Review of Medicaid Outpatient Drug Expenditures in Tennessee for the Period October 1, 2003, Through September 30, 2005

The State's claims for reimbursement of Medicaid outpatient drug expenditures for fiscal years 2004 and 2005 did not fully comply with Federal requirements. Of the $4.5 billion ($3 billion Federal share) claimed, $8 million (Federal share) represented expenditures for drug products that were not eligible for Medicaid coverage because they were either terminated drugs for which the termination dates were listed on the Centers for Medicare & Medicaid Services (CMS) quarterly drug tape before the drugs were dispensed or less-than-effective drugs. An additional $13.2 million (Federal share) represented expenditures for drug products that were not listed on the quarterly drug tapes.

We recommended that the State refund $8 million to the Federal Government for drug expenditures that were not eligible for Medicaid coverage, work with CMS to determine whether the $13.2 million in payments for drugs that were not listed on the quarterly drug tapes was eligible for Medicaid coverage, and strengthen internal controls to ensure that claimed Medicaid drug expenditures comply with Federal requirements. In written comments on our draft report, the State agreed in part with our first recommendation and did not directly address our second and third recommendations. After reviewing the State's comments, we continue to support our findings and recommendations.