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.

Rhode Island overpaid Medicaid MCOs but hasn’t brought payments home

Rhode Island overpaid managed care organizations (MCOs) $208 million under the state’s Medicaid expansion program in fiscal year (FY) 2015. The overpayments resulted from the fact that the state overestimated the volume of services that the state’s 60,000 new Medicaid enrollees would use, according to a report from the Rhode Island Office of the Auditor General.

Capitation rates

In FY 2015, capitation rates designed to cover medical care costs for each new enrollee determined the payments that Rhode Island made to two MCOs, Neighborhood Health Plan of Rhode Island and UnitedHealthcare. When enrollees did not use the expected level of services, the insurers were left with $208 in overpayments. As a result of incentives clauses in the contracts between the state and the MCOs, the MCOs were able to retain some of the overpayments. The gain sharing provisions were intended to reward the MCOs for cost efficiencies attained through enhanced case management, preventive care, and enhanced coordination of services. However, the significant amount due to the state was a result of overestimated capitation rates, not efficiencies.


According to the Auditor General, as of June 20, 2015, approximately $133 million of the overpayment amount remained due to the state. State officials expect to collect most of the remaining overpayments by June and the rest by the end of 2016. Rhode Island’s slow attempts to recoup the payments raised concerns that it did not act fast enough. However, the state did take steps to cut rates. In 2014, it cut capitation rates 15 percent and, in 2015, by 17 percent. Additionally, when UnitedHealthcare resisted the state’s attempts to recoup payments, the MCO’s contract was revised to allow the state to recover overpayments mid-year if the payments exceeded claims by at least 30 percent.