Objective

To assess the extent of implementation of the four recommendations included in our initial audit report, Medicaid Program – Improper Payments for Drugs Without a Federal Drug Rebate Agreement (Report 2022-S-40).

About the Program

The Medicaid Drug Rebate Program helps to offset the costs of most covered outpatient drugs dispensed to Medicaid patients. The Medicaid Drug Rebate Program requires drug manufacturers to enter into a National Drug Rebate Agreement (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.

The objective of our initial audit, issued on February 23, 2024, was to determine whether Medicaid inappropriately paid for drugs from manufacturers that did not enter into an NDRA. The audit covered the period from January 2017 through March 2023. The audit found the Department of Health (DOH) lacked adequate oversight of Medicaid managed care payments for drugs, which led to improper managed care organization (MCO) payments for drugs from manufacturers without an NDRA at the time of service. Additionally, we found flaws in DOH’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.

Key Findings

DOH officials made some progress in addressing the problems we identified in the initial audit report, but additional actions are still needed. For example, DOH included physician-administered drug encounter claims for drugs from manufacturers without an NDRA in the capitation rate adjustment for the 2023–24 and 2024–25 State fiscal years, which could account for as much as $3.3 million of the $50.3 million in improper payments we identified. However, most of the encounter claims for drugs identified in the initial audit had not been recovered. Of the initial report’s four audit recommendations, one was implemented, one was partially implemented, and two were not implemented.

Key Recommendation

DOH officials are requested, but not required, to provide information about any actions planned to address the unresolved issues discussed in this follow-up within 30 days of the report’s issuance.