Highlight on Virginia: Medicaid agency fails to collect $2.9M in drug rebates

For a covered outpatient drug to be eligible for federal reimbursement under the Medicaid program’s drug rebate requirements, manufacturers must pay rebates to the states. States bill the manufacturers for the rebates to reduce the cost of the drugs to the program. Previous HHS Office of Inspector General (OIG) reviews found that states did not always bill and collect all rebates due for drugs administered by physicians to enrollees of Medicaid managed-care organizations (MCOs).

An OIG review of Virginia’s Department of Medical Assistance Services, Division of Health Care Services (Virginia), from January through December 2013, found that Virginia did not bill manufacturers for some rebates for physician-administered drugs dispensed to enrollees of Medicaid MCOs. As a result, it failed to collect an estimated $2.9 million (federal share) in rebates.

Virginia uses a contractor to manage its drug rebate program. According to the OIG audit, in calendar year 2013, Virginia paid MCOs $2,411,629,093 ($1,238,462,930 federal share), which included expenditures for physician-administered drugs.

The OIG found that Virginia properly billed manufacturers for rebates for drugs associated with the National Drug Codes (NDCs) in its audit sample. However, Virginia did not have valid NDCs for other drug utilization data submitted by MCOs for physician-administered drugs, and it did not bill manufacturers for rebates for these drugs. Virginia estimated average rebates per claim billed to manufacturers, and the OIG determined these estimates to be reasonable. The OIG applied the estimates and determined that Virginia did not bill rebates of $5,831,528 ($2,915,764 federal share) to manufacturers for physician-administered drug utilization without valid NDCs.

The OIG concluded that Virginia did not bill manufacturers for rebates for these drugs because the MCOs submitted utilization data to Virginia with a blank NDC field or an invalid NDC. Although Virginia required MCOs to submit valid NDCs for all physician-administered drug utilization, Virginia did not implement edits in its Medicaid Management Information System to ensure that MCOs submitted valid NDCs. As a result, Virginia did not obtain rebates for these drugs.

The OIG recommended that Virginia: (1) work with CMS to resolve the drug utilization data without valid NDCs by determining the correct NDCs, billing manufacturers for the estimated $5,831,528 ($2,915,764 federal share) in rebates, and refunding the Federal share of rebates collected; (2) implement Medicaid Management Information System edits to verify that NDCs are present and valid in all drug utilization data; and (3) ensure that MCOs submit drug utilization data containing NDCs for all physician-administered drugs.

Virginia concurred with the OIG’s findings and plans to take corrective actions.