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Review of Medicaid Outpatient Drug Expenditures in California for Fiscal Years 2004 and 2005

California's claims for reimbursement of Medicaid outpatient drug expenditures for fiscal years 2004 and 2005 did not fully comply with Federal requirements. The State claimed $24 million (Federal share) for unallowable Medicaid expenditures, which included $21 million in unsupported drug expenditures and $3 million in drug expenditures that were not eligible for Medicaid coverage because the drugs were terminated. In addition, the State claimed $10.9 million (Federal share) for drug products not listed on the quarterly drug tapes for which the State did not provide conclusive evidence that the drugs were eligible for Medicaid coverage. The State had inadequate controls to ensure that all of its outpatient drug expenditures complied with the Federal requirements described in our objective.

We recommended that the State (1) refund $24 million (Federal share) to the Federal Government for claims for unsupported drug expenditures and drug expenditures that were not eligible for Medicaid coverage, (2) work with CMS to resolve $10.9 million (Federal share) in expenditures for drug products that were not listed on the quarterly tapes and that may not have been eligible for Medicaid coverage, and (3) strengthen and establish internal controls to ensure that claimed Medicaid drug expenditures comply with Federal requirements.

In its comments on our draft report, the State agreed to work with CMS to resolve the issues regarding drugs not listed on the quarterly drug tapes and disagreed with our internal control recommendations related to maintaining documentation and retaining funding codes. However, the State did not explicitly address our remaining recommendations. The State's comments did not provide any new information to cause us to modify our recommendations.

Filed under: Center for Medicare and Medicaid Services