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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Medicaid Drug Rebate Program in New York State," (A-02-03-01009)

August 18, 2004

Complete Text of Report is available in PDF format (413 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


The objectives of this audit were to evaluate the New York State Department of Health's (Health Department) processes and controls for drug rebate billings, collections, and dispute resolutions and its accountability in terms of reporting outstanding rebate balances to Centers for Medicare and Medicaid Services (CMS).  The Health Department's processes and controls for rebate billings, collections, and dispute resolutions were not always coordinated effectively, did not maximize savings, and did not produce accurate and complete records of rebate activities.  Also, the Health Department did not properly account for its rebate activity or correctly report its outstanding rebate amounts to CMS.  We identified cost savings of approximately $3.3 million a year ($1.65 million Federal share) that could be achieved by seeking rebates from section 340B entities that do not bill the Health Department at discounted prices, an understatement of the Federal share of reported rebates for drugs used for family planning services amounting to approximately $730,000 a year, and an estimated balance of $350.6 million in outstanding rebates (including $31.6 million in unresolved disputes) as of June 30, 2002 that was not reported to CMS on the Medicaid Drug Rebate Schedule.  Among other things, we recommended that the Health Department (1) strengthen its processes and controls for rebate billings, cash receipts, and collections in order to properly report the aged outstanding rebate amount to CMS on the Medicaid Drug Rebate Schedule; (2) improve its processes and controls to ensure timely recording, endorsement, and deposit of rebate funds; effective resolution of disputes; and the tracking and verification of interest due on rebate payments; and (3) ensure that the Federal Government receives the appropriate share of rebates for drugs for family planning services (approximately $730,000 in additional rebates a year).