California Did Not Bill Manufacturers for Rebates for Physician-Administered Drugs Dispensed to Enrollees of Some Medicaid Managed-Care Organizations

From April 1 through December 31, 2010, the California Department of Health Care Services (State agency) did not always comply with Federal Medicaid requirements for billing manufacturers for rebates for physician-administered drugs dispensed to enrollees of Medicaid managed-care organizations (MCOs). For the 20 MCOs we reviewed, the State agency billed for rebates for physician-administered drugs dispensed by 7 MCOs. However, the State agency did not bill for rebates for physician-administered drugs dispensed by the remaining 13 MCOs.

After reviewing records for physician-administered drugs in the encounter data for the 13 MCOs, we estimated that the State agency paid $157.2 million ($96.8 million Federal share) for drugs that were eligible or may have been eligible for rebates. On the basis of this amount, we estimated that the State agency did not bill for and collect from manufacturers rebates of $69.1 million ($42.5 million Federal share).

The State agency did not bill for and collect estimated rebates of $7.3 million (Federal share) for single-source and top-20 multiple-source physician-administered drugs. In addition, the State agency did not bill for and collect estimated rebates of $404,000 (Federal share) for non-top-20 multiple-source physician-administered drugs with National Drug Codes (NDCs) that may have been eligible for rebates and $34.8 million (Federal share) for other drugs without NDCs. Because we could not determine whether these drugs were eligible for rebates, we set aside for Centers for Medicare & Medicaid Services (CMS) resolution the estimated $35.2 million of Federal reimbursement.

The State agency did not always bill manufacturers for rebates because the 13 MCOs did not submit drug utilization data for physician-administered drugs. Although State agency guidance required MCOs to submit drug utilization data for physician-administered drugs, the State agency informed us that its MCO contracts did not have a rebate or NDC reporting requirement.

We recommended that the State agency (1) bill for and collect from manufacturers rebates for single-source and top-20 multiple-source physician-administered drugs dispensed to enrollees of MCOs and refund to the Federal Government the estimated $7.3 million (Federal share); (2) work with CMS to determine whether the non-top-20 multiple-source physician-administered drugs with NDCs were eligible for rebates and, if so, upon receipt of the rebates, refund the estimated $404,000 (Federal share); (3) work with CMS to determine the unallowable portion of the estimated $34.8 million (Federal share) for other physician-administered drugs without NDCs that were eligible for rebates and, upon receipt of the rebates, refund that amount; (4) work with its MCOs to ensure submission of drug utilization data for physician-administered drugs dispensed to enrollees; and (5) implement a rebate and NDC reporting requirement in its MCO contracts to ensure that all MCOs submit drug utilization data for physician-administered drugs.

The State agency partially agreed with our first and second recommendations and agreed with our remaining recommendations.