California Claimed Unallowable Federal Medicaid Reimbursement by Not Billing Manufacturers for Rebates for Some Physician-Administered Drugs

The California Department of Health Care Services (State agency) did not always comply with Federal Medicaid requirements for billing manufacturers for rebates for physician-administered drugs during three selected quarters between 2008 and 2010. Of $178.6 million in claims that were billed for rebates, we reviewed $61.4 million associated with 26 National Drug Codes (NDCs) and 21 manufacturers to verify that the claims were properly billed for rebates. The entire amount was properly billed for rebates. However, the State agency did not bill for rebates for claims for physician-administered drugs totaling $58.9 million.

The State agency did not capture NDCs (or, in some cases, did not capture valid NDCs) for claims totaling $49.8 million ($26.2 million Federal share). This amount consisted of $2.7 million ($1.5 million Federal share) for single-source and top-20 multiple-source drugs and $47.1 million ($24.7 million Federal share) for other drugs for which we were unable to determine whether billing for rebates was required. The State agency did not have an edit to ensure that NDCs or valid NDCs were submitted for physician-administered drugs before April 1, 2009. Even after the State agency implemented the edit on April 1, 2009, this edit did not ensure that NDCs or valid NDCs were captured for all claims for physician-administered drugs.

The State agency had drug utilization data, with NDCs, for claims totaling $9.1 million ($5.6 million Federal share) but did not submit these data to bill manufacturers for and collect rebates for these physician-administered drugs. This amount consisted of $4.8 million ($2.9 million Federal share) for single-source drugs and top-20 multiple-source drugs and $4.3 million ($2.6 million Federal share) for other drugs for which we were unable to determine whether billing for rebates was required. The State agency did not submit the data to manufacturers because of inadequate oversight of the processes for rebate billing and collection.

We recommended that the State agency (1) refund to the Federal Government $4.4 million (Federal share) for claims for single-source and top-20 multiple-source physician-administered drugs that were ineligible for Federal reimbursement; (2) work with the Centers for Medicare & Medicaid Services to determine the unallowable portion of the $27.3 million (Federal share) for other claims for physician-administered drugs that were ineligible for Federal reimbursement and refund that amount; (3) determine and refund the unallowable portion of Federal reimbursement for physician-administered drugs that were not billed for rebates beginning July 1, 2008, for quarters not included within our audit period; (4) strengthen the NDC edit (implemented on April 1, 2009) to ensure that NDCs are captured and valid for all claims for physician-administered drugs; and (5) improve oversight of the processes for rebate billing and collection to ensure submission to manufacturers of the drug utilization data for claims for physician-administered drugs. The State agency partially agreed with our first recommendation and agreed with our four remaining recommendations.