Wrap-around Medicaid gives states administrative headaches

Medicaid premium assistance, where Medicaid acts as wrap-around coverage for a private health insurance plan, is administratively complex for states and may not work well. In an issue brief, the Kaiser Family Foundation (KFF) considered what is known about wrap-around Medicaid coverage, and looked at financial implications of such a program.

Wrap arounds

According to KFF, states with Medicaid premium assistance programs use Medicaid funds to purchase private coverage for Medicaid beneficiaries. Federal law requires these programs to make the purchased private coverage on par with what the state’s Medicaid program would cover, but private insurance generally covers less than Medicaid and requires more out-of-pocket payments. Therefore, states with these programs must provide supplemental benefits and cost-sharing protections, known as “wrap arounds,” to insure that cost sharing does not exceed Medicaid limits. In general, states with these programs have low enrollment rates, and therefore, there is limited data available to determine how well the programs work.

Administrative complexity

States have found that Medicaid premium assistance programs require a lot of administrative work to determine exemptions, track and manage cost sharing under multiple private plans, and track wrapped covered benefits. The administrative burden led multiple states to discontinue Medicaid premium assistance programs and to merely use their own managed care delivery systems. However, that burden can be minimized. When Arkansas created its Medicaid premium assistance program under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), it contracted with a limited number of standardized plans. The standardization made it easier for the state to track and manage the wrap-around payments.

Financing

KFF looked at legislative proposals that would expand wrap-around Medicaid coverage and noted that, in order for such a program to be effective, it would need adequate federal funding, because such programs are required to be cost effective compared with traditional Medicaid coverage. It also noted that, if these programs were done under a waiver program rather than through traditional Medicaid, the funding would be limited in duration and amount, leaving it uncertain whether the program would be able to continue in the future.

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.