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Report (OEI-03-11-00480)

States Collection of Medicaid Rebates for Drugs Paid Through Medicaid Managed Care Organizations

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In general, drug manufacturers must pay rebates for covered outpatient drugs reimbursed under Medicaid for States to receive Federal matching funds. Drugs dispensed by Medicaid Managed Care Organizations (MCO) were excluded from this requirement until March 23, 2010, when section 2501(c) of the Patient Protection and Affordable Care Act expanded the rebate requirement to include these drugs. To realize the full savings under this expansion, it is important that States collect accurate drug utilization data from MCOs and that States invoice and collect rebate payments from manufacturers.


In October 2011, we sent surveys about rebate collections involving MCOs to all 50 States and the District of Columbia (hereinafter referred to as States) and received responses from all but 1 State. States that paid for drugs through their MCOs (the carve-in approach) were asked about the drug utilization data collected from MCOs, their processes for invoicing and collecting rebates from manufacturers using these data, and the amounts of rebates collected between the second quarter of 2010 and the second quarter of 2011. We asked States that did not pay for drugs through their MCOs (the carve-out approach) or did not contract with MCOs about potential changes to their drug programs' structures as a result of the rebate expansion.


Between April 1, 2010, and June 30, 2011, 18 of the 22 States using a carve-in approach collected all the data needed to invoice manufacturers for rebates from their MCOs, 3 collected data from a portion of their MCOs, and 1 never collected any drug utilization data. All but one State that used a carve-in approach performed some type of data verification check. Twelve of the twenty-two States using a carve-in approach invoiced manufacturers and collected $1.6 billion in rebates for utilization in the second quarter of 2010 through the second quarter of 2011. However, 10 of the 22 States did not invoice manufacturers and collect rebates because, for example, they had to complete programming changes to the systems that process MCO claims. Additionally, the rebate expansion has prompted five States that used the carve-out approach to change to a carve-in approach.


We recommend that CMS follow up with the 10 States that had not collected rebates for drugs dispensed to Medicaid MCO beneficiaries and take action to enforce rebate collection if necessary. CMS concurred.

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