Audit of the Medicaid Drug Rebate Program in Colorado

EXECUTIVE SUMMARY:

OIG evaluated whether the Colorado Department of Health Care Policy and Financing (Department) had established adequate accountability and internal controls over the Medicaid drug rebate program.  We determined that controls were adequate with the exception of (1) deductions for a State-funded only program, (2) billing and tracking $0 unit rebate amounts (URA's)*, (3) adjustments, and (4) records retention.

Our review showed that although the Department intended to pay the Federal share of drug rebate collections upfront as determined by the billed amount, subsequent adjustments were made to rebate accounts that changed the amounts due to the Federal Government.  As a result, the collections reported by the Department to the Centers for Medicare and Medicaid Services (CMS) were incorrect and CMS did not receive its share of all collections.  In addition, drug rebate receivables were perpetually understated.

* The CMS provides the unit rebate amount (URA) information to the State agency on a quarterly computer tape.  However, the CMS tape may contain a $0 URA if the pricing information was not provided timely, or if the computed URA has a 50 percent variance from the previous quarter.  In instances of $0 URA's, the State agency is instructed to invoice the units and the manufacturer is required to calculate the URA and remit the appropriate rebate to the State agency.