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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Need to Establish Connection Between the Calculation of Medicaid Drug Rebates and Reimbursement for Medicaid Drugs," (A-06-97-00052)

May 8, 1998

Complete Text of Report is available in PDF format (1.15 MB). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


This final report points out that requiring drug manufacturers to pay Medicaid drug rebates based on the average wholesale price (AWP) of drugs, instead of the average manufacturers price (AMP), would have resulted in about $1.15 billion in added Medicaid rebates for Calendar Years 1994 through 1996 for only the top 100 drugs (in terms of Medicaid reimbursement). Such a requirement would also; (1) eliminate inconsistences in the present methods used by drug manufacturers to calculate AMP, (2) establish a much needed connection between the calculation of Medicaid drug rebates and the calculation of Medicaid's reimbursement for drugs at the pharmacy level, and (3) reduce the burden of administering the Medicaid drug rebate program at the Federal, State, and manufacturer levels. We recommended that the Health Care Financing Administration develop and submit a legislative proposal to the Congress that would require drug manufacturers participating in the Medicaid outpatient prescription drug program to pay Medicaid drug rebates based on AWP. The HCFA did not concur, stating that they did not believe such legislation would be feasible at this time. The HCFA did agree, however, that changing from AMP to AWP would reduce the administrative burden involved in the AMP calculations, and that they are planning a comprehensive study of AWP.