Multi-State Review of Centers for Medicare & Medicaid Services Medicaid Drug Expenditure Controls

We reviewed 14 selected State agencies' claims for reimbursement of Medicaid outpatient prescription drug expenditures. Of the approximately $41.6 billion in drug expenditures claimed by the 14 State agencies, unallowable and potentially unallowable drug expenditures totaled $258.8 million ($166.6 million Federal share): $68.7 million (Federal share) for drug products not listed on the quarterly drug tapes, $58.1 million (Federal share) for terminated drugs, $429,000 (Federal share) for less-than-effective drugs, and $39.3 million (Federal share) for inadequately supported drug expenditures. For the remaining approximately $41.3 billion (approximately $23.4 billion Federal share), we identified no other drugs that were not included on the quarterly drug tapes or were terminated, less than effective, or inadequately supported.

Neither CMS nor the 14 State agencies had adequate controls to ensure that all drug expenditures complied with Federal requirements. The 14 State agencies generally did not use the quarterly drug tapes to determine whether a drug was eligible for coverage and did not contact CMS to determine whether a drug was eligible for coverage if the drug was not listed on the quarterly drug tapes. These shortcomings in internal controls adversely affected the efficiency of the Medicaid outpatient prescription drug program. Our audits of the 14 State agencies identified potential cost savings to the Medicaid program that can be realized through the implementation of our recommendations.

We recommended that CMS (1) instruct State agencies to develop and implement controls to ensure that claimed drug expenditures comply with all Federal requirements; (2) report terminated drug expenditures to State agencies on the quarterly Utilization Discrepancy Reports, require State agencies to use these reports to ensure that their drug expenditures comply with Federal requirements, and follow up as necessary with State agencies to ensure that claimed drug expenditures comply with Federal requirements; (3) work with the drug manufacturers and strengthen controls to ensure that the information on the quarterly drug tapes is complete and accurate and take appropriate action against manufacturers if they are not timely in providing information to CMS for all of their covered drugs; and (4) develop policies and procedures to inform State agencies immediately when a drug has been terminated, instruct State agencies to claim expenditures only for drugs that are dispensed before the termination dates, and require State agencies to review and reject all current and prior claims for terminated drugs.

CMS concurred with our third recommendation, did not concur with our second recommendation, and partially concurred with our other recommendations.