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

California's claims for reimbursement of Medicaid compound drug expenditures for FYs'2004 and 2005 did not fully comply with Federal requirements. Of the $29.5'million (Federal share) reviewed, $383,000 represented expenditures for compound drug ingredients that were not eligible for Medicaid coverage because the drugs were dispensed after their termination dates. In addition, the State claimed $1.3 million for compound drug ingredients that were not listed on the quarterly drug tapes and that may not have been eligible for Federal reimbursement. Medicaid generally covers outpatient drugs if the drug manufacturers have rebate agreements with CMS and pay rebates to the States. Under the Medicaid drug rebate program, CMS provides the States with a quarterly Medicaid drug tape, which lists all covered outpatient drugs, indicates each drug's termination date if applicable, and specifies whether FDA has determined the drug to be less than effective. CMS guidance instructs the States to use the tape to verify coverage of the drugs for which they claim reimbursement.

We recommended that California (1) refund $383,000 for expenditures for compound drug ingredients that were not eligible for Medicaid coverage, (2) work with CMS to resolve $1.3 million in expenditures for compound drug ingredients that were not listed on the quarterly drug tapes and that may not have been eligible for Medicaid coverage, and (3) ensure that claimed Medicaid compound drug expenditures comply with Federal requirements. California agreed with our second recommendation and did not specifically address our other recommendations.