New Mexico Did Not Bill Manufacturers for Some Rebates for Physician-Administered Drugs Dispensed to Enrollees of Medicaid Managed-Care Organizations

For a covered outpatient drug to be eligible for Federal reimbursement under the program, the drug’s manufacturer must enter into a rebate agreement that is administered by the CMS and pay quarterly rebates to the States. Manufacturers are required to submit a list to CMS of all covered outpatient drugs and to report each drug’s average manufacturer price and, where applicable, best price. On the basis of this information, CMS calculates a unit rebate amount for each drug and provides the information to the States each quarter. Section 1903(i)(10) of the Act prohibits Federal reimbursement for States that do not capture the information necessary for billing manufacturers for rebates as described in section 1927 of the Act. To bill for rebates, States capture drug utilization data that identifies, by NDC, the number of units of each drug for which the States reimbursed Medicaid providers and report the information to the manufacturers. The number of units is multiplied by the unit rebate amount to determine the actual rebate amount due from each manufacturer. States use two primary models to pay for Medicaid services: fee-for-service and managed care. In the managed-care model, States contract with MCOs to provide specific services to enrolled Medicaid beneficiaries, usually in return for a predetermined periodic payment known as a capitation payment. States pay MCOs for each covered individual regardless of whether the enrollee received services during the relevant time period. MCOs use the capitation payments to pay provider claims for these services. Capitation payments may cover outpatient drugs, which include both pharmacy and physician-administered drugs. To claim Federal reimbursement, States report capitation payments made to MCOs as MCO expenditures on the Form CMS-64. These expenditures are not identified by specific type of service (such as pharmacy or physician-administered drugs). When States receive drug rebates from manufacturers, the States must report the rebates as decreasing adjustments on the CMS-64 report. States report drug rebate accounts receivable data on the Medicaid Drug Rebate Schedule, which is part of the CMS-64 report. CMS reimburses States for the Federal share of Medicaid expenditures reported on the CMS-64 report.To collect rebates for drugs, States submit to the manufacturers the drug utilization data containing NDCs for the drugs. NDCs enable States to identify the drugs and their manufacturers and to facilitate the collection of rebates for the drugs. The DRA amended section 1927 of the Act to specifically address the collection of rebates on physician-administered drugs for all single-source and top-20 multiple-source drugs. Effective March 23, 2010, the Affordable Care Act (ACA) required manufacturers to pay rebates on covered outpatient drugs dispensed to MCO enrollees if the MCOs are responsible for coverage of such drugs. Before the enactment of the ACA, drugs dispensed by Medicaid MCOs were excluded from the rebate requirements. States typically require MCOs to submit to the State agency NDCs for covered outpatient drugs dispensed to eligible individuals. MCOs submit to the State agency provider claim information, including claim lines for covered outpatient drugs. This information includes drug utilization data, which States must include when billing manufacturers for rebates. The State agency, which is responsible for billing and collecting Medicaid drug rebates for both pharmacy and physician-administered drugs, contracted with Conduent State Healthcare, LLC (the contractor), during our audit period to manage its drug rebate program. However, during most of our audit period, the State agency conducted most of those duties. The State agency did not start billing manufacturers for rebates related to physician-administered drugs until 2013, at which time they began retroactively billing for claims back to 2010.