rebate Program (2016-S-6)