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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Review of Audit of the Medicaid Drug Rebate Program in Kansas," (A-07-03-04017)

May 8, 2003

Complete Text of Report is available in PDF format (1.37 MB). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


The objective of this audit was to evaluate whether the Kansas Department of Social & Rehabilitation Services (SRS) had established adequate accountability and internal controls over the Medicaid drug rebate program.  We found that the SRS lacked sufficient internal controls with regard to the Medicaid drug rebate program as required by federal rules and regulations.  Areas that lacked sufficient internal controls included:  recording accounts receivable, reconciliation of form CMS 64.9R and the general ledger, interest accrual, interest reporting, and invoice verification.  These issues occurred because the SRS did not develop or follow adequate policies and procedures with regard to the drug rebate program.  Federal regulations require effective control over and accountability for all funds, property and other assets.  In addition, the rebate agreements between the Centers for Medicare and Medicaid Services (CMS) and the drug manufacturers require the payment of interest on all disputed, late, and unpaid drug rebates.  Also, the State Medicaid Manual requires interest revenue to be reported on the Form CMS 64 Summary Sheet.  Drug rebate receivables were perpetually understated and it is likely that the SRS did not receive all drug rebates and interest on disputed or late rebate payments due from manufacturers.  In addition, the SRS did not have reasonable assurance that drug rebate balances and collections reported to CMS were accurate.  Moreover, the lack of sufficient internal controls increased the risk for fraud, waste, or abuse of drug rebate program funds.