Arizona Did Not Bill Manufacturers for Some Rebates for Drugs Dispensed to Enrollees of Medicaid Managed-Care Organizations

When Arizona billed manufacturers for rebates for pharmacy and physician-administered drugs, it did so correctly. However, Arizona did not bill for and collect from manufacturers estimated rebates of $36.7 million ($25.6 million Federal share) for physician-administered drugs. For drugs that were eligible for rebates, Arizona did not bill for estimated rebates of $18.3 million (Federal share) for single-source and top-20 multiple-source physician-administered drugs. For drugs that may have been eligible for rebates, Arizona did not bill for estimated rebates of $7.3 million (Federal share) for other physician-administered drugs. Arizona did not always bill for and collect from manufacturers rebates because it did not have a system edit to ensure that National Drug Codes (NDCs) or valid NDCs were submitted for physician-administered drugs before October 1, 2012. Even after Arizona implemented the edit on October 1, 2012, this edit did not ensure that NDCs or valid NDCs were captured for all physician-administered drugs.

We recommended that Arizona (1) bill for and collect from manufacturers rebates for single-source and top-20 multiple-source physician-administered drugs and refund the estimated $18.3 million (Federal share); (2) work with the Centers for Medicare & Medicaid Services (CMS) to determine whether the other physician-administered drugs were eligible for rebates and, if so, upon receipt of the rebates, refund up to an estimated $7.3 million (Federal share) of rebates collected; (3) strengthen the NDC edit to ensure that NDCs are captured and valid for all drug utilization data; and (4) ensure that all physician-administered drugs eligible for rebates are processed for rebates.

Arizona provided information on actions that it planned to take to address our first recommendation and concurred with our third and fourth recommendations. Regarding our second recommendation, the State agency disagreed with our finding that it was required to obtain rebates for other physician-administered drugs. We maintain that our second recommendation is valid. The estimated amount of rebates related to our finding was for drugs that may have been eligible for rebates, not for drugs that were eligible for rebates. Accordingly, we set aside for CMS resolution the estimated $7.3 million (Federal share) for these drugs.