Objective

To determine the extent of implementation of the three recommendations contained in our initial audit report, Improper Payments for Brand Name Drugs (Report 2020-S-62).                                                 

About the Program

The Department of Health (DOH) administers New York’s Medicaid program. The Medicaid program covers medically necessary prescription and non-prescription drugs. State law directs pharmacies to substitute prescribed drugs with less expensive drugs containing the same active ingredients, dosage form, and strength. Generally, this means a brand name drug will be substituted with a generic drug that is equivalent to the brand name drug. Prescribers of drugs can indicate that a brand name drug is necessary by directing pharmacies to “dispense as written” either in writing or electronically; otherwise, a generic drug should be dispensed. Usually, brand name drugs are more expensive than generic drugs.

DOH uses two methods to pay for Medicaid pharmacy services: fee-for-service (FFS) and managed care. Under the FFS method, Medicaid-enrolled pharmacy providers submit claims through DOH’s claims processing and payment system (eMedNY) for each drug dispensed to Medicaid recipients, and DOH pays providers directly for each claim. Under the managed care method, DOH pays managed care organizations a monthly premium for each Medicaid recipient enrolled in their plans and the managed care organizations arrange for the provision of health care services, including pharmacy benefits, and reimburse providers for those services. As of April 1, 2023, all Medicaid recipients enrolled in mainstream managed care received their prescription drugs through NYRx, the Medicaid Pharmacy Program, which is FFS.

The objective of our initial audit, issued on December 13, 2022, was to determine whether Medicaid made improper payments for brand name drugs. The audit found $1,102,823 in Medicaid overpayments for brand name prescription drugs where generic drugs were available. This included overpayments of $739,446 for FFS pharmacy claims for the period July 2016 through July 2021. These overpayments were for brand name drug claims where prescriptions allowed for generic substitutions and there was a generic drug available. The remaining overpayments of $363,377 came from 21 pharmacy claims paid by one managed care organization from October 2019 through December 2020 where a brand name drug was incorrectly dispensed and paid instead of a generic drug due to a system malfunction when the claims were processed and paid. The audit also identified an additional $1,011,990 in potential cost avoidance associated with FFS claims for drugs that appear to be generic drugs but were paid using brand name pricing methods for the period April 2017 through January 2022.

Key Findings

DOH officials made some progress in addressing the problems we identified in our initial audit report. For example, they instituted a system enhancement that identified certain drugs as generic, which more accurately reflects their approval status by the federal Food and Drug Administration (FDA). However, our follow-up found that the system enhancement did not apply to all FDA-approved generics, and since our initial audit, Medicaid has paid an additional $6.3 million for drugs that appear to be generic drugs but were paid using brand name drug pricing methods. In addition, the Office of the Medicaid Inspector General has made minimal progress in reviewing and recovering any improper payments identified in the initial report. Of the initial report’s three audit recommendations, two were not implemented and one was partially implemented. 

Key Recommendation

DOH officials are requested, but not required, to provide information about any actions planned to address the unresolved issues discussed in this follow-up within 30 days of the report’s issuance.