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States' Collection of Medicaid Rebates for Physician-Administered Drugs

By June 2009, 73 percent of responding States reported meeting or exceeding the requirement under the Deficit Reduction Act of 2005 (DRA) to collect rebates for certain physician-administered drugs.

In general, drug manufacturers are required to pay rebates to States for drugs covered under their Medicaid programs. However, a prior OIG report found that only 17 States collected rebates from manufacturers for physician-administered drugs in 2001. At that time, many States did not have a system to determine the manufacturer responsible for paying the rebate for these types of products and therefore did not collect the rebates owed. Based in part on this work, the DRA specifically required that States collect rebates on all claims for certain physician-administered drugs for matching Federal funds to be available. The DRA also mandated that claims for physician-administered drugs include national drug codes (NDC, a type of drug code that identifies a drug's manufacturer), thereby enabling States to invoice manufacturers responsible for paying rebates.

We found that as of June 30, 2009, 36 of 49 responding States reported collecting rebates on all single-source physician-administered drugs and the 20 multiple-source physician-administered drugs with the highest dollar volume, as required by the DRA. Additionally, 42 of 49 responding States (86 percent) reported meeting the DRA's requirement to collect NDCs on claims for physician-administered drugs. However, because of incomplete and potentially inaccurate data provided by States, we were unable to calculate the total rebate dollars all States collected and therefore could not determine the financial impact rebate collections had on reducing prescription drug expenditures.

Twenty-nine States reported difficulties with manufacturer nonpayment of all the requested rebates for physician-administered drugs, which the States attributed mainly to inaccuracies in NDC information entered on claims by providers. Eighteen States reported that Medicare crossover claims for these drugs do not typically include NDCs, thereby preventing the State from collecting rebates on these claims. Furthermore, 31 States had not implemented certain steps necessary for collecting rebates on all eligible physician-administered drugs purchased by 340B entities, such as implementing an edit to identify such claims and/or the requirement to include NDCs on these claims.

We recommend that CMS (1) take action against States that do not meet the DRA's requirements to collect rebates on physician-administered drugs, (2) ensure that all States are accurately identifying and collecting rebates owed by manufacturers for these drugs, (3) work with States to develop guidance for implementing edits that increase the efficiency of physician-administered drug claim reviews, (4) work with States to administer guidance to providers and Medicare contractors about the physician-administered drug rebate requirements, and (5) ensure that the crosswalk (a CMS data file that links drug codes to NDCs) is complete, accurate, and identifies rebateable physician-administered drugs. CMS concurred with our first three recommendations, but did not concur with the remaining two recommendations.