Objective

To determine whether the Department of Health (Department) took appropriate steps to collect all available drug rebates under the federal Medicaid Drug Rebate Program (MDRP). The audit covered the period from April 2018 through March 2022 and certain claims going back to January 2017.

About the Program

In 1990, Congress created the MDRP to reduce state and federal expenditures for Medicaid prescription drugs. The program was later expanded to require rebate collection for certain physician-administered drugs and drugs dispensed to individuals enrolled in Medicaid managed care plans. The MDRP requires drug manufacturers to enter into a national rebate agreement with the Centers for Medicare & Medicaid Services in exchange for Medicaid coverage of most of the manufacturer’s drugs. On a quarterly basis, states are required to send rebate invoices to each manufacturer for any rebate-eligible drugs the states paid for. Since April 1, 2018, the Department’s rebate contractor, Magellan Medicaid Administration Inc. (Magellan), has been responsible for submitting rebate invoices to manufacturers and collecting payments. Prior to April 1, 2018, the Department was solely responsible for administering the MDRP and sending rebate invoices to manufacturers. On a weekly basis, the Department extracts fee-for-service and managed care claims from the Medicaid Data Warehouse and provides them to Magellan for rebate invoicing. Magellan then determines which claims will be invoiced to drug manufacturers.

Key Findings

During the audit period, the Department made significant process improvements and system enhancements in the rebate collection process. However, certain improvements are still needed. We identified uncollected drug rebates totaling $183.7 million, as follows:

• $119 million in rebates missed due to errors in Department claim extraction procedures. The Department updated its extraction procedures in 2020 to fix these issues going forward.
• $44.5 million in rebates missed primarily due to inaccurate or incomplete claim information submitted by managed care organizations and providers.
• $12.8 million in rebates missed because Program of All-Inclusive Care for the Elderly managed care claims were excluded from the rebate process.
• $7.4 million in rebates missed due to processing errors by the Department and the rebate contractor.

Key Recommendations

We made 12 recommendations to the Department to invoice manufacturers for missed rebates, improve claims processing controls, and formally review certain rebate procedures.