Follow-up Audit of the Medicaid Drug Rebate Program in Colorado

EXECUTIVE SUMMARY:

Our objective was to determine whether Colorado had established adequate accountability for and internal controls over the Medicaid drug rebate program.  Colorado had adopted measures to strengthen controls with regard to billing and tracking $0 unit rebate amounts, adjusting collections, and retaining records for at least 3 years.  Colorado lacked sufficient accountability and internal controls in the following areas: (1) Colorado continued to allocate an estimated percentage of Medicaid drug rebates to the Old Age Pension Health and Medical Care Program (OAP) program; (2) Colorado could not properly process OAP adjustments submitted by two manufacturers; (3) Colorado had disputes pending for 3 years because Colorado was not active enough in its efforts to resolve disputes and did not offer the State's hearing mechanism to manufacturers; and (4) Colorado did not verify, record, or report rebate interest.

We recommend that Colorado:  (1) refund  $1,925,367 to the Federal Government;  (2) establish procedures to enable separate billing for Medicaid drug rebates and OAP drug rebates; (3) actively pursue settlement of disputed amounts (including $388,592 in drug rebates that remained outstanding for more than 3 years) and utilize available dispute resolution resources; and (4) develop controls to ensure that interest is properly verified, recorded, and reported as required.  Colorado did not agree with our first recommendation but it agreed with the remaining recommendations.