FDA's Approval Status of Drugs Paid for by Medicaid

We found that 62 percent of drugs paid for by Medicaid in 2008 had an approved application number in the National Drug Code (NDC) Directory. These drugs accounted for 75 percent of total Medicaid expenditures for prescription drugs in 2008. The remaining 38 percent either did not have an approved application number listed or were not in the NDC Directory at all.

FDA's system for collecting and maintaining drug product and approval information from manufacturers is known as the Drug Registration and Listing System (DRLS). As part of the DRLS, FDA maintains a publicly accessible database of currently listed drugs called the National Drug Code (NDC) Directory. The NDC Directory contains the name; the NDC (i.e., a numeric drug identifier); and the approved application number for each listed drug. The DRLS also includes nonpublic files of pending and discontinued NDCs.

To qualify for Federal payments under Medicaid, drugs generally must be approved by FDA, with certain exceptions. In 2008, OIG received a congressional letter expressing concern that Medicaid pays for drugs that do not meet this criterion and requesting that OIG examine the FDA approval status of drugs paid for by Medicaid. Previous OIG reports found problems with the accuracy and completeness of FDA's NDC Directory, which assists in determining whether drugs can be paid for under Medicaid.

We used 2008 Medicaid utilization data for prescription drugs, approval and listing data from FDA, and a targeted manual review to determine the FDA approval status of drugs paid for by Medicaid.

We found that there was no approved application number in FDA's NDC Directory for thousands of drugs paid for by Medicaid. Twelve percent of NDCs under review were listed in the NDC Directory but did not have an approved application number, and an additional 26 percent were not listed in the NDC Directory at all. As a result, Medicaid could potentially pay for drugs that are not approved by FDA. Without accurate approval and listing information, it is impossible to determine whether these drugs were paid for appropriately.

We recommended that FDA improve the completeness and accuracy of the NDC Directory by taking the following steps: (1) conduct frequent reviews of its NDC Directory to ensure its completeness and accuracy and (2) work with CMS and Congress to seek a legislative or regulatory change that compels manufacturers to list all approved products with FDA before they become eligible for Medicaid payment. In comments on our draft report, FDA generally agreed with our recommendation to improve the completeness and accuracy of the NDC Directory and stated that it is working on several strategies for evaluating and correcting drug-listing data. In comments on our draft report, CMS deferred to FDA regarding the response to our recommendation.