State Medicaid Programs May Be Leaving Revenue From Drug Rebates on the Table

04 March 2015 Health Care Law Today Blog

The recent release of a New York State Office of the State Comptroller audit report serves as an example of state Medicaid programs that may not be maximizing their collection of revenue from drug rebates for Medicaid managed care enrollees. This report indicated that the New York Medicaid program did not collect as much as $119.3 million in drug rebates due to managed care organizations’ (MCOs’) failure to resubmit nearly one million rejected encounter claims between October 1, 2011 and June 30, 2014.

The DOH administers the New York Medicaid program and pays the MCOs a per enrollee monthly amount for Medicaid recipients who are enrolled in MCOs. Encounter claims, which are not tied to payment, allow the Medicaid agency to track services received by members enrolled in managed care. The New York Medicaid claims processing system (eMedNY) has edits to reject MCO encounter claims that contain incomplete information or are erroneous, including missing National Drug Codes (NDCs). The MCO is then expected to correct and resubmit encounter claims for reprocessing. The DOH uses NDC information from encounter claims to identify drugs that are eligible for rebate, and the claims processing system is only able to extract NDC information from the encounter claim if the claim contains accurate information for the required data elements (i.e., NDC code, valid referring provider ID number, etc.).

The New York State Comptroller took the position that the failure to fully collect rebates was the result of issues associated with the New York Medicaid claims processing system, including ineffective policies and processes, lack of proper monitoring controls and risk assessments to ensure rejected encounter claims were successfully resubmitted and failure to seek rebates on drug encounter claims from all categories of Medicaid services.

It is also noted that under the Affordable Care Act (ACA), Medicaid MCOs were added to the requirement that MCO contracts must specify that the state will collect rebates from drug manufacturers for covered outpatient drugs dispensed to Medicaid MCO beneficiaries. A state Medicaid program’s failure to enforce this contract provision on participating Medicaid MCOs may be a violation of this expanded requirement under 42 U.S.C. 1396b(m)(2)(A).

Concerns regarding Medicaid MCO claims processing systems are not new. In its 2012 Audit Report, the OIG identified system failures at a number of state Medicaid programs that were similar to those found recently by the New York State Comptroller. In any event, even if the New York State Comptroller’s rebate estimate is overstated, in the wake of strapped state budgets and squeezed Medicaid programs, it is critical that accurate drug utilization data is collected from MCOs and rebates are fully collected from drug manufacturers in order for state Medicaid programs to maximize savings under this statutory expansion. Thus, the release of the New York audit report should serve as a wakeup call to other state Medicaid programs to ensure that effective policies, procedures and processes are in place to maximize drug rebate revenue and avoid any potential violations of the applicable ACA provision.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services