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NEWS from the Office of the New York State Comptroller
Contact: Press Office 518-474-4015

DiNapoli: Audit Uncovers $425 Million in Missed Medicaid Drug Rebates

Health Department Acts to Recover Missed Payments from Manufacturers

June 22, 2018

The state Department of Health (DOH) billed drug companies for $425.9 million in Medicaid drug rebates after auditors alerted the department to rebates it missed out on, according to a report released today by State Comptroller Thomas P. DiNapoli.

"The state Health Department must keep up with new and evolving drug rebate opportunities to ensure all rebate revenue for the Medicaid program is being collected," DiNapoli said. "Thanks to the work of my auditors, the department promptly updated its procedures to include drug rebates it has previously missed and was able to recoup hundreds of millions of dollars. Another $1.2 million in rebates could be collected with further efforts."

In 1990, Congress created the Medicaid Drug Rebate Program to reduce state and federal expenditures for Medicaid prescription drug costs. Since January 1991, New York has been able to recover a portion of Medicaid prescription drug costs by requesting rebates from drug manufacturers. The Affordable Care Act, enacted in 2010, extended prescription drug rebates to cover medications dispensed to enrollees of Medicaid managed care organizations (MCOs).

As part of New York's 2011 initiative to reduce Medicaid costs and improve the delivery of health care services, Medicaid behavioral health services were transitioned from a primarily fee-for-service environment to Medicaid managed care. Since October 2015, adult Medicaid recipients with significant behavioral health needs have been enrolled in Health and Recovery Plans (HARPs) – a type of managed care program that provides specialized care, including prescription drugs, to Medicaid recipients age 21 or older with serious mental illness or substance use disorders. Approximately 118,000 Medicaid recipients were enrolled in a HARP during 2017.

DiNapoli's auditors determined that, with the inception of HARP, DOH did not take appropriate steps to ensure that HARP-related drugs were identified and processed for rebate invoicing, erroneously excluding HARP drugs due to inadequate monitoring of the rebate process. Rebates for HARP drugs were not invoiced and collected from manufacturers until after auditors informed DOH officials of the errors. Furthermore, subsequent to the launch of HARP, despite noticing a decrease in the total rebate amounts from previous quarters, DOH did not sufficiently investigate the anomaly to identify or rule out any possible errors.

After DiNapoli's auditors notified officials of the issue, DOH updated its procedures to include HARP drug encounters in its quarterly drug rebate invoicing process, and retroactively invoiced manufacturers for previously missed rebates. As a result, $425.9 million in drug rebates has been invoiced for the period Oct. 1, 2015 to Dec. 31, 2017.

Auditors found another $1.2 million in estimated rebates could be collected for the period Oct. 1, 2015 to September 30, 2017. These pertain to certain physician-administered drug encounter claims DOH excluded from the rebate process. According to DOH officials, these encounters are under review and rebates will be sought as appropriate.

Department officials told auditors that a process has been established to ensure that the drug rebate unit will be informed if any new MCO plan types are created going forward. DOH officials also said that a new drug rebate administration and management services contractor will begin processing drug rebates in the second quarter of 2018, and they are working with the contractor to improve the quality of the drug rebate process and formalize procedures. The department has also initiated an independent comprehensive risk assessment of the rebate invoicing/collections protocols, and views this as an opportunity to identify errors and take corrective measures.

DiNapoli recommended DOH:

  • Regularly monitor the activities of the new rebate contractor to ensure the accuracy of the drug rebate function, including: ensuring all appropriate HARP drug encounters are included in the rebate process; ensuring all new programs eligible for rebates are included in the rebate process; and independently verifying the accuracy of the final rebate invoices.
  • Take appropriate steps, including working with the new contractor, to invoice any remaining uncollected drug rebates from HARP encounters, including the $1.2 million identified.

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