Medicaid Program – Improper Payments for Drugs Without a Federal Drug Rebate Agreement

Issued Date
February 23, 2024
Health, Department of (Medicaid Program)


To determine whether Medicaid inappropriately paid for drugs from manufacturers that did not enter into a national drug rebate agreement (NDRA). The audit covered the period from January 2017 through March 2023.

About the Program

The Department of Health (Department) administers New York’s Medicaid program. The Medicaid Drug Rebate Program (MDRP) helps to offset the costs of most covered outpatient drugs dispensed to Medicaid patients. The MDRP requires drug manufacturers to enter into an NDRA with the Department of Health and Human Services in exchange for state Medicaid coverage of most of the manufacturer’s drugs. Manufacturers then pay states rebates on those drugs for which Medicaid payments were made.

Covered outpatient drugs include prescription drugs, some over-the-counter (OTC) drugs, certain compound drug ingredients, and physician-administered drugs. Under Medicaid managed care, the Department pays managed care organizations (MCOs) a monthly capitation payment for each Medicaid recipient enrolled in their plans. MCOs then arrange for the provision of health care services, including outpatient drugs, and reimburse providers for those services. MCOs are required to submit encounter claim data to the Department detailing each service or drug provided.

Key Findings

We found the Department lacked adequate oversight of Medicaid managed care payments for drugs, which led to improper MCO payments for drugs from manufacturers without an NDRA at the time of service. Additionally, we found flaws in the Department’s managed care capitation rate adjustment methodology intended to offset improper managed care payments for drugs from manufacturers without an NDRA. These flaws resulted in a significant number of encounter claims not being included in the capitation rate adjustments. Accordingly, we identified nearly $50.3 million in improper MCO payments for drugs from manufacturers without NDRAs at the time of service that were not included in the rate adjustments, as follows:

  • 2.5 million encounter claims totaling over $41.7 million for prescription, OTC, and compound drugs were not part of the rate adjustment process due to Department errors in determining which manufacturers and which drugs to include, and
  • 84,554 encounter claims for physician-administered drugs totaling nearly $8.6 million were not part of the rate adjustment because the Department erroneously did not include any physician-administered drug claims.

Key Recommendations

  • Review the $50.3 million in managed care encounter claim payments for drugs from manufacturers without an NDRA, and determine the appropriate course of action to maximize recoveries.
  • Review the capitation rate adjustment process to ensure all applicable drug encounter claims from manufacturers without an NDRA are incorporated.

Andrea Inman

State Government Accountability Contact Information:
Audit Director: Andrea Inman
Phone: (518) 474-3271; Email: [email protected]
Address: Office of the State Comptroller; Division of State Government Accountability; 110 State Street, 11th Floor; Albany, NY 12236