Highlight on Delaware: First State missed rebates for physician-administered drugs

By not billing manufacturers for some rebates for physician-administered drugs dispensed to enrollees of Medicaid managed-care organizations (MCOs), Delaware missed out on rebates worth $230,000 ($127,000 federal share), according to a report from the HHS Office of Inspector General (OIG).  Although the state agency properly billed for most MCO drug utilization samples, it did not have valid National Drug Codes (NDCs) for other data submitted, and did not bill manufacturers for those rebates. The Delaware state agency told the OIG that it has no reasonable means for researching and identifying the specific products and NDCs because the MCO that submitted most of the utilization data without valid NDCs is no longer contracted with the state; the OIG responded that the state agency’s contract with MCOs provided access to records to support claims for at least five years after the claim was submitted (OIG Report, A-03-15-00202, December 30, 2016).

Drug rebate program

For a covered outpatient drug to be eligible for federal reimbursement under the  Medicaid program, the drug’s manufacturer must enter into a rebate agreement with CMS and pay quarterly rebates to the states; these rebates offset the cost of prescription drugs.  MCOs contract with states to provide specific services to enrolled Medicaid beneficiaries; in return, they receive a predetermined periodic capitation payment, which may cover physician-administered drugs. States report to CMS the capitation payments made to MCOs, but these reports do not identify specific types of services provided. States then submit drug utilization data containing NDCs to the manufacturer in order to receive the rebates. Most states require MCOs to submit NDCs to the state so the state can perform its reporting requirements. Failure to comply with federal requirements for capturing NDCs and collecting rebates can make a state ineligible to receive federal reimbursement for covered physician-administered outpatient drugs.

Delaware drug rebate program

A contractor manages Delaware’s drug rebate program for the state Medicaid agency, which is responsible for billing and collecting Medicaid drug rebates for physician-administered drugs. In 2013, Delaware paid MCOs more than $1 billion, including expenditures for physician-administered drugs. For that year, the OIG audit found that the state agency did not fully comply with requirements for billing manufacturers for rebates. Although most MCO drugs were properly billed and submitted for rebates, some physician-administered drugs did not have valid NDCs; the state agency did not bill manufacturers for rebates for those drugs. The MCO submitted its utilization data without valid NDC information, and the state failed to ensure that it submitted the information.

OIG recommendations and state response

The OIG made three recommendations to the state agency; the state did not concur with the first two. The recommendations were that the Delaware Medicaid agency:

  • work with CMS to determine the correct NDCs for the drug utilization data missing this information, bill the manufacturers for the rebates, and refund the federal share of rebates collected;
  • work with CMS to resolve drug utilization without valid NDCs for which the OIG was not able to determine an estimate, determine the correct NDCs and rebates due, bill manufacturers for the rebates, and refund the federal share of rebates collected; and
  • ensure that MCOs submit drug utilization data containing NDCs for all physician-administered drugs.

Delaware said that it has no reasonable means for researching and identifying the specific products and NDCs that were missing from utilization data because it no longer is under contract with the MCO that submitted the incomplete data. However, the OIG noted that the state agency’s contract with that MCO requires access to records for at least five years after a claim is submitted; therefore, the OIG believes that its recommendations are valid.

Delaware provided the OIG with information on actions it planned to take to address the third recommendation.

MedPAC votes to recommend recalculation of MA benchmarks

The Medicare Payment Advisory Commission (MedPAC) unanimously voted to recommend that the HHS Secretary modify the calculation of Medicare Advantage (MA) benchmarks. The recommended change, discussed at the January 12, 2017, MedPAC meeting, would increase spending between $750 million and $2 billion over one year and between $5 billion to $10 billion over five years. Mark Miller, executive director of MedPAC, suggested, however, that previous coding recommendations from the June 2016 report could offset the increased cost.

CMS sets the MA county benchmark based on the average risk-adjusted per capita Part A and Part B fee-for-service (FFS) spending in the county. While this calculation includes all beneficiaries in Part A or Part B, MA enrollees must be in both Part A and Part B. MedPAC policy analyst Scott Harrison noted that 12 percent of FFS beneficiaries are enrolled in Part A only, and Part A-only beneficiaries spend less than half than what those with Part A and Part B spend on Part A. This, he said results in an underestimate of FFS spending compared to MA spending, which leads, in turn, to an understatement of MA benchmarks.

To make calculations more reflective of MA enrollment, the members voted on a draft recommendation, which they also discussed at the December 2016 meeting, that the HHS Secretary should calculate MA benchmarks using FFS spending data only for beneficiaries enrolled in both Part A and Part B.

CMS already adjusts the rate calculation in Puerto Rico so that it is based on beneficiaries who are enrolled in both Part A and Part B. In the April 2016 Announcement of Calendar Year 2017 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter, CMS stated in response to a comment that it would consider expanding this Part A and Part B adjustment to all counties in the future.

At the same meeting, MedPAC also voted to recommend that the Secretary should require hospitals to add a modifier on claims for all surgical services provided at off-campus, stand-alone emergency department facilities. The modifier would allow Congress and CMS to track the growth of off-campus emergency departments, which are reimbursed at higher rates than urgent care centers.

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.

 

Alabama wants to push back Medicaid managed care demonstration

Alabama wants to delay the transition of its Medicaid program to a managed care model. In a letter to CMS, the state requested CMS’ acceptance of amended terms for the state’s Medicaid transition demonstration. The request makes no substantive changes to the program. Its purpose is to allow the state more time to appropriate funding and complete readiness activities.

Waiver

In 2016, CMS approved a Section 1115 waiver permitting Alabama to transition its Medicaid program to a managed care model relying on regional care organizations (RCOs). Under the waiver, Alabama was granted almost $750 million to start and improve its RCO program. However, even with the federal funds, the state says it does not have the necessary funds to get the program up and running.

Delay

The state is requesting to change the demonstration time period from April 1, 2016, through March 31, 2021 to April 1, 2017, through March 31, 2022. The change is driven primarily by financial concerns. Alabama officials say the delay allows more time for the appropriation of additional state funding and completion of readiness activities. Finally, the letter indicated the delay would also help the state meet broader demonstration goals: addressing fragmentation in health care delivery, improving chronic disease prevention and management, improving access and care coordination, improving birth outcomes, and enhancing the financial efficiency of the health care delivery system.