Objective

To determine whether the Department of Health did not collect Medicaid drug rebates due to encounter system rejections of pharmacy encounter claims. The audit covered the period from January 2018 through March 2023.

About the Program

The Medicaid Drug Rebate Program (Rebate Program) helps offset the costs of covered outpatient drugs dispensed to Medicaid recipients through rebates received from drug manufacturers. The Department of Health (DOH) administers New York’s Medicaid program. Many of the State’s Medicaid recipients receive their services through managed care. Managed care organizations (MCOs) are required to send DOH detailed information about each drug dispensed to managed care recipients. MCOs send this information to DOH on encounter claims to DOH’s encounter system. DOH and its rebate contractor use the drug utilization information on the encounter claims to submit rebate invoices to drug manufacturers.

Key Findings

For the period from January 2018 through March 2023, we identified 453,706 pharmacy encounter claims totaling $59.1 million in payments that were rejected by DOH’s encounter system. As a result of these rejections, we estimated a total of $31.2 million in missed drug rebates. The encounter system rejected these claims because they could not be validated by system controls. We found that DOH does not have a process for performing detailed reviews of rejected encounter claim data. As a result, DOH did not include these claims in its rebate process. The most common encounter claim rejection reason identified was that the encounter system could not verify the managed care recipient had active enrollment with the MCO that submitted the encounter claim (often due to the untimeliness of recipient enrollment changes).

Key Recommendation

Review the 453,706 encounter claims totaling an estimated $31.2 million in missed drug rebates and recover the corresponding missed rebates, as appropriate.